Restated accounts for 2010/11

[Paul Cooksey]

I would be interested to hear John Philpott’s view on what the Council members are being asked to assess when approving. If I understand Mike correctly, it seems accounts can be “true and fair” even if an organisation is not well run.

Although I would not go quite as far as Roger, I do find the situation hard to accept. I am inclined to be forgiving of the ECF where work is being done by volunteers. But we do fund a professional office to handle administration, and this appears to be an administrative issue. If the issues in revenue are genuinely unclear, rather than not yet explained, I am very concerned.

[Roger de Coverly]

If the issues in revenue are genuinely unclear, rather than not yet explained, I am very concerned.

It's genuinely possible for there to be a shortfall in Congress Game Fee income without there being a bad debt. Indeed to suggest that Congresses are short-changing the ECF is itself a slur without proof.

Game Fee income reduces when you exempt Congresses from Game Fee. The ECF, for example, exempted all internationally rated events from Game Fee including games played by non-members. If you have a relative increase in games played in such events (and it's plausible both with the popularity of e2e4 and other events going international for the first time), you are going to get a parallel drop in Game Fee income. There's also the hypothesis that increases in Game Fee causes Congresses to leave the ECF and go ungraded. That also would lead to a shortfall.

If you improve the calculation and collection methodology, that of itself could reduce income. This is because Congresses would now be claiming exemptions where they didn't previously.

[David Shepherd]

5. Game Fee income from Congresses remains at £5,882. This contrasts with £11,281 for 2009/10. The Director of Finance states (in a covering paper on the accounts): "I have reconciled the amount of game fee that should have been received to the amount actually received and the ECF appears currently to be owed £6,600 in Game Fee. Due to the nature of the records it has not proved possible to identify with certainty who owes arrears of game fee". "

Wouldn't any fees exempted already have been taken into account as part of the reconciliation and not form part of the difference (as they were not due in the first place)?

[Matthew Turner]

The decision was taken last year to submit the accounts for an external examination rather than an audit.
There was some discussion here
http://ecforum.org.uk/viewtopic.php?f=2 ... c08#p39306

Here is Mike Truran's take on it

There's a fundamental difference between auditing and examining. It may or may not be the right thing to do, but to claim that there is no material difference between the two processes is complete bo**ocks.

4. Independent Examination is an alternative to professional audit. It is a process of scrutinising accounts below the level of a professional audit. It covers slightly less than a full audit, but is still a very thorough form of scrutiny.

PS As a qualified chartered accountant I would hope that I know about these things.

PPS There's no such thing as a free lunch. If examination is cheaper than auditing, it doesn't take a rocket scientist (let alone an accountant) to work out why that would be.

PPPS If I were being cynical (perish the thought), I might just think that this was another example of trying to slip things past Council in the hope that they won't notice (or care).


Now Mike says that the accounts have to be approved and maybe he is right. However, if they are then I think you are saying that there is just no oversight on the accounts, Council may as well not exist, and the Finance Director can do whatever he likes.

[Roger de Coverly]

Wouldn't any fees exempted already have been taken into account as part of the reconciliation and not form part of the difference (as they were not due in the first place)?

You might hope so, but the ECF and the BCF before it have never reported (or even collected data) on the basis of

Total Game Fee due
less
Game Fee exemptions
equals
Net Game Fee paid

Instead it's only Net Game Fee which is ever reported.

Had it done so, Council and chess players might have been better informed as to the reasons when Net Game Fee failed to meet budget targets.

[Mike Truran]

The decision was taken last year to submit the accounts for an external examination rather than an audit.
There was some discussion here
viewtopic.php?f=25&t=2182&p=39306&hilit=auditor&sid=fc327465183776d1ce7e698307a8dc08#p39306

Matthew - that was in relation to the BCF accounts. The ECF accounts are still subject to independent external audit - see John Philpott's post (from the same thread) below.

Matthew Turner wrote
Quote:
OK, I see it now. Do I take it this is just referring to the BCF Accounts and the ECF accounts would still be audited?
Although the thread has moved on, I think that I should confirm for the avoidance of doubt that this is indeed the case. The ECF's income and assets are well below the levels at which company law would necessitate an audit, but the ECF's Articles of Association requires the appointment of an auditor (Article 17), and there is no proposal to change this.

