A majority of charities with annual income over £500,000 deliver public services for public authorities, but many are not being paid the full cost of their work, according to a new report.

The Charity Commission has published the first survey which investigates all the charities in the UK delivering public services. The report looked at a wide range of issues, including full-cost recovery to length of funding agreements.

According to the figures, over two-thirds of all funding agreements for public services are only for a year.

Equally, only 12 per cent of charities questioned said that they managed to achieve full cost recovery for the public services they deliver.

“This report confirms that charities delivering public services are today facing hard choices. Short-term funding, partial cost-recovery and the risk of mission drift are a reality for many undertaking this work,” warned the commission’s chair, Dame Suzi Leather.

However, Dame Leather said that “charities can bring something unique to service delivery”, as long as their independence is not “compromised by short-termism or expediency”.

Recently, industry experts have also warned that charities must be vigilant in guarding against fraud.

“Fraud is as big a problem for charities as it is for any organisation, if not more so,” explained Charles Cox, a partner at PKF Accountants.