The original document with graphs can be views at
https://docs.google.com/document/d/1Pyo ... iGaCc/editIf you wish too see documents dealing with the charity process and matters that are associated with the process can be view at
https://docs.google.com/open?id=0B7xjRG ... M5MTJhNDczClub and Trust financial inter-relationship
Includes
1. A tour through CTC’s 2008/9 accounts in graphical form as a guide to where the main issues arising about the accounts appear, and why they occur
2. Further papers supplied to an “Open discussion of CTC accounts” on 25th February 2010.
Introductory notes:
Numerous meetings, FAQs and working papers have taken place or been created to explain how the finances of the CTC group are compiled. In particular they have been created because of the suggestion made in January that CTC members’ funds are subsidising or “bailing out” third party projects such as government contracts. Other comments were made about the clarity and organisation of CTC’s accounts.
The most recent (April May) issue of Cycle included the following comments.
Barry Flood, Chair of Council’s Management Committee, said: ‘Speaking as an ex-Inland Revenue Investigations Director, I and CTC’s financial advisor Simon Connell, ACMA have examined the financial statements and records of CTC. We found no material omissions or misstatements in the records after a thorough audit. Frankly we are at a loss to understand the allegations made in the last edition of Cycle. Unification will also simplify the structure of CTC, saving us the time and money spent on keeping the two parts of the organisation separated.’
The accounts are complex, not ‘a mess’.
CTC’s financial statements are complex. Our work is divided between nine companies and two charities, each of which has been set up for a specific legal or financial purpose. There is considerable inter-company movement of funds, much of which will be simplified by unification. Ironically, a ‘no’ vote would prolong this accounting complexity.
CTC’s finances are regularly scrutinised by independent auditors, CTC Council and expert advisers. These regular in-depth inspections all confirm that our accounting systems are robust; that CTC Council has full control of the finances; and that the financial relationships between Cyclists’ Touring Club and CTC Charitable Trust are exactly as we describe.
Charitable work and third party contracts are not a drain on members’ money.
Perhaps because of the complexity of our accounts there has been a misunderstanding of this topic. Membership fees categorically do not support third party projects. In fact, the exact opposite is the case.
Last year CTC spent around £2.2million on its own activities, commissioned on behalf of members by CTC Council. Of this about £1Million was spent by our Trust, for example our campaigning, volunteer campaigner support, Fillthathole, member group support, touring and technical officers, routes, the website, Newsnet, Parliamentary lobbying, public transport advice, supporting mountain biking and the running of our national office.
But as the accounts show, we only actually had to pay £0.6million from the Club to the Trust last year to do all this. We earned the remaining £0.4million from the charges and surpluses we make on outside contracts – a saving around £6.50 for every member of CTC. This is really good value for members.
The material presented in this document is part of the supporting work that was done to create the information on the CTC web site and inform the Council’s comments.
Prior to the publication of these statements on 25th February representatives of the “Save the CTC” campaign were invited to CTC national office to meet Councillors and staff to go through the numbers. The papers here are also a summary of the main points discussed with notes reflecting the main discussion points at the meeting.
The information provided was further checked by the Management Committee of CTC Council in March to confirm that in its view the issues raised had been adequately investigated. The Committee welcomed the materials and asked for them to be summarised in an accessible format, hence the graphical additions to this pack.
Sources
The material is based mainly on two sources.
The published statutory accounts of all the CTC group companies for the year 2008/9.
The internal management accounts of CTC which are not normally published except to the Council.
This version has a new analysis which has not previously been used in CTC and was created specifically for this exercise.
CTC’s staff and Governance processes operate the Club and Trust as a single entity with all senior managers having responsibility for a mix of Club and Trust activities and for a mix of Club and Trust finances. A single department’s portfolio can include services provided to purchasers, activities funded by surpluses and activities funded by CTC from club funds.
Overall the Council targets the managers to achieve a specific budget outcome each year. Any surpluses or withdrawals from reserves are passed through the Club through year end reconciliation of service charges and donations between Club and Trust.
