Not for Profit
DRAFT
Liverpool Hope Students’ Union
Year ended 31 July 2014
Independent Examiner’s Findings Report
The Lexicon
Mount Street
Manchester
M2 5NT
The Trustees
Liverpool Hope Students’ Union
Hope Park
Liverpool
L16 9JD
23 March 2016
Dear Trustees
Independent Examination for the year ended 31 July 2014
Following the completion of our Independent examination fieldwork on the financial statements of Liverpool Hope Students’ Union for the year ended 31 July 2014
we have pleasure in submitting our Independent Examiner’s Findings Report setting out the most significant matters which have come to our attention during our
independent examination and of which we believe you need to be aware when considering the financial statements. The matters included in this report have been
discussed with the Liverpool Hope Students’ Union management during our independent examination of the financial statements and at our closing meeting on 7
October 2014. Caroline Bates and Mike Gilbertson have seen a draft of this report and we have incorporated their comments and/or proposed actions where
relevant.
Matters from our independent examination
We have set out in Sections 2 and 3 of this report comments on the matters arising from our independent examination work which we wish to bring to your attention.
These comments highlight specific judgements / estimates that have been made in the preparation of the draft statutory financial statements as well as certain other
important matters arising from the independent examination process.
Systems and controls
Whilst our scope of work is significantly less than that of an audit, during our independent examination, we considered at a high level, the design of some of your
financial systems of internal financial control as well as the accounting procedures and other aspects of your business processes relevant to our independent
examination. We are able to report that no major issues came to our attention from our review of your relevant systems and controls. However, we have included
further comments in Appendix 1 of this report where we have identified potential improvements during our independent examination work which we believe we
should bring to your attention. You should note that our evaluation of the systems of control at Liverpool Hope Students’ Union was carried out for the purposes of
our independent examination only (which is less in scope than an audit) and accordingly it is not intended to be a comprehensive review of your business processes.
Financial statements
The trustees of Liverpool Hope Students’ Union are responsible for the preparation of the financial statements on a going concern basis (unless this basis is
inappropriate). The trustees are also responsible for ensuring that the financial statements give a true and fair view, that the process your management go through to
arrive at the necessary estimates or judgements is appropriate, and that any disclosure on going concern is clear, balanced and proportionate.
Acknowledgements
We would like to express our appreciation for the assistance provided to us by the finance team and the other staff at the Union during our independent examination.
Use of this report
This report has been provided to the Board of Trustees, in line with your governance structure. We accept no duty, responsibility or liability to any other parties, since
this report has not been prepared, and is not intended, for any other purpose. It should not be made available to any other parties without our prior written consent.
Yours faithfully
Crowe Clark Whitehill LLP
Contents
Page
1. Introduction and independent examination approach
1
2. Key areas of accounting focus
3
3. Future reporting under FRS 102 and the new Charity SORP
6
4. Fraud and error
9
5. Cyber security: a strategic risk management issue
11
Appendix 1 - Systems and controls issues
13
Appendix 2 - Matters from last year
15
Appendix 3 - Reporting independent examination adjustments
21
Appendix 4 - Draft representation letter
22
Appendix 5 - External developments
24
Appendix 6 - Upcoming Not for Profit events, courses and briefings
27
1.
Introduction and independent examination approach
We have pleasure in setting out in this document our report to the trustees of Liverpool Hope Students’ Union for the year ended 31 July 2014.
Independent examination
As per the prior year the trustees have chosen an independent examination review of the financial statements for the year ended 31 July 2014, rather than an audit.
As the Union’s income is above £25,000 but less than £500,000 and the gross assets are less than £3.26 million, an independent examination is permitted under
charity law. If the income should increase above £500,000, an audit will be required. Furthermore, should the Union’s gross assets exceed £3.26 million,
and income increases above £250,000, a statutory audit would be required.
An audit gives a true and fair opinion on the financial statements and goes through an acknowledged and regulated procedure to reach that opinion; the scope of an
independent examination is considerably less: essentially analytical review and a disclosure checklist. The onus to ensure the accounts show a true and fair view
would vest solely with the trustees.
Our report, is therefore provided on the basis of an independent examination and not a statutory audit, as per our engagement letter dated 16 October 2013.
We recommend that procedures continue to be introduced to improve the controls over the finance function to ensure that adequate accounting records are
maintained and that assurance can be obtained over the completeness of income and expenditure, such that, should you require it, an unqualified audit opinion can
be sought in the future.
We are happy to support the Union to ensure this happens.
Legal and regulatory requirements
In undertaking our work we considered compliance with the following legal and regulatory requirements, where relevant.
 Charities Act 2011
 The Charities (Accounts and Reports) Regulations 2008
 Statement of Recommended Practice, Accounting and Reporting by Charities (issued in 2005)
 Applicable accounting standards
1
Introduction and audit approach
Journal entries
The processing of journal entries and other adjustments may involve both manual and automated procedures and controls. The manipulation of journal entries can
be used to mask fraud.
No issues came to our attention during our review.
Going Concern
In the present financial climate, ever greater emphasis is being placed on ensuring the validity of the going concern assumption in the preparation of period end
accounts. It is therefore very important that the current period’s going concern assessment is even more substantial than that for recent periods.
“Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009” was published by the FRC in October 2009 and is effective for accounting
periods ending on or after 31 December 2009. The Guidance is based on three principles covering the process which directors should follow when assessing going
concern, the period covered by the assessment and the disclosures on going concern and liquidity risk. The examples provided by the FRC indicate that they see
this as good practice even where going concern is not in doubt.
The Guidance was issued for all companies and in particular addresses the statement about going concern that should be made by directors in their annual report
and accounts. Wording has been included within the accounting policies to confirm the basis of preparing the financial statements on the going concern basis.
Completion
We have substantially completed the independent examination, subject to the satisfactory completion of the following matters:
 Completion of the financial statements.
 Accounts disclosure checklist.
 Completion of the post-Balance Sheet events review.
 Review of the final financial statements.
 Receipt of the signed letter of representation.
2
Introduction and audit approach
2.
