More than one in eight of the UK’s largest charities recorded net current liabilities in recent annual accounts – meaning their current debts are more than the funds available to cover them – according to research by the Charity Commission.
The regulator has expressed concern that a large proportion of these charities are failing to explain in their annual reports why this is and how they propose to deal with it.
The commission’s Accounts Monitoring Review used Part B of the annual return, which is completed by charities with incomes of more than £500,000, to look at charities reporting net current liabilities. The commission identified 1,348 charities with net current liabilities in their most recent accounts – in most cases for financial years ending in 2012 – out of just over 10,000 charities on the register with incomes of more than £500,000.
The commission reviewed a random sample of 98 of those charities. They had net current liabilities of £241.3m, or just over a quarter of their combined annual income of £893.2m.
The commission found 28 of those charities had deferred income – payments received in advance of delivering services paid for – as their main source of funding. A further 28 relied on bank loans or overdrafts. The regulator also identified 10 charities that it said had significant financial difficulties. Five of those, all of which were involved in education or training, are now in liquidation or no longer operating.
Of the 98 charities in question, 42 had failed to discuss the issue in their reports. This was a similar ratio to that found in a previous Accounts Monitoring Review in May which looked at pension scheme deficits.
Nick Allaway, head of business services at the commission, said: "A net current liability doesn’t necessarily mean that a charity is facing financial difficulties, but if this situation continues for a sustained period then the charity’s long term survival must be questionable.
"Trustees should use their trustees’ annual report and accounts as an opportunity to reassure their funders, supporters and beneficiaries that they are actively managing the situation".
Asked to comment on the report, Caron Bradshaw, chief executive of the Charity Finance Group, said: "It’s important that this information is not taken out of context – while liabilities might appear to outstrip assets when taken together, we must remember that liability valuations are a snapshot in time. These liabilities need to be considered with the wider narrative of the charities’ overall finances, which is communicated in the trustees annual report."