Where's the money gone?

It is often difficult to find someone willing to act as honorary treasurer for a voluntary organisation and Upper Slagbank's Over 60s Club was no exception.  When the current treasurer died the club cast about for a new ‘volunteer’.  The accounts had got into a bit of a mess and accounting procedures, if you can call them that, were a bit lax – but probably no more so than many other similar organisations up and down the country.  Finally Peter was persuaded to take on the responsibility, although he was only in his 50s and held no professional qualifications.

Peter was a local man who now ran his own recruitment agency for top-flight executives.  He used to work in a bank, so he knew about money, and he was well respected in the community.  But life was about to take a turn for the worse for Peter.  A few months after he became treasurer his home was repossessed by the mortgage company (business had actually not been going too well for a while) and his wife, surprised to find herself out on the street, left him.

Vera, the club chairwoman, asked him if in the circumstances he no longer wished to be treasurer, but Peter said it gave him some continuity and normality in a turbulent time and he was willing to continue.

The club held several fund-raising events each year and had income from membership fees and contributions to the costs of excursions.  Its expenditure was on the outings themselves and the costs of speakers, entertainers, room hire and food and drink for evening meetings.  The club also made donations to good causes.  The management team (for want of a better description) met from time to time and there was the annual AGM.

Peter produced some figures on individual fund-raising events for the management team meetings and annual accounts for the club AGM, which were accepted without demur.  The figures took the form of an income and expenditure account resulting in a net surplus or deficit.  They did not show the bank balances or cash on hand.

After about 18 months William, the club's President, began to hear grumblings in the village about club bills not being paid.  He had a word with Peter who explained that due to some confusion between the two club bank accounts some cheques had bounced, but Peter was sorting it out.

But things went from bad to worse until finally Vera and William demanded that Peter surrender all the books and records.  A Tesco carrier bag full of jumbled receipts, bills, bank statements, cheque books and some cash was left on William’s doorstep next morning.

William went through these in a meticulous manner, preparing his own schedules of club receipts and payments over the period for which Peter had been their treasurer.  Vera compared the bank statements to the accounts which Peter had presented to management meetings dealing with the fund-raising events.  They were horrified to find that the club’s finances were in a most unhealthy state.  On numerous occasions cash had been drawn from the bank – even in August when the club had no activities!  In fact the only time no cash was being drawn from the bank seemed to be when there was no cash in the bank to be drawn.

Profits from fund-raising events had not been paid into the bank.

Amongst the receipts in the bag were two post office chits for the purchase of Peter’s annual TV licence – bought with club cheques.

The police were contacted and Vera and William made statements.  William handed over the schedules he had prepared.  Vera and William accused Peter of stealing over £7,000 from the club.

Following a police investigation Peter was charged with the theft of cash drawn from the bank on over 30 occasions, theft of profits from the fund-raising events which had not been banked, and fraud in relation to the cheques used to purchase the TV licences.

Peter denied any wrongdoing.  He admitted the records were in a muddle but he vigorously denied any thefts.  Indeed on occasion he had found it necessary to put his hand into his own pocket to meet club bills.  It was because the club owed him money that he had used the club cheques to buy his TV licences.

There had been a lot of cash expenditures on this and that and he was not always given receipts.  Because of the cash expenditures, which arose unpredictably, he did not bank the surpluses from the fund-raising events but retained a tin of club cash.  He did bank ‘surplus’ cash from time to time.

He had not kept a cash book (and neither had the previous treasurer).  The records had been in a mess when he first received them and, to his regret, he had muddled along without ever really getting a ‘grip’ on things.

I was instructed by Peter’s lawyers to see if the evidence did support the theft and fraud charges.

It seemed to me that there was evidence to show substantial cash expenditures and that the fact that the surpluses from individual fund-raising events had not been banked separately did not necessarily indicate those surpluses had been stolen.

In the absence of a cash book it was not clear how cash drawn from the bank had been spent.  However it did seem, based on the annual accounts presented to the AGM by Peter, that he would have to have drawn at least some cash from the bank to pay those expenses which had not been paid by cheque.

It was not unreasonable to suppose that some of those expenses had needed to be paid in August, although there were no club activities that month.

William had prepared two sets of schedules.  One set based on the bank statements, the other set based on the receipts in the carrier bag.  There was at least one bona fide expenditure on the bank statement schedule which was not reflected on the other schedule – presumably because there was no receipt for it in the carrier bag.

Without a cash book it was not possible to exclude the possibility that there were further bona fide expenditures, which had been paid by cash, and for which the receipt had been lost (or never obtained).

In the circumstances I could not be sure that any monies had been misappropriated.  Nor could I be sure whether, overall, Peter owed money to the club or they owed money to Peter.

When the matter came to trial Peter was acquitted of all the charges against him.

 

David

Accounting Evidence Ltd

Names, locations and certain other details have been changed to protect the identities of those involved.

Comments
davidwinch's picture

The moral of the story

davidwinch | | Permalink

There are several possible 'morals' that could be drawn from this story.

