Charities are not the most complex of institutions. Most of them take money from their donors, spend most of it on helping people, and dish out the rest to their staff and contractors.

So producing accounts for these organizations should not be hard. Seeing as charities don't even pay tax, there’s no need for offshore holding companies, subsidiaries in Bermuda, or any of that malarkey.

So why, oh why, do some charities persist in doing their accounts wrong? Over the past couple of weeks, we’ve come across two organizations – East Anglia’s Children’s Hospice and the Scout Association – which have made serious errors in how they’ve presented their finances.

Lest you think that this is just a technicality, these mistakes have potentially big implications for our understanding of how the charities are run. The Scouts fail to disclose why they’re paying one of their trustees – something which is usually against the law – and the hospice neglects to give a proper explanation of why it’s paying one of its trustees’ wives £35,039 a year.

To give the Scouts some credit, after an email exchange they’ve agreed to give a proper explanation of their trustee-payment activities in next year’s report. But this still begs the question of how such important information was left out in the first place.

Providing this sort of disclosure is (in theory) not optional. It’s the law to give full disclosure of financial transactions which might give rise to a conflict of interest. It’s also written in big letters in the charity-accounting rules (the SORP).

So who to blame for this mess? Clearly, the charities must take some of the rap. But most of the blame must fall on their auditors. It’s the auditors’ job to know the accounting rules inside out. Clearly, however, some of them don't.

So, in the spirit of transparency, these are the audit firms used by the Scouts and the hospice, which clearly have problems understanding simple rules:

1. Mazars. They’re responsible for the Scouts’ accounts. They say they’re ‘backed by big experience,’ whatever that means. I would beg to differ.
2. Peters Elworthy and Moore. They’ve cooked up the mess at the hospice.

Well done to them both.
 

 

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