For this exercise we have separated the activities of the Trust into three sets of numbers to better explain to members how the cash flows within Club and Trust accumulate up to the overall result.
Firstly we have broken out the funds that flow between the Club and the Trust to show the Trust accounts on a stand alone basis.
Then within the Trust’s costs we have separated the activities where there is a contractual commitment through a grant or service contract to provide services to a third party. This leaves the general expenses associated with running CTC activities within the Trust and the specific actions commissioned by the Council and Trustees. These activities have to be funded either by CTC or by surpluses and contributions to overheads from the third party work. They can be stopped or started entirely at CTC’s discretion.
This analysis enables us to produce a notional profit and loss account within the Trust for CTC work and for third party work.
How the material is presented.
The discussions have focused on three main topics:
1. Explaining the trading between CTC subsidiaries to make sure a true picture of the financial performance of each part of the organisation can be shown.
2. Demonstrating the true financial impact of the externally funded work and confirming whether members have contributed towards it.
3. A more nebulous concept which has picked up the title “member value”. This is not an accounting term but appears as a sense of whether members actually value the work carried out by CTC is valued by members and whether they are willing to contribute towards it.
Most of the pre-work for the meeting in February focused on extracting the transactions of the subsidiaries from the accounts so that a more accurate impression of activity can be provided, dealing with points 1 and 2.
In addition three questions were posed before the meeting in writing.
In the 2008/9 accounts, there are payments totalling £863,599 from the Club to the Trust. An explanation of this sum was given at the Council meeting on 23 January 2010. Barry explained that, of the £860,000 (rounded down for ease):
• £407,000 was for ‘services’ supplied by the Trust to the Club
• £453,000 was a ‘subvention*’ from the Club to the Trust
Can you please clarify and itemise (with relevant amounts):
1. what ‘services’ were provided for the sum of £407,000 and what each of those services cost; and,
2. why the Club is giving the Trust a ‘subvention’ (a grant of financial aid) of £453,000? What is it for and why is it necessary, given the assertion in the recent e-mails from various members of Council that the Trust is making money on its contracts?
Another assertion made in several of the e-mails is that the Trust has ‘saved the Club £430,000’. Can you explain what these ‘savings’ actually are and how the figure of £430,000 is reached?
The pages below set out the context for these numbers in several formats.
NB – due to rounding some figures are out by £1-2 over the charts.
Subsequent to the meeting some further questions were asked, these are dealt with at the end of the document.
Layout
The graphical treatment is first, followed by the detailed charts containing the source numbers.
The graphical treatment is not a sophisticated graphics project – it uses only some standard drawing tools within Microsoft Word.
Some of the post-meeting items are discussed at the end of the document.
1. CTC is a group of Companies
The work of CTC is spread over several companies. The relative scale of the entities is illustrated by their income, excluding charges between the companies.
The accounts for Holidays and Tours, Cyclists’ Defence Fund and CTC Central are largely self contained and have not been questioned during the Club/Charity discussions, so we can focus on the Club and Trust accounts from here.
2. Focusing on Club and Trust
The combined Club and Trust made a trading surplus of £167,000 in the year which goes to the Club’s reserves.
The overall organisation is in excellent financial shape and the Club is gaining the benefit.
3. To sum up the position of members (the Club)
Nearly £2.4 million of the income is spent on activities commissioned and paid for by CTC Council and CTC Charitable Trust. These activities have no direct external funder and are entirely at CTC’s discretion. However the Club doesn’t have to pay for all this work because it can spend the surpluses and recoveries from activities agreed with external funders, a recover of over £6 per member on top of the amounts earned through day to day club activity.
For the next part of the document we will explain how these figures were arrived at and deal with some of the questions raised.
4. How has concern about losses arisen?
This appears when we separate out the costs of the Club and the Trust in the Statutory Accounts for these two companies.
Reading the Statutory Accounts for the Club and Trust it would appear that the overall Group surplus disguises some big differences between the companies. However because of intercompany and charitable trading the picture is not as it seems in this analysis.