[Matthew Turner]

Apologies, my mistake

[John Philpott]

It is probably high time that I got involved with this thread.

Angus French wrote

I can't see that the documents are yet available from the ECF website - i.e. that they are in the public domain.

It took slightly longer than it should have done after the resolution was sent out, but the documents can now be accessed at http://www.englishchess.org.uk/?page_id=897 That should enable those not on the circulation list for the resolution to make more sense of this discussion. The earlier version of the accounts, as tabled at the AGM, can also be accessed from this url.

Angus French wrote

There doesn't appear to be any facility to ask questions or for Council to discuss (as there was at the AGM).

Proceeding by way of written resolution inherently limits the scope for discussion: it was indicated at the AGM that this was the way that the Board was intending to take the matter forward and no objections were raised at the time. The procedure that I had hoped to be able to apply was for the revised accounts and supporting paper to be posted on the ECF website before Christmas and for questions to be invited: the supporting paper circulated with the request for the written resolution could then have been expanded to respond to these. This did not happen because of further delays in finalising the accounts, and in view of the ticking clock it became necessary to proceed directly to the written resolution. Nobody is pretending that this is an ideal situation: in my capacity as ECF Company Secretary I am simply trying to do the best in somewhat difficult circumstances. There is nothing to stop questions being raised on the accounts: indeed one was received this morning (albeit on figures that had not changed since the AGM version of the accounts). Any such queries should be addressed both to the Director of Finance and to the activity Director into whose area of responsibility the relevant item of income or expenditure falls.

Mike Truran wrote

significant penalties apply to non-filing

The potential downside of not filing the accounts on time goes beyond the automatic late filing penalties under section 453 of the Companies Act 2006 that Mike quotes. Under section 451 each person who is an ECF Director on 31 January 2012 commits a criminal offence if the accounts have not been filed, the only defence against which is that he took all reasonable steps for securing that the filing requirements were complied with.

Roger de Coverly wrote

The ECF are holding a gun at the head of Council. Approve these accounts or else!

This is not my interpretation. I normally choose my words with care, and in the paper on the written resolution I stated that it was "highly desirable" for the resolution to be passed before the Companies House filing deadline - no more that that. There are three distinct requirements relating to accounts imposed on a company by the Companies Act 2006.

(a) To file the accounts at Companies House within the prescribed period (sections 441 and 442).

(b) To circulate the accounts to members by the earlier of the Companies House deadline and the date on which the accounts are actually filed at Companies House (sections 423 and 424). This has been complied with.

(c) In the case of a public company, to lay the accounts before a general meeting before the Companies House deadline (section 437).

The ECF is a private rather than a public company, and section 437 therefore does not apply to it. Its Articles were drafted prior to the 2006 Act, at a time when such a requirement also applied to private companies. Article 75 states:

Subject to the provisions of any elective resolution of the Company for the time being in force, the Board shall from time to time in accordance with the provisions of the Act, cause to be prepared and to be laid before the Company in General Meeting such profit and loss accounts, balance sheets, group accounts (if any) and reports as are referred to in those provisions.

There is to my mind some doubt as to where this leaves matters as the provisions of the Act no longer require the laying of accounts by a private company. However, I have discussed this issue with the ECF's legal adviser, and we are both of the view that the laying of accounts (or as in the present case the circulation of these and the seeking of a written resolution) remains necessary.

What the legislation does not do is link (a) and (c) and make approval of the accounts the members a pre-condition of those accounts being filed at Companies House. As this is the first time the ECF has sought to proceed by way of written resolution, I have no preconception as to how quickly or slowly the majority of the votes are likely to come back. As I stated in the paper it is indeed "highly desirable" that the 133 votes necessary to pass the written resolution are received prior to the filing deadline. However, if the total fell somewhat short of that, I think that the Board's appropriate course of action would still be to file the accounts. Even those voting in favour are likely to have concerns about the Game Fee situation, and it would clearly be appropriate for this issue to be discussed at the Finance Council meeting in April.

