Explanation of Changes to Audited Accounts

Transcription

1 Explanation of Changes to Audited Accounts Argyll College Changes to the format of audited accounts For the last 7 or 8 years, the audited accounts of Argyll College UHI have been drawn up in accordance with the SORP (Statement of Recommended Practice) used by the other FE colleges in Scotland. This meant that the college s accounts were easily comparable with other colleges. This practice had been discussed with OSCR (Office of the Scottish Charities Regulator) and verbal approval had been given. Around the time of the annual audit in October 2010, the college auditors, Wylie & Bisset, stated that OSCR was now insisting that only colleges listed in schedule 2 of the Further and Higher Education (Scotland) Act 2005 would be eligible under the charity regulations to prepare their accounts under the FE SORP. Another college, not named on the list and also a client of Wylie & Bisset, had their accounts investigated by OSCR after failing exception testing and their accounts submitted in the FE SORP format were rejected. They were forced by OSCR to re-submit their annual accounts in line with the ordinary charity SORP. Wylie and Bisset advised that Argyll College should not be using the FE SORP. In simple terms, the new SORP means that capital grants are no longer treated as long term liabilities; they are treated as income in the year in which they were received. The effect of this is to artificially inflate income in any such year, as was the case with in due to a large capital development in Oban. The other change is that, in the past, depreciation was mitigated by the release of capital grants from long term liabilities. Now, there will no longer be a release of capital grants and all depreciation will hit the profit and loss account. The net effects are that in years when there are capital grants it is probable that the college will have a very high apparent profit for the year but in years when there are no capital grants, depreciation will probably force any trading surplus into a deficit. The examples below show the differences, based on early draft figures from the annual audit for the year to July 10. The final report and audited account follow the examples on the next page. Argyll College UHI December 2010

2 Explanation of Changes to Audited Accounts

3 Registered Company No: SC Registered Charity No: SC ARGYLL COLLEGE UHI LTD (A company limited by guarantee) ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JULY 2010

4 ARGYLL COLLEGE UHI LTD (A company limited by guarantee) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JULY 2010 CONTENTS PAGE Legal and Administrative information 1 Trustees Report 2 Auditors Report 7 Statement of Financial Activities 9 Balance Sheet 10 Notes to the Financial Statements 11

5 ARGYLL COLLEGE UHI LTD (A company limited by guarantee) LEGAL AND ADMINISTRATIVE INFORMATION Charity Name: Registered Office and Operational Address: Argyll College UHI Ltd West Bay Dunoon PA23 7HP Charity Registration Number: SC Company Registration Number: SC Trustees: Wilma Campbell (Chair) Isobel Strong Michael C Breslin (Director) David Green David Crook William McLaren Rena MacDonald Steven Thomson Graeme Baird (Resigned 01/10/09) Rose Vivien Dance Kenneth Macleod Ian McNee (Resigned 01/10/09) Kenneth John Jones George McPhee (Appointed 20/10/09) James McLellan (Vice Chair) (Appointed 20/10/09) Neil Ferguson (Appointed 20/10/09) Andrew Campbell (Appointed 22/04/10) Secretary: Moira Stephen Senior Management Team: Michael Breslin (College Director) Elaine Munro (College Manager) Auditors: Wylie & Bisset LLP 168 Bath Street Glasgow G2 4TP Bankers: Bank of Scotland 78 Argyll Street Dunoon PA23 7NH Solicitors: Corrigal Black John Street Dunoon PA23 8BN Burness LLP (for specialist advice) 120 Bothwell Street Glasgow G2 7JL 1

6 ARGYLL COLLEGE UHI LTD REPORT OF THE TRUSTEES FOR THE YEAR ENDED 31 JULY 2010 The trustees are pleased to present their report together with the financial statements of the charity for the year ended 31 July The legal and administrative information on page 1 forms part of this report. Structure, Governance and Management Governing Document The organisation is a charitable company limited by guarantee, incorporated on 7 February 1997 and registered as a Scottish charity on 20 May The company was established under a Memorandum of Association which established the objects and powers of the charitable company and is governed under its Articles of Association. In the event of the company being wound up, members are required to contribute an amount not exceeding 1. Recruitment and Appointment of Trustees Members of the board, who are directors for the purpose of company law and trustees for the purpose of charity law, who served during the year are set out on page 1. The only trustees who are employees of the charity are the college director Michael Breslin and the elected staff representative Rena MacDonald. New trustees are appointed by existing trustees. The charity has placed open advertisements in the local newspapers in Argyll and the islands from time to time and some trustees have been directly appointed as a result and others following nomination. Various factors are used to select new trustees including background, skills, abilities, interest in further and higher education, previous board or senior management responsibilities etc. Some account is also taken of geographical location so that there is a broad geographical spread to the trustees from the various scattered communities of Argyll and the islands. Trustee Induction and Training New trustees are provided with induction and training by other trustees, usually the chair of the trustees and the director of the college. This covers background to the college, current issues, trustee responsibilities, college governance and management etc. Trustees are encouraged to take part in the various forms of training for college board members offered by Scotland s Colleges which tends to be specific to the further education sector. The secretary, while not a trustee, attends various forms of training in charity administration and, where appropriate, advises the trustees. Risk Management The college has a risk register which is maintained by the college director and updated quarterly as a minimum. The draft risk register is presented to the audit committee for approval or amendment then finalised. All decisions of the audit committee are provided to the full board of trustees for comment and approval. The minutes of the management group are distributed to all the trustees on a quarterly basis as a standing item on the board papers. This ensures that all formal decisions are placed before the trustees. In addition, the director regularly consults and informs the trustees of issues that may arise between board or management group meetings. Organisational Structure The full board generally meets 4 times per year. In attendance at these meetings of the trustees are representatives of Highlands and Islands Enterprise and Argyll & Bute Council, the founding bodies of 2

