Too many charity accounts, particularly those submitted by small voluntary sector organisations, are not being properly scrutinised by external examiners and auditors, according to a Charity Commission report.
The regulator measured the 2017 accounts of 296 randomly selected charities against its external scrutiny benchmark, which determines whether minimum standards of scrutiny by auditors and independent examiners have been met.
It found that some examiners and auditors are “letting the profession and charities down”.
Just 37 per cent of accounts of small charities, with an income of between £25,000 and £250,000, met this benchmark, according to the report.
The proportion of those meeting these standards rises to 51 per cent among charities with an income of £250,000 and £1m.
Among large charities with an income of £1m or more 76 per cent of charities meet the regulator’s external scrutiny benchmark.
Failings include incomplete reporting, in 77 cases, of related party transactions, which relates to potential conflicts of interest.
“This raises additional concerns that the failure by trustees to manage conflicts of interest is also being under-reported, states the Charity Commission.
The regulator is working closely with accountancy bodies to improve awareness of the requirements of accountancy reporting.
The regulator has also passed on details to relevant professional bodies of accountants that have failed to meet the benchmark. In addition, the Charity Commission may raise formal complaints about non-compliance.
Only 44 per cent of accounts submitted by qualified examiners and just 18 per cent of those submitted by unqualified examiners meet the regulator’s benchmark.
“The Commission is making its benchmark available on GOV.UK and expects those scrutinising charity accounts to make use of it, and trustees and those interested in charity accounts to be aware of it,” says the regulator in a statement.
Already 135 charities that failed the regulator’s benchmark have been contacted and offered guidance to help them improve the quality of their reports and accounts.
Nigel Davies, head of accountancy services at the Charity Commission, said: "We know from research we have carried out into public trust in charities that the public care deeply about transparency. It is therefore vital that charities are able to provide an accurate and clear picture of their finances.
"External scrutiny is an essential part of the checks and balances process that charity accounts go through and so it is disappointing that so many independent examiners and auditors appear to lack the necessary understanding of the external scrutiny framework.
"Those that are getting this right are playing an important role in upholding charities’ accountability to us as regulator, and the public. Clearly others are letting the profession and charities down. We are working closely with the accounting profession to tackle shortcomings and raise standards; I am encouraged by the commitments to work with us that have already been made."