Lynton and Barnstaple - Operations and Development

Indeed, @Meatman . All of which you;d think honourable men would put their hands up to, apologise and at least make the Trust whole - if not resigning as well.

The silence from Mr Nicholson and Mr Miles on these matters says it all.

 

It's a common misconception that the members/shareholders of a company vote to approve the accounts at an AGM. The Companies Act 2006 specifies that the accounts are approved by the Directors and a signed copy is tabled at the AGM with the opportunity for shareholders to ask questions. That's why a typical motion at an AGM will be to adopt or receive the accounts rather than approve them. If the shareholders/members vote not to receive or adopt them it sends a warning signal to anyone dealing with the company but the accounts are still legally approved.

 

If the Trustees/Directors approve the Accounts prior to the AGM, then IMHO it is not unreasonable to expect that they have a reasonable understanding of the basis on which the Accounts have been prepared and to what items each of the costs quoted actually relate, rather than just blandly agree to sign whatever is put in front of them. If they do have such an understanding, then why the reluctance to provide to the information to members? If they do not have that understanding, then are they exercising 'due diligence' when they approve the Accounts?

 

Much depends on what constitutes "due diligence", and the level of scrutiny that's expected.

I've seen a situation recently where a receiver of accounts (ordinary member of society) has effectively wanted to be able to go through all of the transaction level information, fundamentally as a matter of mistrust - despite those presenting accounts being able to explain the key issues. Elsewhere, I've seen trustees sign off accounts with very limited detailed knowledge, because there has been trust in the process by which they've been prepared and the officers who've prepared them. Not all of us trustees have the level of in depth knowledge required to explain them, but we all have sufficient understanding to direct questions appropriately - and operate in a culture where transparency is considered desirable, not a threat.

My concern about the L&BRT accounts, reinforced by @Michael B's decidedly on point questions, is over the combination of doubts as to the understanding of what they contain combined with the extreme level of delegation in their preparation and the unwillingness of trustees to respond to reasonable questions.

 

Considerable reliance is typically placed on the auditors' certification that the accounts represent a "true end fair" view and their support of the board's judgement that the charity is a going concern.
One of the problems is that the charity accounting rules prescribing the form and content of charity accounts seem designed to make them incomprehensible to financial laymen. Unless the directors are financial professionals it's likely that they rely on a combination of the auditors and the finance director to explain them. It's probably good practice at an AGM for the accounts to be summarised and presented to members/shareholders in a readily comprehensible form. It's not easy to do but when it's done well it builds confidence and support.

 

In this case, one of the issues is that the accounts are prepared and audited by the same firm. I haven't attended previous AGMs, and all I've heard suggests that the 2023 AGM was unusual, but was surprised to see a representative of the accountants at the top table, and at the way that it was clearly intended that any questions would be taken by the accountant.

 

Surely there is nothing wrong with presenting any level of explanatory notes or management information as supplements to the formal accounts though?

So if you have an arcane line as required by the charity commission such as “Catching of charitable porpoises” you can add a note to explain what that does and doesn’t contain?

(As a real world example - I don’t suppose any financial standard requires an explicit line item for coal, it would typically just be bundled into “cost of sales”. But I am sure it is routine that on many heritage railways, you’d get a note breaking the “cost of sales” into line items, one of which would typically be coal. Apart from anything else, it’s a budget item that directors are likely to wish to monitor throughout the year, so the management information would have it at each board meeting).

Tom

 

Isn't that illegal ? How can a firm audit its own work ? And "Partner Mr X prepared the accounts and partner Ms Y audited them" is not an acceptable separation of function.

 

I don't believe it is illegal, especially for small businesses. I know my wife, when in practice as a Chartered Accountant, was involved in both accounts preparation and audits for the same clients; in the 20 years since she left practice, I think the boundaries have tightened but not that far.