7 ARGYLL COLLEGE UHI LTD REPORT OF THE TRUSTEES FOR THE YEAR ENDED 31 JULY 2010 the charity. These representatives are there to be consulted and to advise but have no decision making powers over the charity. The secretary normally attends all board meetings. The board has an audit committee comprising 5 trustees which also generally meets 4 times per year and reports to the board. The college has a management group which meets 7 times per year attended by 2 members of staff (Michael Breslin and Elaine Munro) plus 3 members of the college board (currently Wilma Campbell, David Crook and James McLellan). These 5 are the formal members of the management group. This means that there is a majority of board members on this group ensuring that the trustees take all major decisions on behalf of the college. Attending all meetings of the management group are 5 other members of staff, curriculum managers, plus there is a group of staff who attend the meetings on a rota basis. At an operational level, the management style is consultative whenever possible so that decisions are taken with as many views as possible taken into account. This sometimes slows the decision making process but the benefit is that for many decisions there is a commitment to them by most staff. An example of this style is the recent decision to create a budget committee to consider how best to address the forthcoming public sector cuts. The committee comprises the senior management team (above), the board chair, 2 elected representatives of learning centre managers, one elected representative of the curriculum managers, the accounts manager and one other member of staff elected by all staff. This budget committee will make recommendations to the management group and/or the college board. Related Parties All related party transactions are disclosed both internally and to the external auditors. It is not unusual for there to be some related party transactions, particularly between Highlands and Islands Enterprise and Argyll & Bute Council but there are occasionally transactions with other organisations which may have trustees on the college board. Declarations of interest are expected and provided at meetings of the trustees. Objectives and Activities The primary objective of the company as set out in the objects contained in the company s memorandum of association is the advancement of education, including the provision of training and guidance, for the public benefit in Argyll & Bute. The charity tries to meet these objectives by providing a range of further and higher education to as many of the communities of the area as possible. It does this by having a network of centres, some small, some large, in all the main centres of population. There is a wish to provide roughly the same range of educational activities at all sites but for technical reasons this is sometimes not possible. The main annual objectives of the charity are to meet the educational delivery targets set by the Scottish Funding Council; to maintain quality standards as agreed internally and as assessed by external bodies and to do all of this within the financial resources made available to the charity. There is generally a target to make a modest return on annual income for the sole purposes of re-investing that return to improve the ability of the charity to meet its key charitable objective. 3

8 ARGYLL COLLEGE UHI LTD REPORT OF THE TRUSTEES FOR THE YEAR ENDED 31 JULY 2010 Achievements and Performance The charity is primarily funded by the Scottish Funding Council (SFC), the arms length body responsible for funding colleges and universities in Scotland. The further education funding is routed through North Highland College (NHC) and NHC accounts for the funds provided to SFC. The same obligations from SFC on NHC are passed to the company. There is a similar arrangement for higher education with the SFC funds coming via the UHI Millennium Institute. There are delivery and quality targets for all education delivered and failure to meet these can result in a clawback of funds in subsequent years. In , the college achieved all targets and fulfilled all contractual obligations. In particular, the charity met the volume of educational delivery targets agreed with SFC and UHI and it more than met the qualitative targets with some very good results from a series of approval and assessment/verification visits for qualifications offered. Records of all of this are available from the charity on request. The charity s financial performance was excellent in due mainly to increased efficiency, the ongoing impact of economies of scale with the increasing amount of funded FE activity and the continuing hard work and commitment of the college s staff. However, large amounts of board and management time (and costs) were expended in dealing with the consequences of withdrawing from a proposed merger with Lochaber and Skye and Wester Ross colleges in July While that decision was taken at the end of , the consequences were felt and had to be addressed in The trustees were of the view that the existence of the charity was under threat, certainly in its present form, and that it was being coerced into agreeing to an arrangement which placed the trustees in potential breach of their duties and obligations as charity trustees. Prior to withdrawal from the merger, there were issues over non-disclosure of essential financial information, the standard of accounting of the other parties and the scope and quality of the due diligence work carried out. There may also have been potential liabilities due to possible capital grant breaches by others. In reaching the conclusion to withdraw, the trustees took considerable amounts of legal and accountancy advice. Had the trustees not withdrawn from the proposed merger, it is indisputable that the charity would have been burdened with completely unexpected debts of 157k. The trustees remain of the view that withdrawal was the only option and that it was, and remains, the correct decision. A summary of the position is indicated by the following extract taken from a letter to SFC in March It will be self-evident that both these options present the board of Argyll College with major issues of governance, accountability and compliance with the Companies Act 2006 and The Charities and Trustee Investment (Scotland) Act At the time of writing, there is a partly agreed compromise solution to the problems created by withdrawal from the merger which the trustees hope will be concluded very soon. This will end what has been the most turbulent time in the charity s history. 4

