The voluntary sector has strongly criticised a report that claims that one in five charities spend less than half of their income on charitable activities.
The National Council for Voluntary Organisations said the report, published on Saturday by a charity called the True and Fair Foundation, "wilfully misrepresented the facts", and the Charity Commission said it was flawed.
The report was covered on the front page of the Daily Telegraph newspaper under the headline "1,000 charities spent ‘less than half’ of funds on good works".
The charity, formerly called Miller Philanthropy, was founded and is chaired by Gina Miller, who in 2013 called on the Charity Commission to cap the amount charities are allowed to spend on running costs and administration, with the main objective of supporting small charities by providing funding and practical support to enable them to meet their own objectives, according to its entry on the regulator’s online register.
Its report said it had analysed 5,543 charities with annual incomes of more than £500,000 and with the aim of finding out how much of their income was spent on their charitable activities.
It claimed that 1,020 charities, with a combined income of £6bn in their most recently available accounts, spent 50 per cent or less of their income on charitable activities and said that "a staggering 292 charities" spent 10 per cent or less of their income in the same way.
The report questioned whether there should be a periodic three-year review of organisations’ charitable status and proposed that a "minimum annual dispersal rate" of 65 per cent should be set for charities.
Miller said of the report: "It is an utter disgrace that so much of the money people generously give is going to feed large charity machines, which are often characterised by obscene overheads and salaries, aggressive fundraising, and bloated marketing and publicity departments, resulting in questionable levels of charitable spending."
Voluntary sector leaders said the report misrepresented the sector’s financial position and pointed to the fact that investment in areas such as retail operations were not considered charitable expenditure in the report.
Karl Wilding, director of public policy at the NCVO, said that he had pointed out errors in the report to Miller before it was published.
"Even a cursory understanding of charity accounts shows that this report has wilfully misrepresented the facts," he said. "Unfortunately, for Ms Miller, it seems that self-promotion trumps accuracy."
In a blog post published on the NCVO website, Wilding sets out his criticisms of the report in greater detail and highlights what happens with funds donated to trading charities.
Andrew O’Brien, head of policy and public affairs at the Charity Finance Group, said the report was "not a true reflection of the way charities operate and a misunderstanding of the way that charities report on their activities".
He said: "It is very clear that all charities’ resources have to be spent on charitable objectives.
"While income is an important measure it is important that the public understands that make investments in areas that will help them achieve their charitable objectives."
O’Brien said the story showed the sector had further to go in terms of educating journalists and the public about how charities report on their activities, and the CFG would be considering how it could do more in that area over the coming year.
Sir Stephen Bubb, chief executive of the charity leaders body Acevo, pointed to the example of Kids Company, which spent a very high level of its expenditure on front-line activities, only to collapse suddenly in the summer.
"The report disregards the idea that you have to spend money in crucial areas such as creating professional teams, strong governance and good systems in order to be a successful 21st century charity," he said.
He cautioned the sector against a knee-jerk reaction to the report.
"I think the sector must understand that there is a continuing narrative of knocking the professional charities and we must not fall for that and go back to the days when we were trying to show that every penny went to the cause," he said. "It would be very dangerous to be sucked back to that."
A spokesman for the Charity Commission said: "Donors need to see how charities spend their money. That’s why charity accounts are public documents.
"This report has not, however, considered basic information in the charities’ accounts, which has led to this flawed analysis. The commission has looked at the accounts of the charities named and we would recommend anyone interested in charity finances does the same."
The care charity Sue Ryder said the report was inaccurate, while Guide Dogs said it was "inaccurate and misleading".
In a statement responding to the criticism of the report, Miller said it was clear that the NCVO was "no more than an industry lobbying group that seeks to defend the indefensible".
She said: "For six years now I have been trying to debate transparency and accountability in the sector – through debates, co-authoring excellent reports produced by The Centre for Social Justice, articles, and giving polite speeches.
"I am frequently met by denial and abusive comments from the NCVO, Acevo and others; it is no wonder that the situation has been getting worse when the charities, their industry lobby groups, and their regulator refuse to act properly and responsibly."