Accountants, such as the readers of this, may well be invited to act as treasurer for a local club or voluntary organisation.  If you are then I would suggest the following do's and don't's:

 

1.  DO keep a cash book contemporaneously recording all receipts and payments (and preferably segregating bank and cash transactions).

 

2.  DO obtain (and retain) receipts for all expenditures (or all expenditures above, say, £10) especially cash expenditures.

 

3.  DO provide accounts which show the balances of cash and bank monies on hand as well as the surplus or deficit.

 

4.  DON'T mix up your own finances with that of the organisation.

 

This is pretty basic stuff, but worth repeating!

David

If you feel like being honest that is

The Black Knight | | Permalink

I once inherited a situation like that (sums missing much larger) everyone on the commitee knew what had been going on but the missing cash and stock etc etc could not be tied down to anyones shift etc..... did i know ? ...Yes..... could I prove it was him ?....No.

If you are a fraudster/ thief then seek out an organisation with no controls (scout groups and other community organisations are ideal.... they can't afford a real accountant)... keep control of everything but no records..........

If you want to prevent this sort of thing....ask a real accountant for some free help on how to avoid this.....segregation of duties would be a start (often very lacking as no volunteers to do the hardest role) and some form of internal audit performed by the trustees / commitee members.

Very simple but hardly ever implemented.

scalloway's picture

Sometimes the Committee isn't interested

scalloway | | Permalink

as long is income is covering the bills

A few years ago a friend of mine's job was dealing with our local council's support of voluntary organisations. One organisation was getting financial assistance to provide services but failed to produce any accounts despite repeated requests. Eventually he arranged to meet the committee to discuss the problem. He was handed several carrier bags with their records and was told that if the accounts were so bloody important he could do them himself!

A common attitude

The Black Knight | | Permalink

This is quite a common attitude amongst commitees and some tax payers in general.

What they are incapable of understanding must simply be someone elses problem.

There are a lot of very uneducated morons out there.

I would like to see Trustees take responsiblity for their failures to protect the assets/ income of their organisation.............perhaps in the above example the trustees should have been found to be a fault........they are all responsible for not keeping proper accounting records...even if they think they have delegated that responsibility to a fool with a brain.

You can almost guarantee that PAYE has not been operated since time in memorial (especially on the Bar staff).... My advice would be to avoid these organisations like the plague... you will get no thanks for putting things right.

I dare say a few of these will come out of the woodwork now that insurance companies are demanding a PAYE ref no for employers liability insurance. Others will simply declare they have no employees.

Are these charities?

dougc99 | | Permalink

Black Knight/David - Are these registered charities? or just ad-hoc voluntary groups?

If charities was any report made to the Charity Commission?

If not why not? If there are trustees there are legal obligations placed upon them personally.

The trustees cannot just abrogate their responsibilities.

I am not sure if the the account initially provided was an "example" or if it was an actual case.

I have just checked the Scouts web site and a very quick search revealed rule 3.48. There are some very clear guidelines and in most organisation these are there. A quick reference to them by either the volunteer (With relevant experience of accounting) to the committee should see things put right.

Cash thefts (Skimming) are always the hardest to prove especially when custom and practice has involved the carrier bag syndrome!

Doug Cooper CFE 

 

applies to both

The Black Knight | | Permalink

When we have raised issues to the charities commisioner in respect of non compliant accounts they are about as interested as companies house.

my examples above were not charities.

The trustees do have a legal responsibilty but like most of these rules they are so rarely applied that in reality they do not exist, and it is a given that most trustees do not even know that they are so and have no idea of their responsibilities or have failed to understand them.

My guestimate would be that most similar organisations of this nature, WILL have a lack of controls and WILL at some time be victim to an unscrupulous person (some of which are experts at this moving from organisation to organisation unhindered, even protected by the law, and never fail to notice £5 left unattended.

scalloway's picture

OSCR takes action

scalloway | | Permalink

In Scotland OSCR (Office of the Scottish Charity Regulator) does take action against charities that fail to provide accounts. There was a case recently where the sole trustee was banned from being a trustee of any charity and ended up in court for fraud.

memyself-eye's picture

you only need

memyself-eye | | Permalink

to look on the charity commission's web site at the cases they do investigate to see the breathtaking ignorance of trustees and the scope for motivated fraudsters to syphon charity funds.

Problem is once things get 'sticky' trustees can and do just resign at the drop of a hat with little or no comeback thereafter.

I am a scout treasurer and could (if I was so minded) produce any rubbish and it would be agreed by my fellow trustees - who only want to know if there is 'enough' money and where can they get the next grant...

Tom 7000's picture

bottom line

Tom 7000 | | Permalink

You cant put someone who is sking in charge of the money...I have seen it so many times before...

I agree

The Black Knight | | Permalink

Someone who has been forced to go on a skiing holiday as punishment.....must have been bad.

Tom 7000's picture

They tend to lose the money

Tom 7000 | | Permalink

They tend to lose the money in the snow....

Indeed, I would rather be skiing than skint

my spillings getting worse.

 

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