9 ARGYLL COLLEGE UHI LTD REPORT OF THE TRUSTEES FOR THE YEAR ENDED 31 JULY 2010 Financial Review Principal Funding Sources As stated above, the principal funding sources of the charity are SFC s further and higher education funds. Fees are collected from students and Individual Learning Accounts are used instead of student fees in certain circumstances. There are a range of other, much smaller, funding sources. The financial performance of the charity was very sound in , despite the turbulent nature of the year. It is a tribute to the trustees and the staff that they were able to deal with an unexpectedly hostile external environment while maintaining and enhancing the sound position of the charity. Investment Policy All funds are held with Bank of Scotland in current and deposit accounts. There was no opportunity to make any better yielding longer term investments in the last year due to the large capital project to relocate the Oban centre. This project needed short term financing by both the college and UHI to cover the cash needs while capital grants were reclaimed. There is now an opportunity to look at more productive locations for some of the cash reserves and ethical issues, together with financial security, will be taken into account prior to any such investment. Reserves Policy The College receives funds primarily from the Scottish Funding Council, via North Highland College and UHI Millennium Institute. These funds are required to enable the College to provide educational delivery of a specified volume to students. Reserves arise as a consequence of volume of activity. It is the policy of the College to maintain its reserves at a level which would enable it to continue to operate for a period of up to 1.5 months in the event of funding sources not being available. The college s funding is predictable and ongoing so the reason for funding not being available is more likely to be due to some technical issue over funds transfer than any other. As a result the gap in funding is likely to be very short term. In the worst case the college would source alternative funding from it bankers. The bank has in the past provided the college with overdraft facilities as required so the relationship is good as is the college s financial standing with the bank. Based on planned expenditure for 2010/11 of 2.92m the target level of reserves would be 365k. At 31 July 2010 the College had unrestricted reserves of 821k therefore the actual reserves held are above the target level. Plans for Future Periods The financial situation in the UK and Scottish public sectors looks challenging over the next 4 years with predicted cuts of 16%, 5%, 5% and 5% respectively. The college is already making plans to change its way of operating to meet these cuts and stay both functionally and financially sound. There are no major expansion plans for the future given the scale of expansion in the last several years. There may be some property purchases which will proceed provided they are value for money and that they reduce the outlays in rentals over the forthcoming years, ie spend now to save later. 5

10 ARGYLL COLLEGE UHI LTD REPORT OF THE TRUSTEES FOR THE YEAR ENDED 31 JULY 2010 Trustees Responsibilities The Trustees are responsible for preparing the Trustees Report and the financial statements in accordance with applicable law and regulations. Company law requires the Trustees to prepare financial statements for each financial year. Under that law the Trustees have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Trustees must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the Trustees are required to: select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The Trustees are responsible for keeping adequate accounting records that are sufficient to show and explain the company s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006 and the Statement of Recommended Practice, Accounting and Reporting by Charities (issued in March 2005). They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Statement to Auditors In accordance with company law, as the company s Trustees, we certify that: so far as we are aware, there is no relevant audit information of which the company s auditors are unaware; and as the Trustees of the company we have taken all the steps that we ought to have taken in order to make ourselves aware of any relevant audit information and to establish that the company s auditors are aware of that information. Auditors A resolution will be proposed at the Annual General Meeting that Wylie & Bisset LLP be reappointed as auditors to the charity for the ensuing year. This report has been prepared in accordance with the Statement of Recommended Practice: Accounting and Reporting by Charities (issued March 2005) and in accordance with the provisions applicable to companies subject to the small companies regime of the Companies Act Approved by the Trustees and signed on their behalf by: Name: Date: 6