Key areas of accounting focus
We have summarised below the results of our work on the areas of significant risk as well as on any key additional risks, judgements or other matters in relation to
the financial statements of Liverpool Hope Students’ Union identified during our work.
2.1 Weaknesses in accounting records
The accounting records are significantly improved in comparison to the prior year with supporting documentation available for all transactions reviewed during the
independent examination.
The Union does not maintain a formal Fixed Asset Register despite the fact that the financial statements disclose a total cost of £282,537 for fixed assets. However
the Net Book Value of these assets is nil.
The requirements in relation to the maintenance of proper accounting records are detailed in section s.130 of the Charities Act 2011.
“130
Accounting records
(1) The charity trustees of a charity must ensure that accounting records are kept in respect of the charity which are sufficient to show and explain all the charity's
transactions, and which are such as to—
(a) disclose at any time, with reasonable accuracy, the financial position of the charity at that time, and
(b) enable the trustees to ensure that, where any statements of accounts are prepared by them under section 132(1), those statements of accounts comply with the
requirements of regulations under section 132(1).
(2) The accounting records must in particular contain—
(a) entries showing from day to day all sums of money received and expended by the charity, and the matters in respect of which the receipt and expenditure takes
place, and
(b) a record of the assets and liabilities of the charity.”
The Union does not utilise any formal accounting package but instead records all transactions on Microsoft Excel spread sheets. Given the size of the Students’
Union and current volume of transactions, this is probably appropriate to record the accounting transactions in any year.
We have been informed of various improvements to the control environment since the appointment of the Union Development Manager and formal financial controls
and procedures have been implemented and documented in a financial procedures manual to ensure adequate accounting records are maintained in the future.
3
Key areas of audit focus
2.2
Fixed assets - Bridgelink
The draft financial statements recognise the Bridgelink fixed asset as a fully written down fixed asset.
We understand that in a prior year, the University gave the Union funds to purchase the assets on the basis that the Union would be able to recover the associated
VAT at a preferable rate than if the University were to finance the acquisition directly. The cost of the assets was recognised as a fixed asset within the Union with a
corresponding capital grant that was amortised at the same rate as the assets were depreciated.
Following the relocation of the Union to the Gateway building, the Union no longer has access to the fixed assets and it would appear appropriate to fully impair the
cost of the asset and release the capital grant, however we would expect the Union to retain the rights to the assets subject to further discussions with the University.
The financial statements have therefore been prepared on the basis that the Bridgelink asset has been fully impaired within the prior year, but remains on the fixed
asset register of the Union as at 31 July 2014.
2.3
Fixed assets – other assets
The Union does not maintain a formal Fixed Asset Register despite the fact that the financial statements disclose a total cost of £282,537 for fixed assets. However
the Net Book Value of these assets is nil.
We would recommend that a formal review of fixed assets is undertaken and reconciled to the nominal ledger to ensure the Union is accounting for fixed assets
owned and used in the organisation.
2.4
Restricted funds in deficit
There are no clubs or societies which are in deficit at year end and all brought forward deficits noted at the end of the prior year have been eliminated. In some
cases this resulted from the receipt of normal clubs and society income (memberships etc.) but in other cases transfers have been made from unrestricted funds in
order to eliminate the deficits.
It is recommended that controls are implemented in relation to clubs and society expenditure in order to reduce the requirement for transfers to be made from
unrestricted funds to eliminate deficits.
2.5
Expenditure system
There is a lack of segregation of duties in relation to the expenditure system. The Union Manager is able to raise Purchase Orders, authorise invoices and make
payments. The Union Manager is also responsible for inputting supplier bank details.
The only apparent mitigating control is the requirement for two cheque signatories for any expenditure in excess of £250, although there is no equivalent control for
internet bank transfers.
Management accounts are reviewed and compared to budgets, with variances queried and reviewed.
4
Key areas of audit focus
2.6
Clubs and society income
Sports and societies will collect income (fundraising, membership fees etc.) and will then bring the cash to the Union Manager to be counted. No supporting
documentation is provided by the club/ society (e.g. takings sheet) meaning that there is the potential for misappropriation of cash prior to the cash being received at
the Students’ Union.
It is recommended that income is reconciled to membership listings or attendance registers where appropriate and that, where feasible, clubs and societies are
encouraged to provide documentation in respect of cash takings.
It may also be advisable to allow members to pay membership fees online directly to the Students’ Union in order to reduce the volume of cash handled and
therefore the potential for misappropriation.
2.7
Petty cash
Petty cash is counted and banked by a single individual (Union Manager) exposing the Union to misappropriation of petty cash not being identified in a timely
manner.
We note that the petty cash certificate as at 31 July 2014 has not been evidenced as having been counted and reviewed by two members of staff, despite there
being provision for this evidence on the certificate. We would recommend petty cash is counted, and evidenced as having been counted, by a second individual on
a regular basis.
5
Key areas of audit focus
3.
Future reporting under FRS 102 and the new Charity SORP
From 1 August 2015 Liverpool Hope Students’ Union will be required to report under FRS 102 - the Financial Reporting Standard applicable in the UK and Republic
of Ireland - and the new Charities SORP which was published in July 2014.
Section 35 of FRS 102 sets out how an entity prepares its first financial statements that conform to this standard. The key requirements will be the restatement of the
opening balance sheet at the date of transition (i.e. for Liverpool Hope Students’ Union at 1 August 2014 and the restatement of the comparative balance sheet (i.e.
at 31 July 2015) in accordance with FRS 102. The opening balance sheet does not need to be published but will be needed to allow the restatement of the results
for the comparative year.
More details on the new Charity SORP can be seen on a separate Charity Commission SORP website: http://www.charitysorp.org/ .
Areas of restatement and disclosure
We have highlighted below certain specific areas which may lead to changes to the balance sheet position of Liverpool Hope Students’ Union at 1 August 2014, its
results in subsequent periods and / or certain of its disclosures. We recommend that you consider these now in order to plan for the necessary adjustments and
ensure that any relevant data is collated and valuations obtained on a timely basis.
SoFA presentation
The SORP simplifies the presentation in the SoFA, with four incoming resource headings (donations, earned income split between income earned from charitable
activities and other activities, and investment and other income). There is a similar simplification of expenditure headings with three headings (fundraising costs,
