The report says that in many small charities financial management is carried out by staff and trustees who do not have sufficient financial expertise.
Making it Count: A Report into Financial Management in Small Charities says many small charities are unable to afford to employ people with finance as a primary responsibility, and that staff with finance as their primary focus often do not have all the qualifications the charity would prefer.
But the report, which is based on interviews with charity trustees and financial experts and a survey of 323 charities with annual incomes of less than £1m, says that small charities frequently face complex financial issues such as management of trading subsidiaries, the complex charity VAT regime and management of contracts.
It says many charities receive multiple restricted grants from several funders and must account for each of those funding streams separately.
Many small charities, it says, face problems acquiring accounting packages of sufficient complexity and in accessing the support that is available, such as community accounting services.
"The areas with which small charities struggle most tend to be specific to the charity sector, such as restricted funds and VAT exemptions," the report says. "Many rely heavily on staff, trustees and advisers with financial expertise from other sectors, who may often struggle to adapt their knowledge to a charity context."
The report says that the CFG wants to hear ideas from others about what could be done to help small charities improve their financial management.
"We have some exciting ideas and options for what could be done to improve standards of financial management in small charities, and look forward to expanding our work in this area," it says.
"We are very keen to hear people’s thoughts and views as to what we and other sector bodies could do to support small charities in improving their financial management."