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Is it just me, or are they guilty.

Auditing problem.

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I audit the accounts of a mutual sports club. The club rules state: 

The Committee shall manage the affairs of the club according to these Rules and shall cause the funds of the club to be applied solely to the objects of the club or for a benevolent or charitable purpose nominated by General Meeting. No expenditure excluding salary shall be made in excess of £3500 (unless raised by voluntary contribution) without a majority of two thirds of the votes of those members present and voting at a General Meeting.

Taking advantage of the Covid19 closure, the Committee have spent some £15,000 in refurbishing the clubhouse, and now they've suddenly remembered the Rules.

The choices they've put forward are:1. Hold an EGM and retrospectively pass the resolution. 2. Call for donations from the members to reduce the expenditure to sub £3500.

I have advised the Committee that the Rules make no provision for virtual EGMs and they can't hold a physical EGM under current conditions. Similarly retrospective motions are not covered in the Rules, so are not allowed. Donations to reduce the expenditure may be a solution, but the act has already been committed and I'm not sure that it can be remedied by subsequent donations.

Does anyone have a solution to this problem, or does the Committee have to carry the can for their misdemeanors?
 

Replies (26)

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By Truthsayer
22nd Jun 2020 11:47

Has anyone complained? If nobody does, then does it matter?

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By johngroganjga
22nd Jun 2020 12:09

Truthsayer wrote:

Has anyone complained? If nobody does, then does it matter?

It does if you are the auditor, as the OP is, and the entity you are auditing has entered into ultra vires transactions.

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Replying to johngroganjga:
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By Truthsayer
22nd Jun 2020 12:11

Does it? An ultra-vires transaction only matters if someone objects.

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Replying to Truthsayer:
By johngroganjga
22nd Jun 2020 12:22

But they can only object if they know about it. That’s the auditor’s duty in a nutshell.

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Replying to johngroganjga:
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By frankfx
22nd Jun 2020 12:31

johngroganjga wrote:

Truthsayer wrote:

Has anyone complained? If nobody does, then does it matter?

It does if you are the auditor, as the OP is, and the entity you are auditing has entered into ultra vires transactions.

The members have appointed the auditor to act and behave as their watchdog.

Not to roll over and have tummy tickled by red - faced Board.

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Replying to johngroganjga:
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By frankfx
22nd Jun 2020 12:31

johngroganjga wrote:

Truthsayer wrote:

Has anyone complained? If nobody does, then does it matter?

It does if you are the auditor, as the OP is, and the entity you are auditing has entered into ultra vires transactions.

The members have appointed the auditor to act and behave as their watchdog.

Not to roll over and have tummy tickled by red - faced Board.

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Hallerud at Easter
By DJKL
22nd Jun 2020 11:55

To whom will they carry the can ?

By chance I am currently involved with a Club refurbishment, we are spending circa £80-£100k.

Whilst the refurb is known to members and rough numbers were aired at the last AGM I doubt an actual precise motion was passed re the spend, in fact as I , with others, am currently tweaking design and spec there is no precise spend and there will not be until we finish.

I cannot believe the club you are dealing with has launched into this without any discussion at all, do you know what has been aired around the subject in past General Meetings?

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Replying to DJKL:
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By 356B
22nd Jun 2020 12:48

At the last AGM the spend limit was raised from £2000 to £3500, so the members are aware of spending limits. And yes, some have complained (Committee members who say that none of this has been properly discussed at meetings)

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Replying to 356B:
Hallerud at Easter
By DJKL
23rd Jun 2020 11:18

I more meant around the idea of refurbishing the Club, had that been mentioned as a though process in previous GMs and lockdown merely created an opportunity to act causing least inconvenience to members?

If that is not the case the Committee therefore must have thought up the idea of refurbishment from no past discussions, agreed to execute the works and then executed, all from no prior history about the subject.

What I am trying to say is surely the works did not arise from a void, that nothing re need for them was ever being mentioned in the past, even if no formal resolution to expend the sums involved/execute the works was agreed in the past, have you no past history on the subject within the Club?

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Replying to DJKL:
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By 356B
23rd Jun 2020 18:02

Some Committee members claim it is part of the "5 year plan", which has been discussed at Committee but not put to a GM for approval. They also feel that each part of the project should be treated as a discrete expense, thus avoiding the £3500 limit, but I disagree as this obviates the rule.

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By frankfx
22nd Jun 2020 12:10

As auditor you are required to draw this breach to the attention of the Board.

I would suggest that the board then seek legal advice.

A member or cohort of members could take umbrage if they were made aware of the breach....... after your ' silent' auditor's report?

How do you propose addressing the breach in your auditor's report?

Material spending outside the constitution and financial constraints?

Have you spoken to your professional body tech team?

You as an auditor may be at risk if you fail to report to members?

