08 Jun 2016
From time to time, the Charity Commission publishes a review covering some aspect of the accounts filed by the charities on its Register. Three interesting reviews that have recently surfaced include:
- The quality of charity accounts
- The quality of small charity accounts; and
- Public benefit reporting by charities.
Some of the most interesting findings relate to the trustees’ report. The trustees’ annual report has been called the charity’s shop ‘window’, and the reviews of both ’larger’ (over £25,000 income) and ’smaller’ (income under £25,000) charities initially looked at a number of measures that might be considered the key aspects of charity reporting:
- its charitable purposes (what is the charity there to achieve?);
- its activities to carry out its charitable purposes (what did it do?); and
- its policies on holding reserves (the cushion it uses to allow it to carry on delivering those purposes).
In other words: how good were the charities in the survey at explaining themselves to their stakeholders, their funders, their beneficiaries and the donating public?
It also looked at potential financial and regulatory issues highlighted in the financial statements, and how well the annual report explained how the charity was dealing with these issues.
The results were interesting. Whilst it is clear that a large number of charities are preparing trustees’ reports that make a reasonable attempt at meeting the commission’s requirements, some of the omissions were rather alarming.
Income over £25,000 – ‘larger’ charities
26% of charities in this category did not include a reserves policy in their report, and 15% did not include an explanation of their purposes and activities to carry them out. Some 7% of charities either did not include an annual report or contented themselves with submitting their AGM minutes or a chairperson’s or treasurer’s statement.
Most annual reports covered the main risks which could be identified by a review of the financial statements (low charitable expenditure, solvency issues, pension scheme deficits, loans), but there were areas which were covered poorly. For example, low charitable expenditure was only explained by 33% within their annual report - however, on investigation, this appeared to be perhaps inaccurate allocation of costs. Those which required audits tended to produce higher-quality accounts than those which did not.
Income under £25,000 – ‘smaller’ charities
A random sample of accounts from charities reporting incomes of less than £25,000 in their annual returns was less positive.
Whilst small charities are not required to file their report and accounts with the commission, this does not mean that they are not legally obliged to produce them. Each of the charities contacted responded to the commission’s request, but the documents submitted varied widely, from financial statements which compared favourably with those of larger charities, to single pages of information, with some only being submitted once the legal requirements were explained to them.
Some 38% of small charities did not include an annual report, although 22% submitted some other form of narrative report. 72% of those examined did not include a reserves policy, and 39% did not include an explanation of their purposes and activities to carry them out.
As the review pointed out – it is encouraging that most small charities are carrying out some sort of annual review of their activities, and that more are doing so than in previous reviews, but the trustees of many smaller charities do not appear to be aware of their legal obligation to prepare an annual report and make it available for public inspection.
Public benefit
Reporting on public benefit is a central aspect of charity reporting. There are two basic requirements:
- a statement of the activities undertaken by the charity to further its purposes for the public benefit; and
- a statement by the trustees that they have had regard to the commission’s guidance on public benefit, as set out in their guidance PB3 – Public benefit: reporting.
Only larger charities were included in this particular review, so it is somewhat disappointing to find that only 45% of those sampled met the requirement in full, with just over half meeting one or other of the measures.
Drilling down into the detail of the report, the lack of disclosure appears to be in the way charities describe how what they have done has led to benefit for their beneficiaries.
Charities must comply with the reporting requirements of the relevant governing bodies, as this may prove to be essential in gaining consumer confidence and recognition.
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