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Charity Commission findings into charities that report low charitable expenditure

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20 Aug 2015

The Charity Commission has published the findings of a review carried out into charities that reported charitable expenditure which was less than 10 per-cent of their total income.

By law, charities are required to spend their income within a reasonable period of time on achieving their charitable purposes.  The review was conducted due to the perceived risk that those charities reporting low charitable expenditure might not be using their income to achieve the charity’s aims.

The Charity Commission reviewed part B of the annual returns of charities to review the level of charitable expenditure against total income – this consisted only of those larger charities with incomes over £500,000.    An initial sample of 443 charities was identified that reported charitable expenditure in their annual returns at less than 10 per-cent of total income in the latest filed accounts.  A sample of 188 charities was then selected for further review to determine whether the charity’s trustees’ annual report and accounts provided a reasonable explanation for the low level of charitable expenditure.

Findings indicated:

  • For 57 per-cent of charities sampled, there was a valid reason for reporting a low level of charitable expenditure.
  • For 27 per-cent of charities sampled, the annual return had been completed incorrectly where charitable expenditure had been included within ‘other’ expenditure categories.  Findings indicated that these charities had actually spent an average of 89 per-cent of their income on charitable activity.
  • For 15 per-cent of charities sampled, the accounts understated the level of charitable expenditure.  For these charities, the accounts included amounts that appeared charitable in nature but were included within ‘other’ categories.
  • For the remaining samples, the accounts did not state the amount of charitable expenditure as was required by the Charities Statement of Recommended Practice (SORP) that those charities should have been following.

The Charity Commission highlights that the findings “indicate that many larger charities do not fully understand, or are failing to comply with, the reporting and accounting requirements that apply to them”.  It also highlights lessons for Charity Trustees to ensure that they “have a good understanding of their charity’s activities and how this is reported in their annual reports, accounts and annual returns”.

The full findings are available on the Charity Commission website.

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