Regulator warns on charities’ public benefit reporting

The Charity Commission is warning that too many charities are still failing to report adequately about what they do and how they spend their money, after its latest monitoring reviews of trustees’ annual reports and accounts showed only a modest improvement in the quality of public reporting

The Commission scrutinised a random sample of 106 charity trustees’ annual reports and accounts to assess how charities are meeting the public benefit reporting standards and whether the accounts meet readers’ needs, including a separate sample of ‘small charities’.

It considered a number of criteria, including whether the trustees had filed all of the required documents and the quality of the explanations. It also looked at whether the accounts had been prepared on the correct basis depending on the charity’s income and type, whether they contained both a statement of financial activities (SOFA), which analyses the charity’s expenditure, and a balance sheet that are consistent with each other, and whether they had been subject to independent scrutiny. 

The review found that 51% of those scrutinised demonstrated a clear understanding of the public benefit reporting requirement – a 5% improvement from last year’s result.

The majority of annual reports also included key aspects of public benefit reporting, with 71% explaining who benefitted from the charity’s activities, and 62% including a public benefit statement.

Some trustees had expanded their statement to explain why they believed their charity’s activities provided public benefit, whilst others discussed the difference that they had made, particularly to beneficiaries.

For the sample of charities with incomes over £25,000, the Commission found that 74% of the trustees’ annual reports and accounts reviewed were of acceptable quality, meeting the basic benchmark set by the Commission.

The most common reason for inadequate reporting was that the trustees’ annual report did not explain the charitable activities the charity had carried out.

For the sample of small charities, the Commission found that 64% of the charities provided trustees’ annual reports and accounts of acceptable quality, meeting the regulator’s basic benchmark. The main reason for inadequate reporting was that the charity failed to provide one or both of the trustees’ annual report and the accounts.

The Commission has provided regulatory guidance to 89 charities included in the reviews in order to help the trustees improve the quality of future trustees’ annual reports and accounts.

Nigel Davies, head of accountancy services at the Charity Commission, said: ‘Producing a trustees’ annual report and accounts is not an administrative box-ticking exercise. It is a chance to show how your charity is making an impact and how you are delivering on your core purpose.

‘Today’s results show that too many charities are still not meeting very basic standards when it comes to making key information available to the public.

‘I am encouraged to see that an increasing number of trustees recognise the value of public benefit reporting, but there is clearly more work to be done across the sector.’

Accounts monitoring review: Do charity annual reports and accounts meet the reader’s needs? is here.

Report by Pat Sweet

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