Many charities overstating governance costs, says Charity Commission

A report published today says 66 of 76 charities surveyed had incorrectly marked as governance costs expenditure that should have been included in other categories

Accounting: charities 'commonly equating governance costs with general management expenditure'
Accounting: charities 'commonly equating governance costs with general management expenditure'

A large number of charities might be overstating the level of their governance costs, the Charity Commission has said.

The regulator published a report today based on a study it carried out of the accounts of 76 charities with annual incomes of more than £500,000 that appeared to have high governance costs.

Sixty-six of the charities in the sample had incorrectly marked as governance costs expenditure that should have been included in other categories, including charitable expenditure.

The most common mistake, according to the commission, was to equate governance costs with general management and administration costs.

The regulator said only three of the charities had reasonable explanations for the figures they reported, and the remaining seven had completed their annual returns incorrectly and did not have high governance costs.

The total governance costs of the 76 charities in the sample was £29.5m out of a total expenditure of £78.4m, or 38 per cent of the money the charities spent.

The commission said that many of the charities in the sample seemed either not to understand the difference between support costs and governance costs or were not fully aware of the requirements in the Statement of Recommended Practice for reporting their expenditure in the statement of financial activities.

Michelle Russell, director of investigations, monitoring and enforcement at the Charity Commission, said: "We continue to be concerned that a large number of charities are not meeting the accounting requirements as set out in the Sorp and are making basic errors in their annual reporting.

"The incorrect reporting of financial information causes confusion, has a real impact on public trust and confidence in charities and is also likely to affect how they are perceived by donors and potential supporters."

All the charities in the sample had put governance costs in their annual returns that were more than 20 per cent of their total expenditure.

The regulator said it chose this figure because it produced a manageable sample size and was "not intended to suggest that this is a benchmark for the maximum amount of governance costs that is acceptable".

A similar exercise carried out by the regulator in the summer among more than 400 charities with low charitable expenditure suggested many were mistakenly understating their charitable expenditure and making basic errors in their annual reporting.

Andy Ricketts

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