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Evidence from 12 large national charities shows that their delivery of public services could be undermined and limited by the complexity of the arrangements by which they receive public funding.

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Today’s report by the National Audit Office found that charities’ funding relationships with public bodies, including central government departments, local authorities and health trusts can often be highly fragmented, with many public bodies providing several streams of small amounts of funding to a single charity. And the variations between funders in the timing, payment terms and monitoring requirements can impose unnecessary transaction costs on charities, reducing their value for money for the taxpayer.

The report examined the experiences of 12 of the largest UK charities, who together receive £742 million in public funding from a range of public bodies including central government departments, agencies, local authorities and NHS primary care trusts. They operate across a range of activities including care for disabled people, children’s services, advice and volunteering.

"Large charities are important providers of some public services, but public bodies' funding arrangements are often unnecessarily complex and costly. Public bodies need to work together to bring coherence and consistency to their funding practices, to ensure that charities' valuable work is not hampered by bureaucracy."

The 12 case studies examined by the NAO, had between 95 and more than 4,000 separate funding relationships with public bodies. On average, the charities estimated that they spent around £400,000 annually on managing these relationships, although the total costs may well be higher.

The report also found, from the experience of these charities, that both central and local government bodies use poor funding practices, but the problems are more visible at local level. This is because large charities have many more separate funding relationships with local authorities than they do with government departments. The charities told the NAO that local government does not know enough about central government commitments to better funding practices.

The report concludes that complex funding structures sometimes deter charities from bidding for public funds and prevent them from influencing the design of services.

The Office of the Third Sector (OTS) and the Treasury have begun work to address many of the issues highlighted in today's report. The OTS is implementing a cross-government action plan on partnership with the third sector and the Cabinet Office and Treasury has jointly published a recent review of the sector's role as part of the Comprehensive Spending Review 2007.

But more needs to be done, according to the NAO. The OTS and the Treasury should bring the issues raised in this report to the attention of departments and other bodies, to help them ensure that their commissioning frameworks reflect the principles set out in the cross-government action plan. Departments' actions should focus particularly on local implementation, and plans should include an assessment of the transaction costs borne by charities involved in public funding processes.

Joe Cavanagh, Director of Business Development at the NAO


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