expenditure on charitable activities and other expenditure). However, it will be necessary to represent the relevant amounts under the new SoFA headings.
There will no longer be a requirement to disclose governance costs on the face of the SoFA. These costs will instead be disclosed in the notes as a component of
support costs.
Cash flow statement
The exemptions from having to present a cash flow statement for small companies and subsidiaries has been removed so Liverpool Hope Students’ Union will in
future be required to publish a cash flow statement.
The format of cash flow statements have been simplified with cash flows being identified as resulting from operating activities, financing activities and investment
activities, as opposed to the eight different categories currently used in FRS 1.
Tangible fixed assets
At the transition date Liverpool Hope Students’ Union can opt to revalue its fixed assets to “fair value”. That fair value is then taken to be the “deemed cost” of the
item.
We understand that you do not currently plan to make use of this option.
6
Future reporting under FRS 102 and the new Charity SORP
Income recognition
FRS102 sets the basis for the recognition of assets and liabilities and related income and expenditure to take account of the probability that future economic benefit
associated with the item will flow to or from the entity (i.e. more likely than not). This potentially may have implications for the accounting for certain sources of
income such as fundraising, legacy or similar income as the previous SORP required certainty for recognition.
In practice we do not think this is likely to impact Liverpool Hope Students’ Union.
Employee benefits
Any employee benefits which the staff are contractually entitled to such as holiday, time off in lieu etc. at the year-end and not taken will need to be accrued on the
charity’s Balance Sheet.
As the Liverpool Hope Students’ Union holiday year is co-terminus with your accounting year-end we understand that your management believe that any accrual is
not likely to be material as employees are not allowed to carry forward any significant holiday amounts.
Finance and operating leases
FRS 102 makes no significant changes to lease accounting. Leases will still be capitalised as finance leases if substantially all the risks and rewards of ownership
are transferred. The current 90% of value test will no longer be required. If leases do not meet the definition of a finance lease, they will be classified as an operating
lease with the rent going through the SOFA. However, there will be substantial changes to the disclosures required. On first time adoption, you have the option to
reassess whether any lease arrangements are finance lease or operating leases based on the facts at the transition date.
Lease incentives received used to be spread over the period remaining to when the rent reverted to a market level, usually when a break occurred. Under FRS 102,
the incentive received will be spread over the most likely term of the lease. The charge against income each year will be smaller as a result.
We understand that this is not likely to impact on the reporting by Liverpool Hope Students’ Union.
Remuneration of senior management
Charities reporting under FRS 102 must disclose the total amount of employee benefits received by its key management personnel for their services to the charity. It
is the Union’s responsibility to identify its key management personnel.
Financial instruments
Financial instruments, such as interest rate swaps or forward foreign currency contracts, will be required by FRS 102 to be included on the Balance Sheet for the
first time which could have a direct impact on the reported surplus/deficit. Financial instruments are initially recognised at fair value, which is normally the transaction
price, and are subsequently re-measured at fair value with any changes in the fair value recorded in the Statement of Financial Activities.
FRS102 also requires substantially more disclosures and the associated risks required in the financial statements.
We understand that this is not likely to impact on the reporting by Liverpool Hope Students’ Union.
7
Future reporting under FRS 102 and the new Charity SORP
Pension reporting under FRS 102
For charities with continuing defined benefits pension scheme liabilities, there will be some potentially significant differences between the current FRS 17 accounting
requirements and the approach to pensions accounting required under FRS 102.
The key area of change will be in recognition of multi-employer schemes such as Students’ Unions Superannuation Scheme (“SUSS”). A multi-employer scheme is
one which has a number of employers all contributing into it. As under FRS 17, if you cannot allocate the scheme’s assets between the different employers the
scheme is treated as a defined contribution scheme with additional disclosure requirements.
However, the accounting for this has been refined in two areas:
If the employer has entered into an agreement to fund a deficit, the present value of the funding liability should be recognised on the balance sheet. This would not
have been required previously as funding contributions are only recognised when they fall due.
If all of the members of a multi-employer scheme are within a group and the assets and liabilities cannot be allocated between the members, they must be
recognised in full in the entity legally responsible for the plan.
Transitional disclosures
FRS 102 requires the presentation of reconciliations of a charity’s funds as determined in accordance with the previous financial reporting framework and its funds
determined in accordance with FRS 102 at two dates:
(a) the date of transition to FRS 102; and
(b) the end of the latest period presented in the entity’s most recent annual financial statements determined in accordance with its previous financial reporting
framework.
FRS 102 also requires the presentation of a reconciliation of “profit or loss” determined in accordance with its previous financial reporting framework and reported in
the entity’s most recent annual financial statements to its profit or loss determined in accordance with FRS 102 for the same period.
8
Future reporting under FRS 102 and the new Charity SORP
4.
Fraud and error
In our engagement letter, we explained that the responsibility for safeguarding the assets and for the prevention and detection of fraud, error and non-compliance
with law or regulations rests with the trustees of Liverpool Hope Students’ Union.
However, no internal control structure, no matter how effective, can eliminate the possibility that errors or irregularities may occur and remain undetected. In addition,
because we use selective testing in our independent examination, we cannot guarantee that errors or irregularities, if present, will be detected. Accordingly our
independent examination should not be relied upon to disclose all such misstatements or frauds, errors or instances of non-compliance as may exist.
Usually fraud in the charity sector is not carried out by falsifying the financial statements. Falsifying statutory accounts usually provides little financial benefit, as
compared to say a plc where showing a higher profit could lead to artificial share prices or unearned bonuses. However falsifying accounts can be used to permit a
fraud or to avoid detection. As a generality charities represented by its management and its trustees do not actively try to falsify accounts as there are not the same
incentives to do so. In the charity world fraud is usually carried out through misappropriation or theft.
We emphasise that the trustees and management should ensure that these matters are considered and reviewed on a regular basis.
We have included the following statements in the letter of representation which we require from the trustees when the financial statements are approved.