Paul Cooksey wrote

I would be interested to hear John Philpott’s view on what the Council members are being asked to assess when approving. If I understand Mike correctly, it seems accounts can be “true and fair” even if an organisation is not well run.

What "true and fair" means is a deep question, which I would perhaps encapsulate as "not misleading, in terms of what has actually happened". It is divorced from how well an organisation is run: if an organisation is badly run, there is likely to be a worse financial outcome and the accounts will not be true and fair unless that worse outcome is reflected.

It needs to be borne in mind that the document that has been circulated is in two distinct parts: the statutory accounts on pages 1 to 10 and more detailed management information on pages 11 to 18. It is only the former which I would expect to be filed at Companies House (although the whole document seems to have been lodged last year, presumably in error) and it is only on the statutory profit and loss account, balance sheet and notes that the auditors are expressing an opinion. In terms of income, the auditors' true and fair judgement therefore centres on whether the "turnover" figure of £270,289 shown on page 6 is reasonable: this particular judgement is not affected by the split of Game Fee income reported in note B, and the materiality of any uncertainty concerning the overall Game Fee for the year will be judged in relation to the £270,289.

My personal view is that a resolution by Council to approve the accounts is analogous to a resolution to approve an Officer's report. There may be certain aspects of an Officer's report with which one disagrees (I seem to remember an extensive debate in October about one sentence in a particular report), but there would need to be something fairly fundamental for the report not to be accepted. So with the accounts: there may be particular areas of concern but are these really such that the whole package should be rejected? In the case of Game Fee, there are I suspect long standing issues over the rigour of the collection process, and any failings here are a ground on which the Board can legitimately be criticised. However, we are concerned specifically with the 2010/11 accounts. What appears to be an extremely conservative approach has been taken in arriving at the figures reported, and to the extent that this proves to be over-cautious it will lead to increased prior year Game Fee being reported in future accounts. I would regard the judgement call for representatives as being whether this factor is likely to be of such significance as to lead to the accounts as a whole presenting a grossly distorted picture of the ECF's overall financial position: I do not believe this to be the case, but everybody will need to make up his or her own mind.

[David Shepherd]

In terms of income, the auditors' true and fair judgement therefore centres on whether the "turnover" figure of £270,289 shown on page 6 is reasonable: this particular judgement is not affected by the split of Game Fee income reported in note B, and the materiality of any uncertainty concerning the overall Game Fee for the year will be judged in relation to the £270,289.

I agree with most of what John says other than the above. Whether the income should be shown gross with bad bad debts as an expense, or net as seems to be the practice could be compared to turnover (although you should ask yourself - would knowing there was a £6,000 bad debt impact on your understanding of the accounts - is this an exceptional item?), but the more important figure in terms of whether it is recoverable will be its impact on the overall profit (particularly given the low level of profit). That is not to say that the approach adopted is wrong, just consideration must be given to the impact on profit if you believe the debt is likely to be recovered. Also it is difficult to quantify the amount outstanding from the information available is it £6,000 x Y years.

If however it is considered unlikely the amount will be recovered then to provide for it the accounts as a bad bebt is not unreasonable (this is being done by not recognising the income).

[Roger de Coverly]

If however it is considered unlikely the amount will be recovered then to provide for it the accounts as a bad bebt is not unreasonable (this is being done by not recognising the income).

Here's the whole statement about Game Fee

Game fee
Game fee income is £7,000 under budget. I have reconciled the amount of game fee that should have been received to the amount actually received and the ECF appears currently to be owed £6,600 in Game Fee. Due to the nature of the records it has not proved possible to identify with certainty who owes arrears of game fee. In view of the uncertainty, it is not considered prudent to record a figure for potential Game Fee arrears under Debtors, and the accounts simply reflect the amount actually received during the financial year. It is possible that much of the arrears will be received in year. However, this position is unacceptable. Therefore, I will continue to try to identify who owes arrears of game fee. I will also work with the Office to improve our record keeping in this area in the new year.