5. Looking at the real costs
When we look within the cost base of the Trust we find that it contains a £1million of Club costs – activities commissioned by the CTC Council and CTC Charitable Trust Trustees to further the mission of CTC which do not have external funders but were deemed Charitable under 2004 charity law and so placed with the charitable side of CTC.
CTC Charitable trust is actually making a surplus on its external work, which the Club is able to use for purposes chosen by the Council and Trustees.
6. How much does the Club actually pay to the Trust?
All the Club part of CTC has to pay for is any difference between the Trust’s surplus and the amount the Council and Trustees and spending on CTC work. Instead of a million pounds it only spends a net £570,000 – a saving of £430,000 because of the Trust’s surpluses
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7. So what are the donations and service charges and how do they fit in?
The Club actually makes its payment to the Trust by three transactions – two service charges and a donation. In particular the donation appears in the Club statutory accounts and has given rise to the concern that the Club might be subsidising external activity. In this chart we can see the actual effect of the Trust’s surpluses, keeping the donation down
This completes the set of graphical representations of the Club Trust financial relationship.
The next section of the document contains the detailed figures contained within CTC’s accounts and annotation of the key points that relate to current debates.
Chart 1.
Source - CTC published group Accounts and subsidiary company accounts
These are the base figures that consolidate up to make the CTC Group shown in the statutory accounting format used by the club. In particular it shows how the Trust’s accounts would look if presented in this format.
Using this format we can make several notes – highlighted.
However these accounts still include a significant amount of intercompany trading, particularly between Club and Trust. A further extract of these accounts enables us to ignore the other businesses and then remove the Club Trust Transfers to get a better picture of the true trading position of each entity.
Chart 2 confirms what we assume – if the Club does not have to pay for all its services that were deemed charitable in 2005 and its national office it is in effect running at large surpluses. Similarly The Trust is loss making if CTC transfers its costs and liabilities to the Trust but does not make a financial contribution.
Chart 2
Chart 3 shows the way this appears in the CTC Trust Accounts in Charity format. The bottom line agrees, but the layout is very different, one of the main reasons why it is hard to track across companies.
For consistency we again show how elimination of intercompany transfers gives a picture of actual activity.
Chart 3
This is as far as we can go with the published accounts. To understand which bits of the Trust run at a deficit and to see the implications for the Club we have to go the management accounts and find out where costs and income are actually incurred.
When we do this we can break the management accounts into three headings.
We can identify the money that the Trust spends on activities commissioned by the CTC Council which have no third party funding. These are the activities that transferred from the club in 2005 and the costs we spend on working on running or improving the club itself. We called this “Direct Club in Trust”
We can identify the money the Trust spends on overheads – the costs of running national office and the apportionment of central costs that is taken directly into the Trusts accounts. It does not include the Directorate, the Trustees costs or the Finance function, all of which are charged directly to Club. We call this “Indirect Club in Trust” because it is cost that CTC incurred pre-2005 and cost that would go back on to Club overhead if the Club Trust split did not exist.
Thirdly there are the direct costs of running third party projects – before we take any surpluses or charge back any overheads.
These are shown in Chart 4.
Chart 4
From this chart we can see that the Trust incurs £994,118 of costs on behalf of the Club.
We can see that it makes a surplus of £431,928 on its third party work before overhead allocation.
This leaves the Trust at the shortfall we have seen earlier of £562,000 on its activities without contributions from the Club.
Question Another assertion made in several of the e-mails is that the Trust has ‘saved the Club £430,000’. Can you explain what these ‘savings’ actually are and how the figure of £430,000 is reached?
The club has the liability to the Trust of £994,000 for work commissioned by the Council.
Because of the surpluses and overhead recovery on third party trading it only has to find £562,000
The saving is £431,000
Question: How does the Club pay the £562,000 shortfall in the Trust left after surpluses on third party activity? 2. Why the Club is giving the Trust a ‘subvention’ (a grant of financial aid) of £453,000? What is it for and why is it necessary, given the assertion in the recent e-mails from various members of Council that the Trust is making money on its contracts?
The financial transactions between Club and Trust are split over a number of headings.
