Watchdog finds only half of charity audits met benchmark

Watchdog finds only half of charity audits met benchmark

The Charity Commission for England and Wales has accused some auditors of ‘letting the profession and charities down’, after the sample of 296 charities’ accounts were assessed against new external scrutiny benchmarks.

Watchdog finds only half of charity audits met benchmark

The UK’s charity watchdog has published a study that found only around half of the charity accounts reviewed met the regulator’s external scrutiny benchmark.

The Charity Commission for England and Wales has accused some auditors of ‘letting the profession and charities down’, after the sample of 296 charities’ accounts were assessed against new external scrutiny benchmarks developed by the Commission to determine whether a minimum standard of scrutiny was being met by auditors.

Nigel Davies, head of accountancy services at the Charity Commission said: “We know from research we have carried out into public trust in charities that the public care deeply about transparency. It is therefore vital that charities are able to provide an accurate and clear picture of their finances.

“External scrutiny is an essential part of the checks and balances process that charity accounts go through and so it is disappointing that so many independent examiners and auditors appear to lack the necessary understanding of the external scrutiny framework.”

Not meeting charity benchmarks

The benchmarks, which set out 15 criteria for the preparation of charity accounts, are about ensuring that basic requirements have been met, which meant that the commission’s findings were particularly concerning. The criteria include rules of reporting of related party transactions and completeness of statements of financial activities.

Failings found during the study included 77 cases of incomplete reporting of related party transactions, in which these were not properly disclosed. While this was likely an oversight, none were reported to the Commission by auditors or independent examiners. This raises additional concerns that the failure of trustees to manage conflicts of interest is also being under-reported.

A charity’s audit agreement is dependant on its income. Those with incomes over £25,000 must arrange either an audit or independent examination of its accounts. The examiner must be qualified for those with more than £250,000, while those with incomes over £1m must have an audit. Most other charities can opt for an independent examination.

The study found that accounts reviewed by an auditor met the benchmark more frequently by those reviewed by an independent. While only 44% of accounts submitted by qualified examiners met the benchmark, these were met by just 18% of unqualified examiners.

Letting the profession down

“Those that are getting this right are playing an important role in upholding charities’ accountability to us as regulator, and the public,” said Davies. “Clearly others are letting the profession and charities down. We are working closely with the accounting profession to tackle shortcomings and raise standards; I am encouraged by the commitments to work with us that have already been made.

“I hope trustees will learn from this study, in terms of the expectations around reporting, and in ensuring they select an independent examiner that knows about and understands the requirements.”

The charity watchdog has said that it has contacted trustees of 135 charities with guidance on how to improve standards, and also said that it is working closely with the ICAEW and the ACCA to improve their member’s awareness of charity reporting and accounting requirements. It has also passed the details of accounting practitioners that failed to meet the benchmarks on to the relevant professional bodies so that they can assist them.

Duncan Wiggetts, ICAEW executive director of professional standards, said: “While ICAEW auditors and independent examiners fared better than others, the number of accounts not meeting the external scrutiny benchmark is still disappointing. In collaboration with the Charity Commission, we are actively working to raise standards across the profession and improve our members’ awareness of charity reporting and accounting requirements.

“Not only will we be writing to the members concerned to remind them of their obligations, we will also be boosting the support and guidance available to all those working in this important sector, and increasing our efforts to signpost these resources to our members. Examples of such resources include the online training modules we launched earlier this year for charity trustees (including access for non-members) and the recently published guidance for independent examiners, auditors and trustees on the circumstances in which they have a duty to report to the charity regulator.

“This study sends a clear message to Trustees in terms of the choices they make when they appoint auditors and independent examiners, particularly where unqualified advisors are under consideration.”

Earlier in the year, the Charity Financials Audit Spotlight found that 43% of charities had changed their auditor in the last 10 years, and that audit fees between 2017/18 had cost the UK’s largest charities £72.3m, which represented an increase of £10.2m in four years.

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