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‘when is it permissible for an organisation to dis-include sales and purchase invoices from the formal accounts

Under what circumstances can a not for profit organisations' board of directors dis-include sales invoices from the management accounts where they have paid their own firms fees recieved from a client of the N4P against full value purchase invoices?

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16th Jan 2013 20:59

Loaded question?

I sense there is a bit of a back story here, so it might be helpful if you can give a bit more detail. I can certainly imagine circumstances where an agency introduces a client to another service provider and acts as intermediary, and that depending on the contractual arrangements, might not recognise the income or the expenditure in its own books.

And there is no law about what has to go into management accounts; they are designed according to the organisations needs.

However, when it comes to stat accounts it's a different matter; any related party transastions should be disclosed, whether or not they are recognised in the p&l.

If you think there is something potentially underhand, you could consult the board's conflicts of interest policy, and see if it has been followed. If not you could raise your concerns with the chair.

The organisation's constitution may also have rules about whether directors can supply services to the organisation (most charity ones do).

Hope this helps

 

 

 

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By MsMJH
17th Jan 2013 12:14

Many thanks, the response is certainly helpful.

The quick back story is my former private membership business is under license to an organisation I also set up as a N4P which I stepped down from a couple of years ago. The remuneration under a License Agreement is based on 'all sales turnover' - but it has come to light that sales invoices are not being shown in sales turnover. A company approached the N4P to use its (my licensed) brand as an ednorsement of its product ranges. Two N4P Board directors operating under the N4P brand handled the negotiations and produced an endorsement scheme which was invoiced to the 'client company' via the N4P but where the entire value was then invoiced by the N4P directors own firms to the N4P. None of these transactions appear in the N4P accounts provided to the Licensor.

We have less of an issue regards some of the work being undertaken by qualified Board directors, we have an issue with absolutely no financial gain provided to the N4P from the contract secured under its name and use of its brand under license.

This situation is also not restricted to one contract. Another organisation who invited the N4P to act as 'industry advisor' (a role of the N4P) and paid a fee invoiced by the N4P also does not appear in the sales figures P & L or balance sheet.

So it appears that the Board are advantaging themselves first and foremost and using the brand as a vehicle to secure contracts for their own businesses the financial value of which is not benefitting the N4P business under license (ir therefore its members equally) and therefore diminishes the license fee income

It is useful to know that the transactions need to be disclosed in the statutory accounts.

If they are manipulating contracts using the N4P as an 'agent' is there a standard requirement for the N4P to retain a % of the value of the contract - or can the board make a decision that it recieves nothing in favour of their own companies gaining all financial advantage.

It is a case of game keeper turned poacher. I have engaged a lawyer but as he is not an accountant so I wanted to assess whether their actions breach any normal or statutory accountancy practices /procedures.

Many thanks

 

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There's no such word as dis-include

You're avoiding using the words exclude and omit for some reason.

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17th Jan 2013 12:22

One for the lawyers, I think...

Does the licences agreement include a right for you to examine the N4P's books & accounts? It might be worth invoking it, then if the facts are as you suggest, you can inform them of the breach of contract, and give them time to pay the amount due. Then it is up to them to justify the omission.

The examination might cost something, and would probably be better done by another professional/accountant (i.e. not you personally, in case things get heated). This may have a cost attached, so it is up to you whether it is worth it. But it will certainly help keep them on the straight & narrow.

 

 

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By MsMJH
17th Jan 2013 13:27

Hello

Yes we have audit rights and a stipulation that they must provide accounts produced by a Chartered Accountant. They operated for a year without an accountant and have only just engaged another one (who I don't believe is chartered) and are engaging new book keeper - so perhaps a better standard will prevail shortly .......

Their justification of the omission to date comprises 'the board (them) are satisfied that all actions and decisions are impeccable'. Ahem .. err licensee needs to satisfy licensor ..

It's bluff and arrogance -

We'll get to the bottom of it sooner or later. Our biggest concern is that they will cancel the License Agreement and simply change the brand name and run off with the business. However, if they do that, the membership is likely to be up in arms and the whole thing would sadly, collapse.

Hey ho

Thanks again for you time, experience and advice - much appreciated and I now feel better informed regards the agent role they seem to be adopting, the management accounts ommissions adopted and importantly, the statutory disclosures.

Best regards

BTW - where are you based?

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