The NAO, which publishes its progress report today on Government funding of the voluntary sector, Working with the Third Sector, says that there is as yet no consensus among government departments on how full cost recovery should be calculated and what should be paid for.
Of the 13 departments included in the NAO survey, only eight were prepared to pay some overhead costs in addition to the direct cost of services.
Many of them also feared that long-term funding arrangements would prevent them from pulling back if the quality of the service declined over time.
The report reveals that the Home Office, the biggest voluntary sector funder, almost doubled its contribution between 2001 and 2002. The biggest rise comes from the Department of Trade and Industry; its funding rose from around £20m to more than £225m.
John Bourn, director of the NAO, said many departments were confused about when to give out grants or contracts. "They need to be clear as to whether they are 'shopping' - buying a service - 'giving' - supporting a charitable cause - or 'investing' - building capacity in the sector," he said.
The NCVO said the Government was not solely responsible for failing to implement the cross-cutting review fully. "Voluntary organisations need to use the resources available to them, including the Acevo full cost recovery template, to understand the true cost of their work," said chief executive Stuart Etherington.