Charity Commission warning on auditor concerns

Nearly 100 charities, with a collective total income of some £195m, filed accounts last year that included a formally modified audit opinion, suggesting they could be material misstated, according to analysis by the Charity Commission which warns trustees and auditors need to address the concerns more proactively

The charity looked at 97 charities’ accounts for the year ending 31 December 2016. Of these, two received an adverse audit opinion because their auditor concluded that, contrary to the charity’s accounts, the charity was not a going concern.

The accounts of 45 charities were not compliant with the charity statement of recommended practice (SORP) for a number of reasons.

Of this cohort, 27 charities had incorrectly valued their property and investment assets; 11 charities had not included pension scheme liabilities in their accounts; five had not prepared group accounts as they were required to do; and two charities had incorrectly valued their stock or grant commitments.

There was a lack of evidence in the accounting records of 50 other charities. Of these, six were unable to provide adequate evidence that they owned the properties or investments included in their accounts.

The deficiencies in the records of three charities were so severe that they undermined their entire accounts, the Commission said.

During the analysis, the Commission found that the trustees of several of the charities that had not complied with the SORP stated they did not consider that obtaining professional property or pension liability valuations was a good use of charitable funds. The Commission says it does not consider this to be an acceptable reason for the charities’ non-compliance.

The Commission provided regulatory advice and guidance to 36 charities and made it clear that it expected them to take action to address the issues highlighted by their auditors. It also engaged further with 10 charities where the auditor had highlighted serious failings that the Commission was not previously aware of and where it did not appear that the trustees were taking action to address them.

Nigel Davies, head of accountancy services at the Charity Commission said: ‘We expect trustees to work with their auditors to resolve any issues to do with their accounts and so it is worrying that the accounts of 97 large charities were filed with significant inconsistencies and deficiencies or audit concerns on them.

‘If a charity does receive a modified audit opinion, its trustees need to work with their auditors to resolve any outstanding issues and to ensure that internal financial controls are operating and adequate accounting records are kept.’

The Commission recently introduced a requirement for auditors to report to the appropriate charity regulator when they have given a modified audit opinion as soon as possible. This requirement came into force on 1 May 2017.

Accounts monitoring: concerns highlighted by auditors in their audit reports is here.

Report by Pat Sweet

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