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Charity Commission publishes reviews into the quality of charity annual reports and accounts

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24 Apr 2017

The Charity Commission has published the findings of three reviews which looked at whether charity annual reports and accounts meet user needs for both smaller (under £25k) and over £25,000 (larger) income brackets; and at how well charities are meeting their public benefit reporting requirements.

Larger Charities 

The first report, Do charity annual reports and accounts meet the reader’s needs? focuses on whether the set of accounts reviewed “met the basic requirements of the users of those accounts rather on strict technical compliance with the Statement of Recommended Practice (SORP) and other reporting requirements”.  The following criteria were assessed:

  • have the trustees filed all of the required documents that make up a set of accounts (the annual report, independent scrutiny report and the accounts) and are they transparent and internally consistent in what is reported?
  • does the annual report explain what activities the charity had carried out during the year to achieve its purposes?
  • have the accounts been subject to the required level of independent scrutiny depending on the charity’s income and gross assets, either an audit or an independent examination?
  • have the accounts been prepared on the correct basis depending on the charity’s income and type, either receipts and payments or accruals accounts (also known as SORP accounts)?
  • do the accounts contain both a statement of financial activities (SOFA) that analyses the charity’s expenditure and a balance sheet and are they consistent with each other (or the equivalent if receipts and payments accounts were prepared)? 

Samples of charity accounts, with incomes over £25,000, were taken from the register of charities in September 2016. 107 charities were reviewed for accounting years ending during the 12 months to 31 March 2015. 

It was found that 75% of charity accounts in 2014/15 were of “acceptable quality”.  This shows a slight decrease on the figure of 77% in last year’s review.  It was also found that there was a “high level of compliance” with several of the above criteria being measured.  However, 27 charities within the sample were assessed to have not met the basic standard.  Key reasons included: 

  • The accounts as a whole were inconsistent or not transparent.
  • The accounts did not balance or were incomplete.
  • A proper independent examination had not been carried out.
  • The annual report did not cover the charity’s objectives and/or its charitable activities.
  • One or more of the annual report, independent scrutiny report and the accounts were missing. 

The Charity Commission highlights that “it is a statutory requirement to prepare an annual report and accounts and arrange for them to be subject to independent scrutiny, if required”.  It reminds Charities that there are a number of resources to assist trustees and independent examiners on the preparation and scrutiny of the annual report and accounts.  

Smaller charities 

The second report, Do small charity annual reports and accounts meet the reader’s needs?, focuses on whether each set of accounts reviewed “met the basic requirements of the users of those accounts rather than on strict technical compliance with the reporting requirements”.  The following criteria were assessed: 

  • have the trustees provided both an annual report and accounts?
  • does the annual report explain what activities the charity had carried out during the year to achieve its purposes?
  • do the accounts contain both an analysis of receipts and payments and a statement of assets and liabilities and are these consistent with each other (or the equivalent if accruals accounts (also known as SORP accounts) were prepared)? 

Samples of charity accounts, with incomes less than £25,000 reported in their annual returns were selected.  109 charities were reviewed for accounting years ending during the 12 months to 31 March 2015. 

It was found that 55% of charity accounts in 2014/15 were of “acceptable quality”.  This shows an increase on the figure of 47% in last year’s review.  The Charity Commission indicates that “the charities that met our basic standard had provided both an annual report that covered their objectives and charitable activities and accounts that were complete, understandable and internally consistent”.  However, 49 charities within the sample were assessed to have not met the basic standard.  Key reasons included: 

  • Both the annual report and accounts were provided, but key information was missing.
  • Either the annual report or the accounts were not provided.
  • Neither the annual report nor the accounts were provided. 

The Charity Commission reminds trustees that all registered charities must prepare an annual report and accounts and make them publicly available.  

As with the larger charities, the Charity Commission reminds charities that there are a number of resources to assist trustees on the preparation of the annual report and accounts. 

Public benefit reporting 

The third report, Public benefit reporting by charities, looked at the quality of public benefit reporting.   All registered charities are required to publish a trustees’ annual report which sets out the activities that the charity has undertaken for the public benefit. Charities are also required to include a statement as to whether they have had due regard to the Charity Commission’s guidance on public benefit.  

The report reviews public benefit reporting of 107 charities for financial years ending in the 12 months to 31 March 2015. 

Findings indicate that the percentage of charities’ annual reports that demonstrated a clear understanding of the public benefit reporting requirement remained consistent with the prior year (45%) at 46%.  The Charity Commission found that 90% of the annual reports reviewed discussed what the charity was set up to do and its activities during the year, however many did not then go on to consider what difference they had made to their beneficiaries and/or include the required statement that the trustees had considered the Charity Commission guidance on public benefit reporting.  58 charities in the sample were assessed to have not met the public benefit reporting requirement.  Key reasons include: 

  • The annual report included a public benefit statement but it did not explain who benefits from the charity’s activities.
  • The annual report explained who benefited from the charity’s activities but did not include a public benefit statement.
  • The annual report did not explain who benefits from the charity’s activities and did not include a public statement. 

The Charity Commission comments; “if the purpose of the charity sector is to make a difference to the lives of the beneficiaries it serves, too few charities are reporting fully on how well they are doing”. 

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