Level one check – identifying material errors
Material errors included:
- calculation errors that the ACNC considered to be ‘material’ (refer to Figure G)
- reporting incorrect charity size (size discrepancy error)
- reporting the same financial information in both the 2014 and 2015 AISs, and
- significant differences in the financial information reported in the 2015 AIS compared to the financial information reported the 2014 AIS (e.g. sudden unexplained growth of 500 per cent).
The ACNC identified approximately 6,800 charities as having made a material error.
Figure D – Breakdown of errors according to the reported size of the charity. (Note: these results are based on the size that a charity reported in the 2015 AIS and includes instances where a charity reported the incorrect size.)
Of the charities with material errors, 51 per cent reported that they were small – a surprisingly low number considering small charities represented 66 per cent of all 2015 AIS submissions.
These findings can be partially explained by the following:
- charities with revenue of less than $5,000 were excluded from level one checks (the ACNC excluded these charities as it considers their effect on broader public trust and confidence to be smaller), and
- small charities were not required to provide annual financial reports and therefore were not subjected to level two checks.
The most common error was a calculation error. This represented 62.7 per cent of material errors.
The figures below provide more information about the types of errors identified.
Figure E – types of material errors according to charity size
Table 2 –breakdown of the types of material errors according to charity size
The ACNC considered a calculation error to be ‘material’ if the error met the following thresholds:
Table 3 – thresholds to determine ‘materiality’
As shown in Figure E and Table 2, calculation errors were made mostly by small charities. This finding can be partially explained by their limited resources.Across all charity sizes, the most common calculation errors included:
- incorrect totaling
- missing totals
- the provision of totals without sub-totals.
Common responses the ACNC received from charities about calculation errors included:
- being unaware of the need to enter the components of a total figure because the form did not display an error message
- being unaware that decimals or commas were not to be entered
- expectation that the form calculated totals automatically, and
- difficulty transposing financial information from the charity’s annual financial report to the AIS.
Size discrepancy errors
Of the 6,800 charities the ACNC identified as having made a material error, 11.2 per cent reported their charity size incorrectly.
Surprisingly, more than half (53 per cent) of these charities over-estimated their charity size. This error resulted in them providing more financial information than the ACNC required.
Medium charities (50 per cent) were most likely to make a size discrepancy error followed by small charities (32 per cent) and large charities (18 per cent).
The three most common size discrepancy errors involved charities:
- reporting their size as medium when they were small
- reporting their size as small when they were medium, and
- reporting their size as medium when they were large.
Based on contact with the charities that made a size discrepancy error, the ACNC found that common issues were:
- a confusion between what is ‘revenue’ and what is ‘income’
- a mistaken understanding that a charity’s size is based on income rather than revenue, and
- the information in the charity’s annual financial report being based on different definitions of income and revenue.
More than one error
About one-quarter of charities (24.7 per cent) made more than one error (see Figure E and Table 2). Many of the charities that had errors identified through the level two checks fell into this category.
In response to the ACNC, charities that made more than one error reported:
- they copied the figures from the annual financial report and pasted them into what they thought were the most appropriate fields in the 2015 AIS, and
- they did not have accounting experience and found the 2015 AIS to be confusing.