The trustees acknowledge their responsibility for the design and implementation of internal control to prevent and detect fraud and errors.

The trustees have assessed that there is no significant risk that the financial statements are materially misstated as a result of fraud.

The trustees are not aware of any fraud or suspected fraud affecting the charity involving management, those charged with governance or employees who
have a significant role in internal control or who could have a material effect on the financial statements.

The trustees are not aware of any allegations by employees, former employees, regulators or others of fraud, or suspected fraud, affecting the charity’s
financial statements.
We draw your attention to bullet point 2 above which presupposes that an assessment has been made. We have not been made aware of any actual or potential
frauds which could affect the 2014 financial statements, or the period since the 2014 year end.
We emphasise that this section is provided to explain our approach to fraud and error, but the responsibility to make and consider your own assessment rests with
yourselves.
Management override of controls
No instances of management override have come to our attention as a result of our work. However, we continue to recommend that, as journals can be processed
without review, that checks on these should be conducted on a regular basis.
The following provides further information on the three kinds of fraud that charities such as Liverpool Hope Students’ Union should consider.
9
Fraud and error
Frauds of diversion
This is where income or other assets due to Liverpool Hope Students’ Union are diverted before they are entered into the accounting records or control data.
Essentially, it is easy to check what is there but very difficult to establish that it is all there. Therefore ensuring the completeness of income provided to a charity
becomes difficult.
The issue explained earlier regarding clubs and society income would be an example of a fraud of diversion.
Frauds of extraction
This is where funds or assets in possession of Liverpool Hope Students’ Union are misappropriated. Such frauds can involve own staff, intermediaries or partner
organisations since they require assets that are already in the possession of the entity being extracted fraudulently. This could be by false invoices, overcharging or
making unauthorised grant payments.
Essentially such frauds are carried out due to weaknesses in physical controls over assets and system weaknesses in the purchases, creditors and payments cycle.
The cycle can be evaluated by considering questions such as who authorises incurring a liability and making a payment. On what evidence? Who records liabilities
and payments? Who pays them and who checks them?
The close monitoring of management accounts, ledger entries and strict budgetary controls are also generally seen as an effective way of detecting and deterring
frauds in this area.
Backhanders and inducements
There is also an inherent risk that individuals who are able to authorise expenditure or influence the selection of suppliers can receive inducements to select one
supplier over the other. This risk can be mitigated by robust supplier selection and tendering procedures. We understand that major spend decisions are not taken
by one person and therefore this risk is reduced.
10
Fraud and error
5.
Cyber security: a strategic risk management issue
Today’s organisations collect process and retain more information than they have ever done. For not for profits, this information can be internal so can be about their
own operations or employees or their ‘business’ or collected from external sources such as from beneficiaries, donors, or even customers, if they run any trading
activities.
The impact of this digital retention of information means that organisations have become more dependent on information systems and more vulnerable to attack by
sophisticated cybercriminals or even their own employees.
The results of numerous surveys and research show that organisations are still not adequately protected against cyber-attacks. Nearly two-thirds of companies
across sectors and regions responding to a joint research carried out by McKinsey and the World Economic Forum described the risk of cyber-attack as a
“significant issue that could have major strategic implications.”
The impact of the controls put in place to mitigate against this risk is thought to be having negative business impacts by slowing the use of technology such as the
use of public-cloud services and even reducing productivity by limiting the employee’s ability to effectively share information.
Making organisations cyber-resilient is therefore now regarded as a key strategic risk management issue which should be monitored by Chief Executives and
Boards. The following are some of the factors that organisations should consider.

Prioritise which information asset should be protected – so for example for a charity with large donor base this could be the donor information.

Consider differentiating protection based on the prioritisation – so for example, more rigorous passwords or encryptions.

Integrate security into technology projects from the outset.

Use defences such as firewalls to uncover attacks – consider penetration testing.

Test the organisations response to breaches – so make sure there is a strategy in place known by the communication team for managing the messages
when a breach occurs.

Raise your employees and users understanding and awareness of the importance of protecting the not for profit’s information. Often organisations are made
vulnerable to attacks because employees and volunteers do not observe the basic information security measures – for example by emailing sensitive files to
a large group or using memory sticks with bugs or clicking on unsecure links. Help the organisation understand the risks.
Cybersecurity should become a board agenda item and be integrated into functions such as HR or donor management or fundraising.
The Department for Business, Innovations & Skills (BIS) have produced a paper entitled, “Cyber Risk Management – A Board Level Responsibility” and produced 6
questions to assist organisations in supporting strategic level discussions and ensuring that the right safeguards and cultures are in place. We believe that these
questions, with a slight change in focus, are equally applicable to charities, including Students’ Unions.
11
Cyber security: a strategic risk management issue
Key Questions for Senior Management and Boards
Protection of key information assets is critical
1.
How confident are we that our charity’s most important information is being properly managed and is safe from cyber threats?
2.
Are we clear that the Trustees and Senior Management are likely to be key targets?
3.
Do we have a full and accurate picture of the following?

The impact on our charity’s reputation or existence if sensitive internal beneficiary or supporter information held by the charity was to be lost or stolen?

The impact on the charity’s activities if its online activities were disrupted for a short or sustained period?
Exploring who might compromise our information and why is critical.
4.
Do we receive regular intelligence from the Chief Information Officer / Head of Security on who may be targeting our charity, their methods and their
motivations?
5.
Do we encourage our technical staff to enter into information sharing exchanges with other charities in our sector and/or across the economy in order to
benchmark, learn from others and help identify emerging threats?
Pro-active management of the cyber risk at Board level is critical
6.
The cyber security risk impacts reputation, culture, staff, information, process control, brand, technology, pricing and finance. Are we confident that:

We have identified our key information assets and thoroughly assessed their vulnerability to attack?

