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AIA

Auditor Hillier Hopkins drawn into Cup Trust probe

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31st Mar 2014
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The Financial Reporting Council (FRC) is extending its investigation into the discredited Cup Trust tax avoidance scheme to include the charity’s auditor, Hillier Hopkins.

The regulator is already looking into whether any accountants committed misconduct in the creation and operation of the Cup Trust charity and its tax planning activities.

The Cup Trust gained particular notoriety last year when the Public Accounts Committee identified it as an example of the worst excesses of the tax avoidance industry, and criticised the Charities Commission for failing to spot the abuses.

As the sole trustee of the Cup Trust, Mountstar (PTC) raised more than £176m in donations from higher-rate taxpayers for the trust, allowing the charity to claim £46m in Gift Aid from HMRC, with donors entitled to claim £55m in higher-rate tax relief. The scheme was promoted by HNW Tax Advice Partners, of whom partner Matthew Jenner also acted as a director of Mountstar.

In a separate report, also published last year, the NAO noted that the Cup Trust gave just £152,292 to charitable causes between April 2009 and March 2013 - equivalent to 0.03% of the amounts donated.

The NAO also concluded that the Charity Commission failed to check the Cup Trust met the legal requirements when it registered it as a charity and was then too slow to act when problems emerged.

With Gift Aid claims piling up for 2009-10 and 2010-11 HMRC opened an enquiry into the charity in December 2012 and notified the charity it would withhold any gift aid payment until completion of that enquiry.

The sequence of events is set out in a Charities Tribunal decision delivered in October 2013. This decision refused Mountstar’s application to quash the commission’s investigation, which it claimed had been motivated by the Charity Commission’s desire to counteract negative publicity, but it still criticised the commission for failing to act while the tax dispute continued with HMRC.

The tribunal case threw more light on the mismanagement and conflicts of interest within the Cup Trust, and the failure of the trustees (Mountstar) to comply with HMRC filing requirements and requests from the Charity Commision for its accounts and other documents.

When an interim manager appointed by the commission took over responsibility for the trust in April 2013, five signed, blank cheques were discovered in the charity’s safe. To the tribunal judges, this indicated a “disregard” for authorisation and record keeping procedures.

This episode occurred after the financial periods that the FRC will be investigating - which will cover the preparation and audit of the financial statements for the years ended 31 March 2010 and 31 March 201 - but certainly raises questions about the controls that were in place at Cup Trust.

As the charity tribunal judges noted, “If blank cheques are signed the signatory has no idea whether it will be paid to a duly authorised grantee and cannot record and sign the cashbook. If this is done at a later stage, the auditor will be proceeding on the false premise that all is in order and the internal controls are being observed when they are not.” 

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