 

I am sure you are right, but a typical L & BR Trust Ballot Paper/Proxy Form is shown below from which I would have thought most members, technically familiar or not, would have assumed that they were legally approving (or not approving) the report and accounts included in the AGM papers. So, you seem to be saying it only requires the Trustees to approve them, and it is more-or-less irrelevant if the members disapprove of them (as I recall trying unsuccessfully to persuade the audience some years ago when there were £25,000 mathematical errors in the consolidated accounts (sic)) ? As I have already mentioned, Trustees or Directors are responsible for the accounts presented to members, as noted in the audit report on p7. They cannot rely on the Auditors or Accountants. It is the Trustees' or Directors' duty when approving the accounts for submission to ensure that they are correct and sufficiently explanatory to accurately convey the state of affairs of the organisation. In my opinion allowing accounts to go forward with a heading called 'subscriptions' of £3o,000 without an explanation as to what it contains is remiss because I doubt it has conveyed to most readers of the accounts what it consists of. And that surely, is the whole point of them ?

 

Err, page 2 of the 2022 Trust accounts says the Accountants are Accountancy Edge Ltd of Bideford; page 3 says the Auditors are Fawley, Judge & Eaton of Hull. There is an unqualified audit report from them on pp7+8. The presence of the Accountants at the top table at AGMs in past years has been desirable because, as the Treasurer has explained, the Accountants have prepared the accounts using information provided by the Treasurer, so it was necessary to answer questions which might be fielded from the floor about them. And, being charitable, (and we are talking about a charity), may have been the reason the Treasurer referred me to the Accountants to explain what made up the figures on them and which figure included the cost of the Magazine/Newsletters.

 

Surprising ! I have operated mainly in another jurisdiction so there may be different legislation but I would have thought the dangers of auditing accounts prepared by the same firm were obvious and entirely unethical.

Edit : I see Michael B (above), quoting from the 2022 Trust accounts, observes that there are indeed separate firms doing the accounting and the auditing.

 

One Trust to which I belonged dropped a 'vote' on their Accounts many years ago and the Agenda for AGMs merely included an Item for members to 'note' them and ask questions. But when a L&BRT member is told that they could have their questions answered for their own private consumption, but not if they were a "member of the conspiracy against the majority Trustees" (or words to that effect), then one must ask what they have to hide?

 

I'd agree even though there are normally explanatory notes to the statutory accounts. That what why I suggested good practice is to present a clarification of the accounts at the AGM (or distributed with the AGM papers) in readily intelligible form. Detail, such as coal last year cost £X, and increase year on year of Y% would be easy to extract and helpful for members/shareholders. However perhaps the post highlights the difference between periodic management accounts i.e. those necessary for the directors to run the charity day to day , and the audited annual statutory accounts which are those that are published.
Of course the statutory accounts only cover the prior year so, apart from the going concern judgement, provide little guidance about future prospects which is probably of most interest to members/shareholders. Presentation of a forecast would be helpful good practice but that could be outside the formal business of the meeting which does not have to include a Q and A session i.e. table the statutory accounts for receipt or adoption as part of the formal meeting, then close the AGM and hold a Q&A session including a review of the charity's prospects.

 

Correction noted.

 

One (church) body of which I'm a trustee has specifically to have members' approval of the budget for the coming year - and to do so before the end of the preceding (accounting) year. As a trustee, that is quite a salutary discipline, given that the relevant members' meeting is in early November. Communication of statutory and management accounts is obviously a high priority.

Before we get into legal fine print, I'm not sure how far this requirement is a function of church law, charity law, company law, or simply the organisation's own statutes.

 

Alright, I admit it - guilty as charged, M'lud. Lawyers please note I AM BEING FECETIOUS.

 

Of relevance here, why did the Directors of the C I Company not have their 2022 accounts audited ? Isn't that what members would expect in a situation where the accounts of the holding company - the Trust - are audited ? I have in mind to press for this to be done for next May.

 

What are the legal thresholds for mandatory audit these days?

 

@Michael B - did you ever find out how much was spent on the "Confidential Letter" missive, and whether its six signatories had paid for it personally rather than making any recourse to Trust funds?