Very simply, Game Fee for Congresses has reduced from £11,281 to £ 5,882 and the Director of Finance or anyone else involved are unable or unwilling to investigate the comparison between the list of payments adding up to £ 11,281 and the list of payments adding up to £ 5,882. Being £ 7,000 under budget could just mean that the budget was £ 7,000 overoptimistic, not least because of the Board's extensions of exemptions and that no money is owed. However just reporting the amount received in the year, whilst prudent, is very likely to be an understatement because of Congresses which took place before 30th April 2011 and settling after that date. Easter, which is a popular period for Congresses was very late last year, so Easter Game Fee receipts could easily have slipped into May.

As Angus noted, there hasn't been any comment on how the NMS and other MO membership figures got messed up in the first draft.

[Matthew Turner]

Looking at the accounts I think it is very difficult to get a clear impression of the financial situation at the ECF. Just taking one example

NOTE N CHESS FOR SCHOOLS

EXPENDITURE 2010 2011
Administration (excluding staff costs) 2,377 2,377
Staff Costs 3,906 8,492

It seems remarkable that administration was £2,377 in both years

[Roger de Coverly]

the auditors' true and fair judgement therefore centres on whether the "turnover" figure of £270,289 shown on page 6 is reasonable: this particular judgement is not affected by the split of Game Fee income reported in note B, and the materiality of any uncertainty concerning the overall Game Fee for the year will be judged in relation to the £270,289.

Whilst you can accept that an unexplained drop in Game Fee income for Congresses of around £ 5,000 isn't greatly material in the context of turnover, it is material in the context of the ECF's declared "profit" and in the context of the ECF's rather slender declared reserves.

I have reconciled the amount of game fee that should have been received to the amount actually received and the ECF appears currently to be owed £6,600 in Game Fee.

On reflection, I struggle to understand what meaningful process has been carried out here. In a League context, it's possible for a league to predict at the start of a season its likely Game Fee. Something like No of teams * No of matches per team * No of Boards per team * Game Fee amount gives a good estimate.

For Congresses, and it's alleged to be Congresses where the shortfall has arisen, no similar prior calculation is possible until perhaps the first round is under way. Any amount quoted prior to that is really just a guess. You can say that in the previous year there were 100 players playing 5 rounds of whom 20 were exempt. This year you might get 100 players again, but 40 of them are exempt. The Game Fee is down and will show a shortfall against "expectation", but that doesn't make it wrong. So in a Congress context, how do you establish "should have been received"?

The junior issue puzzles me a bit as well. It's very reasonable for an expense paid in April 2011 or earlier relating to an event in the new financial year to be treated as a prepayment. The problem is that, presumably, there may have been a similar issue in April 2010 where no adjustment was made. So if the accounting practice is changed, there's a one-off gain flowing through to "profit". Perhaps it relates to the expenses of sending the team to Brazil, so it's a one-off that the prepayment was material.

[Simon Brown]

Speaking as another accountant, I think you need to separate the two issues here.

First, it is of course unacceptable that the ECF appears to have misplaced about half of the expected Game Fee proceeds from congresses. But the relevant Director has undertaken to keep looking for it, so that's fine. No doubt people will carry on asking if he has found it. People have suggested above it should be easy to track down, and I agree.

Second, the accounts need to be filed. The auditors are happy with them, they have been prepared fairly prudently (not recognising the "lost" Game Fee as income) and they have to be filed. Prison sentences I suspect would be unlikely, but I'm assuming a fine would be unwelcome.

So if you have to vote, vote and move on. But I would have some questions to ask about the accounts, so I hope others entitled to raise queries will. And I presume the Director will be tasked with reconciling the Game Fee shortfall and reporting to Council.

[Matthew Turner]

I am not 100% clear on the exact state of the audit. Gareth Caller's covering paper states

"2. The audit is complete. A final set of accounts has been submitted to the auditors. They need to confirm that all audit adjustments have been processed correctly. Once this confirmation has been received the accounts will be ready for certification."

[David Shepherd]

In the accounts note 5 there is a creditor marked English Championship prize £20,000. What is the English Championship? If it is the the title awarded at the British why is this a creditor at 30/4/11 (I wonder from what years championships this money is owed)?

PS Sorry if this is a stupid question and there is an obvious answer.

Also does anyoneknow if the disclosure is correct for corporation tax - it seems hidden in management expenses - is this normal for Companies Limited by Guarantee?