Charity audit concerns: almost 100 large charities have filed accounts that were or could be materially misstated
Recent analysis by the Charity Commission, the independent regulator of charities in England and Wales, has concluded that in the year ending 31st December 2016, almost 100 large charities filed accounts that included a formally modified audit opinion.
The 97 charities, with a total combined income of around £195 million, received an auditor’s statement that their accounts are, or could be, materially misstated.
Contrary to their filed accounts, two charities received an adverse audit opinion because the charity was not considered to be a going concern.
In addition, the accounts of 45 charities were found to be non-compliant with the Statement of Recommended Practice. This was due to incorrect valuations of property and investment assets, incorrect valuations of stock or grant commitments, failing to prepare group accounts, or for failing to include pension scheme liabilities in their accounts.
A further 50 charities suffered from a lack of evidence in their accounting records, with some unable to show that they owned stated properties or investments. Three charities in particular were found to have deficiencies so severe that their entire accounts were undermined.
The Commission has since provided regulatory advice and guidance to 36 charities, with the clear expectation that they will take action to address the highlighted issues. Ten further charities have received further guidance to address serious failings highlighted by their auditors, and where it did not appear that the appropriate action had been taken by trustees.
Nigel Davies, Head of Accountancy Services at the Charity Commission, said that he expected trustees to work with their auditors to resolve accounting issues, further stating that “a charity’s accounts must be accurate, transparent and complete to ensure that they don’t misrepresent the charity’s financial circumstances and mislead existing and potential supporters, funders or beneficiaries.”
To further address accounting issues, on 1st May 2017 the Commission introduced a requirement for auditors to report to the appropriate charity regulator as soon as possible, in the event of a modified audit opinion received.
There is, of course, a clear ongoing requirement for trustees to work with their auditors to ensure that internal processes and financial records are fully updated, appropriate and compliant.