The auditors and independent examiners’ of charity accounts are our second line of defence, after the trustees, against mismanagement in charities. We rely on them to scrutinise the accounts that the trustees have appointed them to audit or examine and to report to us any significant concerns that they identify in the course of their work. The Commission has therefore published a benchmark of the minimum standards it expects in an external scrutiny of a charity’s accounts.
We reviewed the 2017 sets of accounts filed by 296 charities to assess whether they met the benchmark. The charities were drawn from three random samples, chosen to reflect the different accounting and scrutiny requirements that apply.
We found that three quarters of charities with incomes over £1 million met the external scrutiny benchmark. This fell to half or less of the charities in our two lower income samples. All of the charities in the two largest income samples provided a trustees’ annual report and nearly all of them filed an audit or independent examination report with the required wording, as did the vast majority of charities in the lowest income sample. However, compliance with the accounts criteria was much lower in all three samples.
The main reasons why charities in the two largest income samples failed to meet the benchmark were the incomplete reporting of related party transactions and, for companies, not providing a separate summary income and expenditure account, or not stating that it was included in the Statement of Financial Activities. The charities in our lowest income sample also performed poorly on these criteria and more than a quarter did not meet a basic integrity standard, such as incorrectly labelled or missing statements.
As part of our collaborative approach to improvement, we are providing details to the main professional bodies of their members who had audited or examined sets of accounts that did not meet our benchmark. We have also provided guidance to the trustees, to help them improve the quality of their future trustees’ annual reports and accounts.