Almost £14m of government grant funding available for allocation by the Office of the Third Sector last year was returned to the Treasury unspent.
The 2008/09 accounts for the Cabinet Office, which contains the OTS, reveal that £13.8m of its £44.4m capital grants budget - almost a third - was not distributed.
The shortfall was due almost entirely to underspending in two key OTS programmes: the endowment match challenge - which includes £50m of the £130m Grassroots Grants programme - and the investment fund Futurebuilders.
The match challenge, in which the Government pledges to match every pound raised by local philanthropists, returned an underspend of £7.3m. The accounts attribute this to "economic conditions for local fundraising becoming increasingly difficult".
Futurebuilders experienced a £6.6m underspend, which the accounts say was "due to delays in third sector investment recipients being able to meet important conditions before the fund can be disbursed".
The total Cabinet Office underspend was £14.2m, but this was reduced by an overspend of £0.4m on funding for the non-departmental public body Capacitybuilders.
The underspend means 31 per cent of the Cabinet Office budget for capital grants went back to the Treasury.
A Cabinet Office spokesman said the underspends were not planned but it was better to have too much funding in place for the endowment challenge and Futurebuilders than to turn projects away.
The OTS budgeted to give £10m to the endowment match challenge last year, £20m this year and £20m in 2010/11.
Stephen Hammersley, chief executive of the Community Foundation Network, whose members deliver a significant share of the endowment programme, said he was not disheartened by the slow take-up of the scheme. "The programme has stimulated activity at community level to raise endowments," he said.
Cathy Pharoah, co-director of the Centre for Charitable Giving, said local philanthropy was suffering because big donors weren't confident about giving during the downturn.