The proportion of registration applications the Charity Commission has been able to approve has plummeted over the last decade, amid an increase in attempts by criminals to use artificial intelligence (AI) technology to fraudulently set up charities.

According to the regulator fewer than half of all applications for charity registration it receives are approved, compared to just under three in four a decade ago.

It blames “rapid technological developments, with AI facilitating, for example, fraudulent applications to register a charity or apply for grants”.

The regulator has made the warning as it releases its second annual Charity Sector Risk Assessment report.

This also details a 29% increase over the last year in the number of concerns received by the regulator about charitable status being abused for private benefit.

"A charity may find itself deliberately targeted by bad actors seeking private benefit – and in some cases, attempts are even made to intentionally set up a charity for this purpose," warned the regulator.

"While the numbers of such cases are relatively small, the level of charitable funds at risk could be significant and the impact on public trust and confidence considerable."

Increasing complexity

The Commission also notes that cases it is dealing with are becoming increasingly complex, involving several regulators and situations where “the boundaries of regulatory remits are not clearly drawn”.

It warns that in some cases charities are providing “sensitive services to vulnerable groups” that are not subject to expert regulation. This includes those providing out of school activities and certain housing services.

In such cases “users may have little opportunity for redress if the quality of the services they receive is inadequate”, warns the Commission.

The regulator has formally passed on information to other agencies, including councils, HRMC and the police 500 times over the last year. This is up almost up almost 8% on the previous 12 months.

“The vast majority of charities are well run, making a positive difference to lives and communities every day,” said the Commission’s director of communication and policy Paul Latham.

“However, our assessment highlights the growing scale and complexity of risks they face, including from those seeking to exploit charity status for personal benefit, and from a lack of regulatory clarity which potentially leaves service users exposed to poor services or harm.

“While proportionally relatively few charities are directly affected by such threats, their impact can be significant, for the individual charities, the Commission’s resources, and public trust and confidence in charities.”

Financial concerns

Another concern flagged in the report surrounds charities spending more money than they can generate. Among two in five charities spending exceeded their income. One in four charities with income below £10,000 a year reported they only just broke even in 2024.

Small charities are also missing out on an increase in government contracting with the sector.

Over the last three years the Commission has seen a 13% increase in the number of charities that have been awarded government contracts, which in 2024 represented a combined value of almost £10.96 billion.

There has also been a small increase in those receiving government grants, with a total value of £6.75 billion.

But it warns that “larger charities with incomes over £500,000 are more likely to receive government contracts and grants”.

It adds that is “aware of longstanding concerns that public bodies are less likely to award contracts to smaller organisations” and “continues to hear sector concerns about the challenges of increased delivery expectations within fixed budgets and pressures which preclude full cost recovery”.

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