A service charge from Club to Trust
A service charge from Trust to Club
A donation from Club to Trust (referred to by some people as a “subvention”
Because of the surpluses and overhead recovery on third party trading the club has to provide £562,000 towards its costs of £994,000
The figures in 2008/9 were
A service charge from Club to Trust £298,241
A service charge from Trust to Club £407,380
Net service charge £109,139 - this is the amount that appears as an income to the Trust
Final balance outstanding after service charges
Opening balance £562,189
Less Service charge £109,139
Outstanding balance £453, 051
The club then pays this amount as a donation from Club to Trust to bring the Trust accounts to break even.
Question 1. what ‘services’ were provided for the sum of £407,000 and what each of those services cost,
The service charges are calculated to be part, but not all of the links between the two companies. This gives Council freedom to decide how much to pay as a final donation, rather than having it all in contracts.
It is based on a series of formulae, but it should be noted that the service charges on both sides are made using a common approach – the Club to Trust charges cannot be seen in isolation to the Trust to Club
These have been left unchanged since 2005 as they only provide a mechanism for moving part of the funds with balance made up by the donation.
Principles
Personnel costs and an allocation of overheads only
Based on 2005 breakdown of staff allocated between the two orgs – same formula used year on year
No expenses included – to be covered by the balancing donation or income from third parties because they can be flexed
Posts added to Charitable Trust since 2004 – to be covered by the balancing donation or income from third parties because they have been funded by a combination of club and external growth.
Calculation
Salary + PAYE, NI, pension etc
Overhead allocation – total overhead divided by total headcount
Net cost per person
For each person
Split work in to tasks
Allocate tasks to Club or Trust by service level agreement
E.g. Operations Director
50% Finance – then split total finance 60% Trust, 40% club
25% IT – 20% club, 80% Trust
25% Membership – 100% club
CTC / CTC Charitable Trust SERVICE LEVEL CHARGE CALC
CTC Trust Total
Directorate 50% 50% 100%
Personnel 25% 75% 100%
Finance* 40% 60% 100%
CIT 20% 80% 100%
Membership 100% 0% 100%
Marketing 75% 25% 100%
Publicity 50% 50% 100%
Help Desk 75% 25% 100%
Office Management 0% 100% 100%
Campaigns 25% 75% 100%
* Finance
Membership 10% 0%
Payroll 1% 4%
Other Companies 10% 0%
Balance 19% 56%
Total 40% 60%
2009/10 projection
CTC / CTC Charitable Trust SERVICE LEVEL AGREEMENT 2008/9
Payable by
Service CTC Trust Net
Directorate 81,080
Personnel 12,157
Finance* 83,675
CIT 19,200
Office Management 16,209
Membership 11,773
Marketing 98,934
Publicity 23,547
Help Desk 187,914 0
Campaigns 28,585 85,756
DA Support Officer 25,487
Total Charge 376,240 298,078 78,162
Quarterly Charge 94,060 74,519 19,541
Rental agreement
A rental charge is agreed for CTC to occupy the Trust’s offices.
In 2009/10 this was £31,140.
Outstanding matters
After meeting with representatives of “Save the CTC” some additional questions were raised or left outstanding.
Accounting treatments
The group were shown a detailed breakdown of the management accounts which had broken out the expenditure of the Trust into Club and Trust work streams.
Having seen this typical questions were:
A. Fundraising costs are wholly charged to the Club - why? Fundraising is an activity of Charities, the Club's income is mainly from subscriptions in return for services provided.
B. Professional services (ie services provided on a commercial basis to third parties) - some costs but no income are allocated to the Club - why?
C. The Cycling Development Manager is shown as heading three separate “structures”. Of the posts listed, only four full time equivalents are “employed on Club work”, the rest (40 or more posts) being “third party funded”, but the whole of the Manager's salary is treated as a Club cost.
These are good examples of the method used to identify costs between Club and Trust work and they show the distinction between management accounts and statutory accounts.