Responsibility for the cyber risk has been allocated appropriately? Is it on the risk register?

We have a written information security policy in place, which is championed by us and supported through regular staff training? Are we confident the entire
workforce understands and follows it?
12
Cyber security: a strategic risk management issue
Appendix 1 - Systems and controls issues
We have set out below certain potential improvements to the charity’s processes and controls which we noted during our independent examination work and which
we believe merit being reported to you.
Our evaluation of the systems of control at Liverpool Hope Students’ Union was carried out for the purposes of our independent examination, the scope of which is
significantly less than an audit, and accordingly it is not intended to be a comprehensive review of your business processes. It would not necessarily reveal all
weaknesses in accounting practice or internal controls which a special investigation might highlight, nor irregularities or errors not material in relation to the financial
statements.
In order to provide the Committee with a clearer picture of the significance of issues raised, we have graded the issues raised by significance before any corrective
actions are taken: We have also included as an appendix a brief update on the matters we raised last year.
High
These findings are significant and require urgent action.
Medium
These findings are of a less urgent nature, but still require reasonably prompt action.
Low
These findings merit attention within an agreed timescale.
Independent examination finding and recommendation
1.
Priority
Expenditure system
There is a lack of segregation of duties in relation to the expenditure system. The Union
Manager is able to raise Purchase Orders, authorise invoices and make payments. The Union
Manager is also responsible for inputting supplier bank details.
The only apparent mitigating control is the requirement for two signatories for any expenditure
in excess of £250.
13
Management response
The Trustees are reviewing Purchase Order
authorisation and payment procedures and
approvals, with a view to enhancing responsibilities,
controls and duty segregation, involving Sabbatical
Officers. The ‘two signature’ control will remain.
Appendix 1 – Systems and controls issues
Independent examination finding and recommendation
2.
Priority
Clubs and society income
Sports and societies will collect income (fundraising, membership fees etc.) and will then bring
the cash to the Union Manager to be counted. No supporting documentation is provided by the
club/ society (e.g. takings sheet) meaning that there is the potential for misappropriation of
cash prior to the cash being received at the Students’ Union.
It is recommended that income is reconciled to membership listings or attendance registers
where appropriate and that, where feasible, clubs and societies are encouraged to provide
documentation in respect of cash takings.
3.
Petty cash
Management response
The risks are recognised and consideration will be
given to putting in place a more formal ‘receipt’
process. However, there are inherent and practical
limitations as we discussed at the clearance meeting
given the nature of this area, and full implementation
of a completely watertight control is not within
Trustees control. All clubs/societies have and will
again be reminded of their continuing responsibility
to ensure all cash is collected, recorded and
accurately reported on a timely basis.
Noted and agreed
Petty cash is counted and banked by a single individual (Union Manager). It is recommended
that two individuals are present when cash is counted and that both individuals sign the
relevant petty cash sheet.
4.
Fixed asset register
The Union does not maintain a formal Fixed Asset Register despite the fact that the financial
statements disclose a total cost of £282,537 for fixed assets. However the Net Book Value of
these assets is nil.
We would recommend that a formal review of the fixed assets owned and used by the
Students’ Union is undertaken and reconciled to the nominal ledger.
14
An asset inventory will be completed and an estimate
of the carrying value of all assets will be made,
compared with the accounts cost and any adjustment
necessary will be made in the Fixed asset note
disclosure in the 31 7 2015 accounts. The inventory
will form the basis for the SU asset register
Appendix 1 – Systems and controls issues
Appendix 2 - Matters from last year
We have set out below the issues on which we reported after our independent examination last year together with an update on how the points raised have been
addressed including information on the progress made at the time of the independent examination of the 2014 financial statements.
Recommendation fully implemented or no longer relevant
Recommendation partially implemented
No progress on recommendation
Observations in 2013
Update` 2014
1. Accounting records
During the year, unidentified income of £14,048 has been recognised and banked, and reported
as Event Income in the absence of any further information. An amount of £4,194 has been written
off from petty cash balances to agree the amounts held as petty cash at the year end to known
movements in petty cash. Again this has been posted to Event Income in the absence of further
information, on the basis that it would appear reasonable that some of the unrecorded income had
been used to fund clubs and society expenditure.
2.
Sales ledger and purchase ledger
Purchases and sales ledgers have not been maintained with the potential for assets and liabilities
to be understated at the year end. We have reviewed invoices paid after the end of the year to
