A utility is like gas or electric: things they provide for you which are necessary to live, or maybe not, but they still provide them. It is gas, electric, oil for heating. This is what comes to mind. You could also say: could have done more good.
You need to change "done" in your sentence to "been of": we talk about things "being of use/utility" rather than "doing use/utility".
Once you've made that change, then both "use" and "utility" work in your sentence: The reason is that the money ... could have been of more utility in other areas.
The reason is that the money ... could have been of more use in other areas.
"Utility" is, though, a lot more formal: perhaps that's why someone has suggested you substitute "use".
Incidentally, I don't know what "spounces" are - it's a great word, though