Tuesday, December 18, 2012

K&A Canal Trust annual Christmas cash crisis

Another year has passed and the Kennet & Avon Canal Trust again finds itself in a dire financial situation and members of the Trust are confused and worried by financial reports from its Trust Council's meetings that they feel bear no relation to the real situation.

The recently published Trust Council minutes report Treaurer, Tony Nares, telling trustees that he expects a loss of £37,000 for 2012 — although he hopes that this will be reduced to £25,000 with reclaimed Gift Aid.

The Trust minutes claim that a profit of £50,000 was made in 2011 — a claim which appears to be flatly contradicted by the accounts lodged with Companies House. These make it clear that that the difference between income and expenditure for 2011 was a surplus of only £108.

Tony Nares told the trustees that it is now essential to drive down unnecessary spending wherever possible in order to reach 'a stable and controlled financial situation'. 
To try to get through this latest cash crisis the trustees plan to:
  • delay payments until after April 13, 2013 wherever possible 
  • reduce the cost of producing leaflets and delay printing them 
  • reduce staff costs 
  • review the production and distribution of the Trust magazine 
  • review membership fees 
  • find ways to promote legacies and donations 
After this financial crisis management strategy was agreed, Chairman Dr Mike Rodd then proposed a bonus payment of '10% of the surplus income over budget' for the staff at the Crofton Pumping Station… and this was approved by Trust Council.
A lack of transparency in the running of charities, a perception that too little money is actually going to the cause and too much money going on staff salaries make people less likely to contribute according to a recent survey — see: Lack of openness in running of charities deters potential donors says survey
Request for information ignored
A long-time member of the K&A Canal Trust wrote to its Chairman and former General Manager Dr Mike Rodd recently asking for clarification of statements in the published Trust Council minutes and she received no reply.  

The member has since sent him another email and still had no response.

Here is the email that Dr Rodd will not answer.

I am disappointed that you have not replied to the email I sent you on 11th December. Please confirm that you have received this one.
As I am having to write this second email, I am taking the opportunity of asking several other questions relating to the November Trust Council minutes.

Variance from the 2012 budget
I am shocked to read that once again there is a strong variance from the budget. How can this be? I have emails from you dated 15th and 16th March 2010 where you make it clear that you took no responsibility for drawing up the 2009 budget. You were however, responsible for the 2010, 2011 and 2012 budgets. Why then, did you produce a budget that was ‘clearly unrealistic’? This raises more questions.

Why has the Trust Council yet again found itself in this position in the autumn? In November 2009 I asked the same question of then treasurer Neil Lethby. I was appalled to discover that you did not carry out cash flow analysis. At the AGM following Suzanne Gaia’s appointment as treasurer you very proudly announced that she had introduced cash flow analysis – your words were ‘we should have been doing it before, but she’s put us on the right track now’. But what is the point of cash flow analysis if you are not comparing the reality with the budget and taking action to correct any variance as it appears – rather than letting it build up until the annual ritualistic reading of the end of season financial positions?

I am particularly shocked about this because I suggested you look into the offer of free management consultancy from Cranflield. I know that many organisations have benefited hugely from this. Your reply to me on 16th December 2009 was “this could be tricky as I am a Visiting Professor in Cranfield, associated with the guys who do this work for the Cranfield Trust.” You had an opportunity to use free management support and you chose not to follow it up – I have to wonder whether this decision was made, not on the basis of whether it would be for the good for the trust, but because it would be personally embarrassing to you.

You have to take personal responsibility for the financial failings of the K&A Canal Trust. Not only have you been responsible for the budgets since 2010, but you have also been responsible for the financial management since 2009 and you clearly have not kept your eye on the ball by monitoring performance throughout the year and making essential adjustments where and when necessary.

It’s also worth remembering that the grant funding that was secured to pay for your post as general manager was for three years. In the application for that funding the second objective in your job description was ‘To manage a sustained increase in financial performance…” Not only did you fail to do that, you actually exhausted the full 3-year grant in 2 years. This is a shocking mis-use of public money. It was always expected that your post would be self-financing after three years through your fund-raising and business development activities. You clearly failed. 

The overdraft
I think it is shocking that the charity’s money is used year after year to fund an overdraft. When Neil Lethby presented the budget to Trust Council in 2009 I asked why there was no provision for building up reserves. Neil asked me to explain what I meant by reserves! In the three years since then there has obviously been no attempt to build up reserves or bring down the overdraft. Last year the situation was saved by a couple of ‘timely’ bequests. A charity with a turnover of approaching half a million pounds should have better financial management than this. What is the cost of financing the overdraft?

Enterprise was set up with a loan from the Kennet & Avon Canal Trust — how much interest does the Trust receive from Enterprise for the set-up loan? Is it not time that the loan is repaid especially if the charity is spending more on financing its overdraft than Enterprise is paying for its loan? I know that HMRC Charities takes a critical view of loans that are not made on proper commercial terms and they expect a planned repayment schedule to be in place. Would Enterprise be insolvent if the loan had to be re-paid?

Bonus to Crofton staff
Under Item 5.b Trust Council agreed to review staff costs and make savings where possible. Having made that decision it is amazing that moments later under section 6a Trust Council agreed to pay a bonus to Crofton staff. Surely, the first call on an unexpected surplus must be to reduce the loan to the parent charity and to reduce the charity’s liability for overdraft charges. The commercial trading arm was set up with one objective – to raise funds for the parent charity.

Under section 5c it is reported that Pauline King will lead a review of the production and strategy of the Butty and that Charles Reiss will be invited to serve on the review. In 2009 Charles Reiss wrote a comprehensive report on the future of the Butty that (according to David Rees, the Chair at the time) was accepted in full by Trust Council. That report recommended the production of a 12-page newsletter similar to those produced by CPRE rather than a 40-page full colour magazine. This has never happened. In fact the Butty grew in size. Please send me a copy of the Trust Council minutes showing when their decision to approve Charles Reiss’s recommendations was over-turned. There must have been financial implications to that decision.

Golden Jubilee Appeal
I understand that you are leaving the chair to concentrate on fundraising. But on your past achievements it is hard to believe that you will be successful. I fear that any individuals or groups who might contribute to your campaign are likely to find that their donations or grants are frittered away in the way the 3-year £75,000 KDC grant was exhausted in 2 years with no appreciable benefit to the canal.

I realise that what I have written is critical of you as an individual, but of course whilst you were general manager the trustees had a level of responsibility for allowing you to remain in post whilst not fulfilling the objectives in your job description. They also had individual responsibilities to govern the charity and its finances appropriately. Now that you are Chairman the buck stops with you and the trustees you lead.

I look forward to receiving your response to the issues that I have raised and answers to my questions.
The Kennet & Trust Council minutes for the November 2012 meeting  
Related stories:
Crunch time for the K&A Canal Trust
Trust does little for canal admits K&A Canal Trust Chairman
Financially troubled canal trust to abandon iconic canalside
BW take volunteering lead on the K&A
Chair today . . . gone tomorrow — yet another new Chairman for the K&A Canal Trust
Canal Trust's 'financial nightmare' year
General Manager latest departure from K&A Canal Trust
Trust needs media manager
Trust seeks treasurer to see it through 'financially difficult times'
Continuing cuts and departures at troubled K&A Canal Trust
K&A Canal Trust cash crisis
Resignation setback for BW's 'Third Way' plans

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