estimate outstanding liabilities as at the year end.
3.
No instances of unidentified income and expenditure
were noted during the current year. The accounting
records appear significantly more complete than in
2013.
A sales ledger and purchase ledger is now maintained
on Microsoft Excel.
Fixed asset register
The fixed asset register has not been reviewed during the accounting year and updated for
additions and disposals, potentially misstating the net book value of fixed assets.
15
As noted in appendix 1 above no formal Fixed Asset
Register is maintained. Management Response in
Appendix 1 item 4 refers to this.
Appendix 2 – Matters from last year
Observations in 2013
4.
Update` 2014
Expenditure
Expenses have been made throughout the year without supporting documentation (i.e. receipts)
being received. Furthermore, round sum amounts have been withdrawn from the bank account
with no supporting documentation as to actual amounts spent or analysis of any balance not
spent. There is therefore no assurance that expenditure has not been misappropriated, made for
ultra vires activities or is correctly disclosed in the financial statements.
Supporting documentation is now retained and was
available for all transactions reviewed during the
independent review.
We would recommend that expenses are only reimbursed on presentation of supporting
documentation and a claim form that analyses the type of expenditure and the relevant
expenditure budget the costs should be charged to.
5.
Erroneous payments
Three payments totalling £3,296 were made erroneously in the three months from April into the
bank account of a Mr S Clifford, instead of to Counter Culture in settlement of their fees for
consultancy, due to an error in entering the bank account number of the receiving bank account.
Whilst this would have presumably been identified by Counter Culture requesting payment for
their outstanding fees, Mr S Clifford highlighted the error by contacting the Union following the
receipt into his bank account.
No erroneous payments were identified during the
current year.
The lack of segregation of duties in relation to the
expenditure system has been discussed in appendix 1
above.
We would recommend that online payments are prepared by one individual and reviewed and
authorised by another before payment is made to reduce the likelihood of errors being made.
6.
Advances on wages and salaries
We have been made aware that Sabbatical Officers have made requests for advances to be
made on their salaries, for which the Union does not have a formal policy.
Whilst the Sabbatical Officers are remunerated for their work in accordance with the Union’s
constitution, they are also trustees of the Union and should not be perceived to receive any
benefits from their position as trustees. We would recommend that a formal policy is introduced
to govern the payment and recollection of any advances made on an officer’s salary and that any
advance paid is on exceptional circumstances only, and not a regular occurrence.
16
We have been informed that the practice of paying
Sabbatical Officer salaries in advance has ceased and
no such advances were identified during the current
year.
Appendix 2 – Matters from last year
Observations in 2013
7.
Update` 2014
Fixed assets – other assets
There are a significant number of other assets included on the fixed asset register that may no
longer exist in the Union, in particular c. £6,500 relating to Clubs and Societies’ kit and equipment,
and Ents equipment of c. £3,200. Many of these assets are reported as having an initial cost of
less than £500. Whilst there is no effect on the net book value of the assets as they are fully
depreciated, the cost and accumulated depreciation are potentially overstated. We have
reviewed the fixed asset register for assets with a net book value and adjusted the financial
statements where we have identified the asset is no longer in use.
We have repeated our recommendation in Appendix
1. Management Response in Appendix 1 item 4 refers
to this. may we have copy of the fixed asset register to
which you refer please
We would recommend that the Union reviews the fixed asset register and recognise the disposal
of any fixed assets that are no longer in use in the Union. A capitalisation policy should be
established below which assets are not capitalised, in accordance with the Charities SORP, to
prevent the fixed asset register from becoming overly burdensome.
8.
Stock
During the year, the Union purchased a quantity of t-shirts and polo shirts from Genesis Sports,
an online retailer, who retain the stock and customise the stock based on the customers’
requirements. Income from the sale of goods is retained by Genesis Sports who issue a credit
note to the Union on the sale of stock with a 10% rebate against future purchases.
Stock has been fully provided for during the current
financial year as it is noted that the stock of clothing is
old and may be viewed as being out of fashion. A
gross provision of £3,240 has been recognised.
A three year agreement has been entered into with Genesis Sport to provide kit from 1 August
2012. We note that this is an unusual commercial agreement.
17
Appendix 2 – Matters from last year
Observations in 2013
9.
Update` 2014
Charities SORP
This is the first year that the Union has adopted the Charities SORP: Accounting and Reporting
for Charities.
The financial statements for the year ended 31 July
2014 have been consistently prepared in accordance
with the Charities SORP.
As financial statements have not been formalised for the prior period, the comparative balances
have been restated for the adoption of the SORP without a prior year adjustment.
These adjustments are as follows:

