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

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02 Jan 2019

The Charity Commission has published the findings of two reviews which looked at whether charity annual reports and accounts meet user needs and at how well charities are meeting their public benefit reporting requirements.

The first report, Public reporting by charities in their trustees’ annual report and accounts, 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 review assessed whether each set of accounts contained:

  • a trustees’ annual report, explaining what activities the charity had carried out during the year to achieve its purposes;
  • the report of an independent scrutiny of the charity’s accounts, with an audit carried out if required due to the charity’s size;
  • the accounts themselves, prepared on an accruals (or SORP) basis if required due to the charity’s size or because it is a company.

In addition the Charity Commission checked whether the accounts were complete, containing both a statement of financial activities (SOFA), that analyses the charity’s expenditure, and a balance sheet (or the equivalent if receipts and payments accounts were prepared) and that these documents were consistent with each other.

Samples of charity accounts, with incomes over £25,000, were taken from the register of charities in May 2018. 105 charities were reviewed for accounting years ending during the 12 months to 31 December 2016.

It was found that 70% (74% in the prior year) of charity accounts reviewed “met the basic benchmark”. For those charities that did not meet the required standard reasons included:

  • For 12% of the sample, although all of the required documents were submitted, one of them was not considered adequate. These charities’ sets of accounts met most of the required criteria, but many of them provided little or no information on the charity’s purposes and/or activities carried out to achieve them.
  • For 9% of the sample, although all of the required documents were submitted, at least two of them were not considered adequate. As with the first group of charities, most of these sets of accounts provided little or no information on the charity’s purposes and/or activities carried out to achieve them. However, this was coupled with other issues, such as incomplete accounts, an independent scrutiny report that did not have the required wording or an overall lack of transparency.
  • For 9% of charities at least one of the required documents was missing. None of these charities submitted any form of independent scrutiny report. In addition, all of them were either missing at least one of the trustees’ annual report and accounts or the documents submitted were inadequate

The Charity Commission reminds charities that “the trustees’ annual report and accounts provide an important opportunity for trustees to reflect on what their charity has achieved and demonstrate to the charity’s supporters, potential funders and the public that they have managed its resources effectively and are meeting its purpose”. It also highlights to 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 including pro-formas of the trustees’ annual report, independent examiners report and both receipts and payments and accruals accounts. Guidance can be downloaded at GOV.UK here.

Public benefit reporting

The second 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 focus of the review was on whether each trustees’ annual report demonstrated a clear understanding of the public benefit reporting requirement. The review considered whether the trustees’ annual report contained:

  • An explanation of the activities undertaken by the charity to further its purposes for the public benefit.
  • A statement by the trustees as to whether they have had due regard to the Charity Commission’s guidance on public benefit, known as ‘the public benefit statement’

The report reviewed public benefit reporting of 105 charities with incomes over £25,000 for financial years ending in the 12 months to 31 December 2016.

Findings indicate that the percentage of charities’ annual reports that demonstrated a clear understanding of the public benefit reporting requirement was similar to the prior year (51%) at 52%.

The Charity Commission reminds trustees of the resources that are available to assist with public benefit reporting including its pro-forma trustees’ annual reports.   Guidance can be downloaded at GOV.UK here.

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