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Replying to frankfx:
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By sdunkling
24th Jun 2020 10:47

Come on - taking legal advice??? what a waste of money

I am involved with a couple of such organisations. The committee wouldn't have spent the money unless there was some support for it and they are no doubt capable of carrying enough of the 'silent majority' to ratify the expenditure subsequently at an AGM, EGM or perhaps (in exceptional times) a written resolution

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By johngroganjga
22nd Jun 2020 12:11

As auditor, your solution is surely to qualify your report on the accounts containing the ultra vires transactions, unless by then they have been retrospectively ratified.

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Replying to johngroganjga:
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By 356B
22nd Jun 2020 12:52

I intend to qualify my report regardless of what happens. My query is can the Committee take steps to remedy the situation. As it's the Committee that actioned this, bringing it to their attention seems rather pointless. I'm appointed by and report to the members and will give true and fair view of the accounts. (Which, incidentally I shall prepare)

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Replying to 356B:
By johngroganjga
22nd Jun 2020 13:00

They could get it ratified retrospectively. I can’t think of anything else.

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Replying to 356B:
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By cbp99
22nd Jun 2020 13:03

You are auditing the accounts that you prepare?

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Replying to 356B:
RLI
By lionofludesch
26th Jun 2020 17:18

356B wrote:

I intend to qualify my report regardless of what happens. My query is can the Committee take steps to remedy the situation.

Reporting is your only obligation.

As regards the Committee's remedy (which is not your problem, though doubtless you wish to help), probably retrospective approval is their best bet. It's hard to say what the consequences of not getting that approval might be - as, no doubt, the Constitution will be silent on the matter.

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By Paul Crowley
22nd Jun 2020 19:39

Just so pleased that I gave up auditing. You do the right thing, qualify, but nobody in the club will appreciate it.
Very few people not auditing have a real clue what an audit is or what is involved

Different club from last time?

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Replying to Paul Crowley:
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By 356B
23rd Jun 2020 11:01

No, it's the same PITA club. I'm getting too old for this.

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Replying to 356B:
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By Paul Crowley
24th Jun 2020 19:30

Managed to convince all relevant parties at the time to change their rules and ditch the audit.
With most just saying that their risk assessments needed to be in writing and agreed in minutes by committe sorted most

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By dmmarler
24th Jun 2020 10:44

The Committee does have to get the spending authorised retrospectively, or they have to stump up that which was not approved. I would recommend that the Committee contacts all the members, and explains the problem, and say they will hold an EGM for retrospective approval as soon as the present restrictions re COVID permit them to do so. They should also say they acted in good faith, etc., and that should the resolution not be passed then they will hold a whip around so the members of the Committee are relieved to a certain extent of the personal financial burden. They would also say they would like to look at the Rules again so electronic voting can be used in the future to cover this sort of situation. By all means qualify the audit report. They might look at their Rules more carefully next time ... ...

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By bendybod
24th Jun 2020 10:48

Given that what is done is done, in that retrospective action can't undo it, they receive your report that has a qualification.

The members will then, by the sound of it, want to hold the committee to account, at which point the committee need to justify to the members why they suddenly spent £15k instead of £3.5k and deal with the fall out. They may or may not deem it necessary to take legal advice.

There isn't anything they can do to undo their previous actions so they need to manage the situation that they've put themselves in by holding a meeting, virtually or otherwise, which may now be easier given the relaxation of restrictions.

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7om
By Tom 7000
24th Jun 2020 11:47

Qualify your audit report.
CAll an AGM in a field, there will only be 20 people attend and then confirm the expenditure by a members vote. If retrospective motions are not covered, does that mean it says you cant or its silent on it.
Practically its all they can do

also tell them to take legal advice and qualify your report. You are the auditor its their problem

good spot btw

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By paddy55
24th Jun 2020 12:46

Facts are facts and can never be altered. This rules out: 1. Hold an EGM and retrospectively pass the resolution. 2. Call for donations from the members to reduce the expenditure to sub £3500.
The Committee has breached its duties and are liable for any loss arising. The best solutions would appear to be a) pass a resolution indemnifying the Committee if the Rules and the controlling legislation allow this or b) ask for voluntary contributions from members to defray any compensation the Committee are adjudged to pay. Ultimately if it is sought to make the Committee liable, the members through its management committee must authorise the the Club to sue the Committee for breach of duty.

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By alan.falcondale
24th Jun 2020 14:00

is the refurbishment a complete project or a project of parts - each less than 3500

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By normanwl
26th Jun 2020 16:41

I have been part of a club committee to deal with the after effects of overspending.

Firstly the Club members will want the club to continue.

Secondly the committee members mostly are only there to make the numbers up and would run away if there were financial penalties for them.

Thirdly it is most likely that they are only on the committee because they are the only people who turned up to the AGM.

If they are not a charity no one outside cares unless they cannot pay the bills.
So qualify the accounts.

Most probably the next AGM will come the Accounts will be accepted and the usual people will continue on the committee.

I hope this helps.

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