Answers demonstrate this:
A. Most funders do not allow the cost of fundraising to be allocated back to the project costs. Therefore the liability for covering the costs of the fundraising function fall on CTC, not any of our funders. The fact that the incoming funds actually make a surplus and contribution to overheads more than covers any associated costs of fundraising but the accounts must reflect the policy, only CTC Council and trustees can employ and pay for the fundraising function. The fundraising function allows CTC to reach thousands of new people and delivered £2million turnover and £400k surplus in the year.
B. Our Professional Services team contains staff who work on both internal and external projects. For management purposes the costs are put together to enable the management team to evaluate budget performance. For the purpose of this exercise which was comparing Club and Trust we have to extract out the elements that have been commissioned by the CTC Council and Trustees, for example the people working on HR, volunteer development and parliamentary lobbying, no-one external is paying for those.
C. CTC has had a Cycling Development Manager position for 12 years, long before we had any significant external funding. A lead manager responsible for people in CTC riding bikes is a core position, even if there were no external funding we would still have this post. So we show this as a cost of the Club and we pay for it from club income and Trust overhead recovery.
This illustrates the fundamental logic in deciding what is a Club cost and what is a chargeable cost. An item which would not exist unless CTC Council or CTC Charitable Trust trustees agree that it is to be funded, either from Club income or from surpluses on services. This can include direct member services, but it can also include activities of public benefit such as campaigning and the costs of improving CTC, the internal costs of running the organisation.
If we can find someone else to pay for it – we do!
Given that some of these might be considered matters of judgement it is possible to give the figures identified by Colin Quemby an alternative treatment and check what the impact would be.
Areas raised by Colin would move around £100,000 of cost that is identified in this analysis as Club to Trust.
The effect of this would be to reduce the apparent surplus on Trust activity from £431,000 to £331,000.
It would still not reduce the surplus to the point where the Club is subsidising third party activity.
Balancing accounts using transfers
Colin Quemby of Save the CTC has a professional concern about accounts that balance. He believes this is unrealistic and not really credible. He has identified the practice twice in CTC’s accounts and does not believe it should happen because it brings the accounts into question. This was one of the main items which has caused him to raise doubts about the accounts.
The two examples are
1. The donation from the Club to the CTC Trust which makes the Trust’s account balance to zero each year. This is a deliberate policy of CTC, it has the effect of retaining the annual surpluses in the Club’s accounts. This is explained in detail above.
2. In the detailed management accounts seen by Colin the accounts for the York Cycle Show also balance to zero. This is the result of an agreement between the Cycle Show committee and CTC Council. The Committee uses CTC to process its main purchase accounts and exhibition sales in order to offset some of its VAT which otherwise would be unrecoverable and fall to the event costs. The Committee pays over sufficient of its income to set the CTC accounts to zero and retains any profit or loss in its local bank accounts.
A quote from Colin on the subject “Whilst this may allow flexibility in dealing with outside parties, we should not allow muddle in the internal records.”
Council notes Colin’s observations and recognises the concerns, but it does not agree with the conclusions drawn. The response of Council is to do away with the artificial distinction between Club and Trust to create the single entity proposed for the AGM which will remove much of the concern about cross charging.
In the event that the plans and not supported by members there are no other plans to change these accounting policies which are set up to the benefit of members. This is a disagreement about practice and presentation, it has no material effect on the overall financial performance of CTC or CTC Charitable Trust.
(There is some work going on to implement some new accounting tools for projects but this is to improve project tracking in our financial system between financial years. Currently this is not an automatic process and it will be extremely useful in situations where a funder’s accounting calendar does not match CTC’s year, reducing workloads on our finance team. It will make no material difference to the accounting issues discussed in this document.)
Member value
Simon Legg has raised this issue but not defined it in accounting terms.
His description of the term was vague but we understood it to be a process that allows members to place value upon the activities of CTC or to judge whether certain services were value for money as currently delivered.
The perceived value of individual items to members will vary with the perspective of each individual member. We hope we have dealt with all the issues relating to accounting treatment and demonstrated at length how the CTC accounts are analysed, removing issues of judgement. Judgements of this nature will be subject to separate discussions but lie outside the scope of this document.
