Auditors are failing in their statutory duty to report matters of material significance to the relevant charities regulator. The regulators have a hard enough job without those paid professional auditors abdicating their duties. The obligations include those brought in from May 2017 after the collapse of Kids Company and the conclusions of the Public Administration& Constitutional Affairs Select Committee.
In the last 6 months 114 modified audit reports have been issued by auditors but only 6 immediately complied and passed on their concerns (22 more did so later). That leaves 86 charities and auditors in default.
Charity SORP changes since December 2017 will a require 21 changes to FRS 102 including comparatives and clarification on gift aid.
FRC regulate auditors, accountants and actuaries, and set the UK’s Corporate Governance and Stewardship Codes. They should promote transparency and integrity in business. They claim to understand that auditors and charities are often overburdened by ever increasing regulatory guidance but that can obscure the needs of a charities donors, beneficiaries and other parties.
Charity Finance Group (CFG) was founded in 1987. It is the charity that works to improve the financial leadership of charities, promote best practice, inspire change and help organisations to make the most out of their money so they can deliver the biggest possible impact for beneficiaries. CFG has over 1300 members and membership manages nearly £21 billion in charitable income. In addition to qualified audit reports auditors may prefer to use management letters rather than ‘damage’ there personal relationship with clients and trustees.
Internal and external audit can be a mixed blessing for charities but they should inform a wider audience than individual managers and trustees. They need to be on top of there game to help the charity sector take timely action and avoid bad publicity after issues are uncovered.