To recognise funds brought forward for clubs and societies as restricted funds in the
reserves on the balance sheet and the income received and expenditure incurred during
the year through the Statement of Financial Activities (SoFA).

The SORP requires that any donated services or facilities be recognised in the Statement
of Financial Activities (“SoFA”) “where the benefit to the charity is reasonably quantifiable
and measurable. The value placed on these resources should be the estimated value to
the charity of the service or facility received.”
The Union occupies its premises on a rent-free basis from the University and receives other
services free of charge. An estimate of the value the Union would be required to pay to occupy
similar facilities is required to be recognised as income and an associated expense in the SoFA.
The SoFA reports the cost of the charity’s various activities and governance costs, allocating the
overhead costs involved in the operation of the charity as support costs on an appropriate basis.
This discloses the complete cost of providing the Union’s charitable services to students.
18
Appendix 2 – Matters from last year
Observations in 2013
Update` 2014
10. Restricted funds
The Union was awarded a grant from NUS’ Green Fund towards the end of the year for the
development of an allotment by the Green Hope Society. This had been accrued in the draft
financial statements as accrued income.
Appropriate disclosure has been made in the financial
statements for the year ended 31 July 2014 for
restricted and unrestricted funds.
This has been adjusted in the financial statements to comply with the Charities SORP that states
that income should be recognised upon entitlement and held as a restricted fund where there are
restrictions on how the expenditure can be applied. Relevant disclosure has been included in the
funds note regarding the nature of the restriction.
The accounting records should provide detailed analysis of restricted income and expenditure to
allow recognition and disclosure in the annual financial statements.
19
Appendix 2 – Matters from last year
Observations in 2013
Update` 2014
11. Restricted funds in deficit
There are several clubs and society funds in deficit at the year end, in particular the Men’s Gaelic
fund is overdrawn by £7,782 due to a particularly successful year in British Universities and
Colleges Sports (BUCS) competitions.
We understand that the deficit is to be made good by income from future periods being applied to
the deficit before further funding is allocated to the clubs and societies by the Union. Whilst this
would appear prudent, it is debatable whether future members would be willing for their income to
be applied to fund deficits incurred by prior years’ members. Conversely, should the Union fund
the deficits itself, it may be seen as a lack of control over clubs and society spending and reduce
any control over spending.
We would recommend that trustees consider formalising a policy for the repayment of overdrawn
clubs and society balances and endeavour to control clubs and society spending within
established budgets.
20
We note that the clubs and societies identified as
being in deficit at the end of the last financial year
have either recovered the deficit from current year
income or from a transfer of funds from the
unrestricted fund. The amount of £845 referred to re
2014 was discussed and explained at the clearance
meeting. It represented the difference between the
closing restricted funds balance in the approved
accounts and that balance shown in the various
clubs/societies opening balances in the accounting
records, the presumption being that the transfer
between funds needed correcting as a consequence.
You have suggested and we have agreed the amount
should be reflected as restricted fund ‘other income’
ensuring that disclosure concerning Transfer between
Funds in the SoFA at 31 7 2014 is equal between
restricted and unrestricted funds.
Appendix 2 – Matters from last year
Appendix 3 - Reporting independent examination adjustments
We report to you all misstatements which we identified as a result of the independent examination process but which were not adjusted by management, unless
those matters are clearly trivial in size or nature.
We have reported in section 2 above significant matters from our independent examination and the potential financial impact. In addition to these items we identified
certain other items which have been adjusted in the draft financial statements. We have summarised below the overall impact of these items on the financial
statements.
Net income
increase /(decrease)
Assets
increase /(decrease)
Liabilities
increase /(decrease)
Opening funds
increase/ (decrease)
£
£
£
£
19,108
-
-
-
Difference between creditors per Purchase Ledger and creditors
per draft accounts
(400)
-
400
-
TSB Card Commission Debtor included twice in error
(848)
(848)
-
-
Amounts loaned to sports clubs
(1,245)
(1,245)
-
-
Total potential adjustments
(2,493)
(2,093)
400
-
Potential revised results / funds per the financial statements
16,615
Net results / funds per financial statements presented to the
trustees
21
Draft representation letter
Appendix 4 - Draft representation letter
Michael Jayson
Crowe Clark Whitehill LLP
The Lexicon
Mount Street
Manchester
M2 5NT
Dear Sir
We confirm that the following representations are made on the basis of sufficient enquiries of trustees, executive management and staff with relevant knowledge and
experience and, where appropriate, of inspection of supporting documentation and that, to the best of our knowledge and belief, we can properly make each of these
representations to you for the purpose of your independent examination of the financial statements of Liverpool Hope Students’ Union for the year ended 31 July
2014 under the Charities Act 2011.
1. We acknowledge that the work carried out by you is substantially less in scope than an audit performed in accordance with Auditing Standards and that you do
not express an audit opinion.
2. We acknowledge our legal responsibility for the preparation of the financial statements to show a true and fair view as required by law and therefore confirm for
your particular purposes that in our view these comply with the methods and principles set out in the Charities Act 2011, the regulations made under it and the
Charities SORP: “Accounting and Reporting by Charities: Statement of Recommended Practice”.
3. We acknowledge our management responsibility for the maintenance of adequate internal control systems and procedures designed to prevent and detect fraud
and error. We have no knowledge of any fraud, suspected fraud or allegations of fraud which could affect the charity.
4. All the financial transactions of the charitable company for the year as recorded in the accounting records and any other related information has been made
available to you for your inspection.
5. The financial statements are free of material misstatements, including omissions, to the best of our knowledge and belief.
6. There are no material liabilities or contingent liabilities known to us other than those disclosed in the financial statements, including any guarantees to third
parties.
7. No claims in connection with litigation have been or are expected to be received to the best of our knowledge and belief.
8. There have been no events to our knowledge since the balance sheet date which require disclosure or which would materially affect the amounts in the financial
statements other than those already disclosed or included in the financial statements. Should any material events occur which may necessitate revision of the
figures in the financial statements, or inclusion in a note thereto, we will advise you accordingly.
9. We confirm that we are not aware of any possible or actual instance of non-compliance with those laws and regulations which provide a legal framework within
which the charitable company conducts its activities.
10. We confirm the completeness of the information provided regarding the identification of related parties, and the adequacy of related party disclosures in the
financial statements.
22
Draft representation letter
11. We confirm that, having considered our expectations and intentions for at least the next twelve months and the availability of working capital, the charitable
company is a going concern. We are unaware of any events, conditions, or risks beyond the period of assessment that may cast significant doubt on the
charitable company’s ability to continue as a going concern.
12. All grants, donations and other voluntary incoming resources, the receipt of which is subject to specific terms and conditions, have been notified to you. There
have been no breaches of terms or conditions in the application of such voluntary incoming resources.
13. We confirm that we are not aware of any breach of our charitable trusts and that we have advised you of the existence of any endowments and restricted
income funds maintained by us.
Yours faithfully,
………………….
Trustee
Signed on behalf of the board
On ………………….
23
Draft representation letter
Appendix 5 - External developments
We have summarised below some of the developments and changes in the charity sector over the recent period which we believe may be of interest and relevant to
you. Please note that this information is provided as a summary only and that you should seek further advice if you believe that you have any specific related issues
or intend to take or not take action based on any of the comments below.
We issue a regular technical briefing for charities by email. If you would like to receive this please email your details to nonprofits@crowecw. co. uk . Alternatively,
these briefings are available on our website.
Charity senior executive pay report – transparency vital for public trust
Following an inquiry over the summer of 2013, the National Council for Voluntary Organisations in April 2014 issued a report on senior executive pay in the not for
profit sector.
The report recommends that charities should publish full details of senior executive pay in order to maintain public trust. Currently, charities with audited accounts
are required by the SORP to disclose the number of staff in pay bands over £60,000. However, the report recommends that these charities publish a remuneration
statement explaining their pay strategy, stating the remuneration of their highest-paid staff by position and name.
The report sets out five recommendations:

that the report’s principles for setting charity remuneration are adopted as good practice by all charities.

that all charities with a gross income of over £500,000 should adopt a remuneration policy.

that charities consider the esteem and the value – financial or otherwise – derived by employees from working for a charity and the impact this may have on
setting levels of remuneration for senior staff and others throughout the organisation.

that charities with an income of above £500,000 consider the use of remuneration ratios as a helpful tool to assist in their approach to pay (the relationship
expressed as a multiple between the highest pay to median pay is regarded as the most reliable measure of pay throughout an organisation.

