Following on February’s blog about Trustee Boards, this month’s blog continues the governance theme and looks at charities’ annual accounts.
Some of the small charities Minerva works have an annual income of £25,000 or less. These charities do not have to have their accounts independently scrutinised.
But the majority do have to do so, and it’s worth noting the Commission’s latest take on this. Essentially, the Commission expects each charity to submit its annual accounts on time and that these accounts should contain the following:
- 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 owing to the charity’s size
- the accounts themselves, prepared on an accruals (or SORP) basis if required owing to the charity’s size or because it is a company. In addition, the Commission will check whether the accounts are 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 are consistent with each other.
In 2018 the Charity Commission carried out a review of a random sample of 105 accounts submissions from the register of charities, covering the accounting years ending during the period 1 January – 31 December 2016.
Of the accounts reviewed, 70% met the Commission’s basic benchmark, compared with 74% the previous year.
The reasons why the benchmark was not met by the other 30% were:
- all of the required documents were submitted, but one of them was inadequate (12% of charities). These charities’ sets of accounts met most of our criteria, but many of them provided little or no information on the charity’s purposes and/or activities carried out to achieve them
- all of the required documents were submitted, but at least two of them were inadequate (9% of charities). 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
- at least one of the required documents was missing (9% of charities). 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.
But why is this important ?
Essentially, a charity’s annual accounts provide an important opportunity for the trustees to reflect on what their charity has achieved and to demonstrate to the charity’s supporters, potential funders and the public that they have managed its resources effectively and are meeting its purposes.
Incidents in recent years involving charities such as Kids’ Company and 4U have not reassured donors and have contributed to a loss of public trust in the sector. Comprehensive annual accounts which meet the Commission’s requirements provide transparency and information about the charity’s finances and the ways in which it is meeting its objectives.