A small charity is launching a legal challenge against a Charity Commission inquiry report, which earlier this week raised concerns that only a small proportion of its fundraising was being used for charitable purposes.

The regulator’s inquiry report says that Hospice Aid UK raised more than £3.2m between March 2013 and July 2020, but only 6% of this was left following the payment of costs and fees to spend on supporting the relief care and treatment of seriously ill and dying patients and their families.

This was the second inquiry into the charity’s finances by the regulator, which found misconduct and mismanagement by trustees, who had failed to comply with an earlier action plan to improve. The charity was also handed an official warning.

But the charity has made a formal complaint to the regulator and its lawyers are to challenge the inquiry over “inaccuracies” in its report, according to Hospice Aid UK chief executive and founder Jo Gratze.

“Hospice Aid UK has been the subject of a Charity Commission Inquiry on grounds that are being challenged by our lawyers,” Gratze confirmed.

“We also challenge the due process of the Inquiry and the regulatory outcome and we have made a formal complaint to the Charity Commission concerning factual inadequacies in the inquiry report.”

Gratze said that the inquiry was opened due to “an accounting error” which failed to properly record its charitable expenditure” adding that in 2021 82% of its income went to “support patients in hospices and not 6%”.

“During the inquiry, and despite two years of COVID, charity still managed to make over £1/4 million of grants to hospice,” she said.

She is also concerned that the Charity Commission inquiry did not consider the size of the charity.

“Whilst we have always worked to the highest standards, Hospice Aid UK is a small charity with limited resources and lay trusteeship which relies on professional advice,” she said.

“We believe the findings in the inquiry are factually incorrect and based on historical accounting errors which have long been corrected. The inquiry does not take into consideration our size nor performance based on limited staffing and funds and directly compares us to large well-resourced charities.”

Gratze added: “We will continue to prove to the Commission that Hospice Aid UK works to the highest standards of charity best practice and focus on overcoming the reputational and financial damage caused by this Inquiry over the last 3.5 years so we can provide grants and emergency funding to hospices who are desperately in need of support.”

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