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Regulator says some charities do not explain adequately how they are dealing with the financial risks.
The Charity Commission is reminding charities that they should use their Trustees’ Annual Report (TAR) to explain how they are tackling the potentially serious risk of a pension scheme deficit.
The message follows a review conducted by the regulator of the accounts of charities whose pension schemes are in deficit. The Commission identified 740 charities with an income of over £500,000 whose accounts showed a deficit; it randomly selected 97 of these for a more detailed review.
The review is part of the Commission’s programme of thematic reviews of charities’ accounts, aimed at checking charities’ compliance with the Charities Statement of Recommended Practice (SORP), identifying risks facing charities and identifying regulatory concerns in individual charities. Today’s review is the first to be published on the Commission’s website.
The review found that only 31 of the 97 TARs included an explanation of the financial implications of the charity’s pension scheme deficit and of the trustees’ plans for tackling the issue.
Sam Younger, Chief Executive of the Charity Commission, said:
Pension deficits can pose a potentially serious risk for charities. This report demonstrates that some charities do not adequately explain how they are dealing with their pension deficit in their Trustees’ Annual Report, thereby missing out on an opportunity to demonstrate to their donors and beneficiaries that they are tackling the problem appropriately.
The regulator will be engaging with the trustees of one charity with a large pension scheme deficit, whose TAR did not state whether the charity had obtained the financial support it needs to continue or the action it is taking to deal with its deficit.
The Commission says it recognises that some trustees whose charity’s pension scheme deficit is relatively small may have decided the financial risk was minimal and did not merit inclusion in the TAR.
Other key findings include:
The 97 charities selected report a total pension scheme deficit of over £617 million, over half of which was contained within 3 charities
60 of the 97 were members of multi-employer schemes, most commonly those provided by local authorities
7 charities had deficits that amount to more than their unrestricted funds and over 20% of their annual income
The audit reports of 2 of the 7 charities with large deficits included an emphasis of matter (see endnote 1) regarding the charities’ ability to continue as going concerns
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Notes to Editors
1.The Charity Commission is the independent regulator of charities in England and Wales.
2.Our mission is to be the independent registrar and regulator of charities in England and Wales, acting in the public’s interest, to ensure that:
charities know what they have to do
the public know what charities do
charities are held to account
3.The report published on the Commission’s website was conducted by the regulator’s Accountancy Policy team.
1.An emphasis of matter is used by auditors to draw users’ attention to matters presented or disclosed in the financial statements that are of such importance that they are fundamental to users’ understanding of the financial statements.
Published: 8 May 2014
From: The Charity Commission