that as good practice all charities with independently audited accounts should publish an annual statement explaining their charity’s ethos and policy on
remuneration and explain how this impacts on the delivery of their charitable purposes.
The report suggests that this information should be brought together, not only within the annual accounts, but also on the charity’s website no more than two clicks
away from its home page.
The report can be seen on the NCVO website http://www.ncvo.org.uk/images/documents/about_us/our-finances-and-pay/Executive_Pay_Report.pdf .
24
Appendix 5 - External developments
Guidance for Trustees on how to manage conflicts of interest
The Charity Commission in May 2014 issued a new guide for trustees about how to manage conflicts of interest. Whilst there are no changes to the legal duties of
trustees, the new guidance is designed to explain the principles and practical steps in a clearer way.
Conflicts of interest affect charities of all types and sizes. They can lead to decisions that are not in the best interests of the charity and which are invalid or open to
challenge. Conflicts of interest can also damage a charity's reputation or public trust and confidence in charities generally.
These harmful effects can be prevented where individual trustees can identify conflicts of interest, and the trustee body can act to prevent them from affecting their
decision making.
The guidance sets out practical steps to help trustees identify, manage and record conflicts of interest and the Commission recommends that trustees read the
guidance to understand the basics, and how they expect trustees to deal with conflicts of interest facing them or their charity.
The guidance and more information on this can be seen on the Charity Commission website http://www.charitycommission.gov.uk/detailed-guidance/trustees-staffand-volunteers/conflicts-of-interest-in-charities/ .
Top tips to avoid cheque fraud
The Cheque and Credit Clearing Company (C&CCC) has published a fraud prevention guide to help charities safeguard themselves from fraud when paying by
cheque.
Although figures published by Financial Fraud Action UK show that cheque fraud fell by 22% last year - down from losses of £35.1 million in 2012 to £27.5 million in
2013 - with most charities still being regular users of cheques following common sense advice will help minimise their chances of being part of these statistics.
The guide is available to download from the C&CCC’s website http://www.chequeandcredit.co.uk/media/news/-/page/2122/ .
25
Appendix 5 - External developments
Audio podcasts for charity trustees and management
The Charity Commission have during 2014 published various audio podcasts designed to help charity trustees and management understand particular aspects of
trusteeship or charity law to provide an introduction to their online guidance. The podcasts issued currently cover the following key areas.

Big Board Talk - questions a trustee board should ask themselves about their strategic plan and their financial health

Big Board Talk - questions a trustee board should ask themselves about how effective they are as a board and whether they are making the most of their
resources

Conflicts of Interest: What can your charity learn from this case study?

Internal Financial Controls: What can your charity learn from this horror story?

Managing disputes

Protecting your charity from harm from extremist abuse

Beneficiaries as trustees
The podcasts are available on the Charity Commission website http://www.charitycommission.gov.uk/about-the-commission/press-office/media-informationcentre/podcasts/ .
New guidance on campaigning issued by the Electoral Commission
The Charity Commission has advised charities to follow the new guidance on campaigning as produced by the Electoral Commission. ‘Charities and Campaigning’
covers both charity and electoral law and explains how charities should comply with all the relevant legislation when campaigning in the run up to an election.
The guidance follows the introduction of the Lobbying Act which changed the rules for non-party campaigners in the run up to elections, including the requirement for
organisations to register with the Electoral Commission if they spend more than a set threshold on certain activities during the regulated electoral period.
The Electoral Commission guidance can be seen on their website http://www.electoralcommission.org.uk/__data/assets/pdf_file/0010/165961/intro-campaigningcharities-npc.pdf .
Additional guidance is also available from the Charity Commission - “Speaking out and political activities by charities” http://www.charitycommission.gov.uk/detailedguidance/managing-your-charity/speaking-out-guidance-on-campaigning-and-political-activity-by-charities-cc9/ .
Flat-rate state pensions from April 2016
The Chancellor has confirmed the Government’s proposals that the flat-rate state pension will start in April 2016 - a year earlier than previously planned. This will
impact on employers and employees who currently contribute to pension schemes which are accepted for the purposes of contracting-out of the State Earnings
Related Pension Scheme and the State Second Pension.
Employers will no longer receive the current contracted-out NI rebate for salary-related pension schemes and will therefore have to pay 3.4% extra in NI
contributions. Employees will be required to pay an extra 1.4% in NI contributions.
Clearly it will be important that charities recognise these future NI changes in their budgeting and other considerations for future years.
26
Appendix 5 - External developments
Appendix 6 - Upcoming Not for Profit events, courses and briefings
We believe it is important to keep our clients up to date on the issues that affect them. As a part of our ongoing communication, we regularly hold seminars and
courses. Below are details of our upcoming events.
Breakfast briefings
The briefings will be run by experts from our not for profit unit and are designed to address the key issues facing not for profits. The briefings will be free of charge
and they will start at 09:00 and finish at 10:15 in our London officce.

Managing reserve
20 Oct 2014

Managing major projects
6 Nov 2014

Co-sourcing internal audit
13 Nov 2014

Trustee function of the future
9 Dec 2014
Other events in London which may be of interest

Trustee essentials – emerging issues
1 Oct 2014

SORP workshop, jointly hosted with AVECO
20 Oct 2014

Charity VAT reliefs training
23 Oct 2014

Charities VAT training
19 Nov 2014

Trustees Governance seminar
20 Jan 2015
To register for any of the above events, please visit our website www.croweclarkwhitehill.co.uk/nfp or email nonprofits@crowecw.co.uk
27
Appendix 6 - Upcoming Not for Profit events, courses and briefings
Additional regional events

Salary sacrifice and expenses (Worcester)
25 Sept 2014

Regulatory accounting and SORP update (Oxford)
22 Oct 2014

An introduction to VAT for charities (Manchester)
4 Dec 2014

Annual Charity Seminar (Cheltenham)
19 Mar 2015
Charity Finance Group events
The following events are being presented in London in partnership with the Charity Finance Group.

Performance management
21 Nov 2014

Preparing for SORP 2015
2 Dec 2014

Cybersecurity
5 Dec 2014
To register for any of these jointly hosted events, please visit www.cfg.org.uk/events
28
Appendix 6 - Upcoming Not for Profit events, courses and briefings
Find out more about us at
www. croweclarkwhitehill. co. uk
Crowe Clark Whitehill LLP is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal entity. Crowe Clark Whitehill LLP and its affiliates are not responsible or
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