Surrey Canal Sports Foundation: Accounts Analysis

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  • Period 9/2/11 (incorporation of Surrey Canal Sports Foundation Limited (“SCSF”)) to 29 February 2012.

 

Salient points/questions:

  1. Trustees Report P2. “The SCSF was established in 2010 to develop and run……” – What is the ‘SCSF’ that was established in 2010? The company was only incorporated on 9 February 2012.
  2. Trustees Report P3. “The SCSF has identified 30 top prospects for Capital funding and made approaches to four potential funders” – Who are these four?

 

  1. Later, same page: “The SCSF has secured in principle Capital support from Sport England, Renewal (the development company….) and the London Boroughs of Lewisham and Southwark.” Are these the four potential funders?

 

  • Specifically, who is ‘Renewal’? Renewal Limited? Renewal (Holdings) Limited? And in which territory is ‘Renewal’ incorporated? The UK? The Isle of Man?

 

 

  1. Mushtaq Malik was appointed on 31/1/12 and resigned on 29/6/12. His resignation was lodged at Companies House on 5/11/12. Jordana Malik was a Trustee throughout. The Financial Statements for the period ended 29/2/12 were approved by the Trustees on 3/12/12. These facts are relevant when considering the Prior Period Adjustment, below.

 

  1. SCSF disclosed receipt of Voluntary income (donations) for the period of £48,269. Its accounting policy associated with Incoming resources states “Income from donations, grants and gifts is included in incoming resources when these are receivable and the charity is entitled to receipt. (my italics) This is relevant when considering the Prior Period Adjustment, below.

 

  1. Administration fees of £20,000 were paid in the period. To whom were these paid?

 

  1. Marketing costs of £16,735 were paid in the period. To whom were these paid?

 

  1. There is no related party disclosed in the Accounts. Can the Trustees confirm that there is no connection between the Malik family, two of whom served as Trustees during the year, and the “Renewal Group”?

 

 

  • Year ended 28 February 2013.

 

Salient points/questions:

  • Trustees report, P3. “In April 2013 SCSF signed a lease for the use of Unit 2 Stockholm Road…” Who was the lease signed with, and what are the terms?

 

  1.  

Trustees report, P4. “In October 2013 Sport England wrote to the Foundation explaining that the £2,000,000 pledged will be moved (sic.) from their Iconic Facilities Fund (which is coming to an end) to their lottery funding allocation allowing it to remain available to the Foundation indefinitely. (my italics). The London

  • Borough of Lewisham has made an ‘in principle’ agreement to make a capital contribution of circa £420,000 to SCSF. The necessary legal work has also begun with Renewal Group Ltd to ensure that the land required for the Sports Halls is vested to SCSF.” Where is the capital support from Renewal, mentioned in the 2012 Accounts?
  • Accounting Policies, Basis of preparation P10: “The Charity is reliant on the support of Renewal Limited and has obtained written assurance from Renewal Limited that they will not withdraw funds due to them until sufficient alternative funds are available.” On the basis of this support, the Trustees drew up the accounts on a Going Concern basis. Without it, SCSF would has clearly been insolvent. What precisely was the written assurance from Renewal; what would Renewal do about the advance if sufficient alternative funds were not made available?

 

 

  1.  P12 Notes to the accounts:
  2. In 2013, the prescribed accounting treatment of Prior period adjustments was set out in Financial Reporting Standard (FRS) 3, ‘Reporting Financial Performance’. The relevant extracts from FRS3 are set out below.

“60 ……The majority of items relating to prior periods arise mainly from the corrections and adjustments which are the natural result of estimates inherent in accounting and more particularly in the periodic preparation of financial statements. They are dealt with in the profit and loss account of the period in which they are identified and their effect is stated where material. They are not exceptional or extraordinary merely because they relate to a prior period; their nature will determine their classification. Prior period adjustments, that is prior period items which should be adjusted against the opening balance of retained profits or reserves, are rare and limited to items arising from changes in accounting policies or from the correction of fundamental errors.

61 Estimating future events and their effects requires the exercise of judgement and will require reappraisal as new events occur, as more experience is acquired or as additional information is obtained. Because a change in estimate arises from new information or developments, it should not be given retrospective effect by a restatement of prior periods. Sometimes a change in estimate may have the appearance of a change of accounting policy and care is necessary to avoid confusing the two.

62 omitted – relates to change in accounting policy)

63 In exceptional circumstances it may be found that financial statements of prior periods have been issued containing errors which are of such significance as to destroy the true and fair view and hence the validity of those financial statements. The corrections of such fundamental errors and the cumulative adjustments applicable to prior periods have no bearing on the results of the current period and they are therefore not included in arriving at the profit or loss for the current period.

They are accounted for by restating prior periods, with the result that the opening balance of retained profits will be adjusted accordingly, and highlighted in the reconciliation of movements in shareholders’ funds. As the cumulative adjustments are recognised in the current period, they should also be noted at the foot of the statement of total recognised gains and losses of the current period.”

  1. SCSF received £48,269 in the previous period. In the 2012 Accounts, this receipt was treated as “Voluntary income – receipt”, i.e. a donation to SCSF.
  2. This wastreated as income in accordance with the accounting policy set out in 1f above “Income from donations, grants and gifts is included in incoming resources when these are receivable and the charity is entitled to receipt.”

 

  1. It can be inferred from the statement in 2c above that this ‘donation’ was received from Renewal (I’m not sure which company though).

 

  1. It is believed that Mr./Ms. Malik are closely connected to the Renewal companies.

 

  1. As Trustees of SCSF, they would have been involved with the preparation and discussion of the financial statements for 2012 (although Mr Malik had resigned before they were formally approved).

 

  1. Therefore, why was a £48,269 receipt, very visible as one of the few transactions in the period and received from a company with close connections to the Malik family, treated as unconditional income in the 2012 Accounts of SCSF and then ‘reclassified as a loan’ to SCSF in 2013?

 

  • Given the connection, what were the Trustees not aware of in December 2012 that they later learned that, in accordance with FRS3 wasof such significance as to destroy the true and fair view and hence the validity of those financial statements”? When and how did they become aware of the need to change income into a loan, and why were they not aware of this in December 2012 when they signed off the 2012 Accounts?

 

 

  1. Administration fees of £24,600 were paid in the year. To whom were these paid?

 

  1. Marketing costs of £57,455 were paid in the year. To whom were these paid?

 

  • A Charity is supposed to be an organization that acts as a conduit, collecting funds from willing donors and dispersing them to needy beneficiaries. It is not supposed to be a business that takes risks by being undercapitalised. How can the Trustees spend money they do not have? Given that the fund balances moved from £901 in hand at February 2012 to £139,448 in deficit at February 2013, why did the Trustees not insist that Renewal’s ‘support’ of a deferred loan be regularized as a donation?