Charity Commission releases external scrutiny benchmark

The Charity Commission for England and Wales (CC) has recently undertaken a review of a sample of charities’ accounts.

The report published on 28 August 2019 starts with the following comment:

“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. However, the results of our annual surveys of the quality of charity accounts show that some auditors and examiners are failing to identify significant failings in the accounts that they are reviewing.”

The CC has published a benchmark of Minimum Standards and it was this that was used when reviewing the accounts.

The results were disappointing, particularly in the £25,000 to £250,000 income group where only 37% met the external scrutiny benchmark. However, perhaps more worrying is that only 76% of charities with income over £1 million met the benchmark. Although the accounts are the responsibility of the Trustees, Auditors and Independent Examiners should be reviewing them for compliance.

In times of increased funding difficulties it is important that the accounts available to funders are accurate. Many funders will be put off from making grants to charities with accounts that are incomplete or contain errors.

One area of particular concern was the lack of reporting on related parties. Indeed, the CC issued a separate review on this subject. This report highlights that all charities preparing accounts under the SORP should include a related parties note, even if there are no transactions to report. From our own experiences this is often a challenging area for Trustees.

When appointing an Auditor or Independent Examiner it is important that Trustees ensure they understand charities and the reporting requirements. The preparation and scrutiny of charity accounts is a specialist area. Kreston Reeves has a dedicated team of charity specialists acting as both Auditors and Independent Examiners. Many of the team also act as Trustees or Governors, thereby gaining a good understanding of how charities operate on the ground.