11 INDEPENDENT AUDITOR S REPORT TO THE TRUSTEES AND MEMBERS OF ARGYLL COLLEGE UHI LTD FOR THE YEAR ENDED 31 JULY 2010 We have audited the financial statements of Argyll College UHI Ltd for the year ended 31 July 2010 which comprise the Statement of Financial Activities, the Balance Sheet, the Cash Flow Statement and the related notes. The financial statements have been prepared under the accounting policies set out therein. The report is made exclusively to the members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and to the charity s trustees, as a body, in accordance with section 44 (1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 and regulation 10 of the Charities Accounts (Scotland) Regulations Our audit work has been undertaken so that we might state to the members and the charity s trustees those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the charity, its members as a body and its trustees as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of trustees and auditors The trustees (who are also the directors of the company for the purposes of company law) responsibilities for preparing the Trustees Annual report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and for being satisfied that the financial statements give a true and fair view are set out in the Statement of Trustees Responsibilities. We have been appointed auditors under section 44(1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 and under the Companies Act 2006 and report to you under those Acts. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view, have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice and have been prepared in accordance with the Companies Act 2006, the Charities and Trustee Investment (Scotland) Act 2005 and Regulations 6 and 8 of the Charities Accounts (Scotland) Regulations We also report to you whether, in our opinion, the information given in the Trustees Annual Report is consistent with the financial statements. In addition we report to you if, in our opinion, the charity has not kept adequate and proper accounting records, if the charity s statement of account is not in agreement with these accounting records, if we have not received all the information and explanations we require for our audit, or if certain disclosures of trustees remuneration specified by law are not made. We read the Trustees Annual report and consider the implications for our report if we become aware of any apparent misstatements within it. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the trustees in the preparation of the financial statements, and of whether the accounting policies are appropriate to the charitable company s circumstances, consistently applied and adequately disclosed. 7

12 INDEPENDENT AUDITOR S REPORT TO THE TRUSTEES AND MEMBERS OF ARGYLL COLLEGE UHI LTD (continued) FOR THE YEAR ENDED 31 JULY 2010 We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion The financial statements give a true and fair view of the state of the company s affairs as at 31 July 2010 and of the company s incoming resources and application of resources, including its income and expenditure, for the year then ended; The financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; The financial statements have been prepared in accordance with the Companies Act 2006, the Charities and Trustee Investment (Scotland) Act 2005 and Regulations 6 and 8 of the Charities Accounts (Scotland) Regulations 2006; and The information given in the Trustees Annual report is consistent with the financial statements. Signature: Name: Ross McLauchlan Senior Statutory Auditor For and on behalf of Wylie & Bisset LLP 168 Bath Street Glasgow G2 4TP Wylie & Bisset LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006 Date: 8

13 ARGYLL COLLEGE UHI LTD STATEMENT OF FINANCIAL ACTIVITIES (including Income and Expenditure Account) FOR THE YEAR ENDING 31 JULY 2010 Incoming Resources Restated Unrestricted Restricted Total Total Incoming resources from voluntary funds Voluntary income 2,452,278 1,610,625 4,062,903 2,392,559 Activities for generating funds 272, , ,431 Investment income Incoming resources from charitable activities 222, , ,316 Other incoming resources (5,150) - (5,150) 10 Total Incoming Resources 2,942,346 1,610,625 4,552,971 2,897,822 Resources expended Costs of generating funds Costs of generating voluntary income Fundraising trading; cost of goods sold and other costs Investment and management costs Charitable activities 2,598, ,613 2,870,283 2,954,707 Governance costs 32,477-32,477 65,773 Other resources expended Total Resources Expended 2,631, ,613 2,902,760 3,020,480 Net incoming/outgoing resources before transfers 311,199 1,339,012 1,650,211 (122,658) Transfers 409,500 (409,500) - - Net incoming resources before other recognised 720, ,512 1,650,211 (122,658) gains and losses Other recognised gains and losses Gains on revaluation of fixed assets for charity's own use Gains/losses on investment assets Actual gains/losses on defined benefit pension schemes 50,000-50,000 (300,000) Net movement in funds 770, ,512 1,700,211 (422,658) Reconciliation of Funds Total funds brought forward 50,028 3,084,106 3,134,134 3,556,792 Total funds carried forward 820,727 4,013,618 4,834,345 3,134,134 The statement of financial activities includes all gains and losses recognised in the year. All incoming resources and resources expended derive from continuing activities. 9

14 ARGYLL COLLEGE UHI LTD BALANCE SHEET AT 31 JULY 2010 FIXED ASSETS Tangible Assets Restated Notes 14 4,807,563 3,616,190 CURRENT ASSETS Debtors , ,711 Cash at bank and in hand 267,521 93,592 1,235, ,303 Creditors: amounts falling due within one year 16 (821,415) (186,903) NET CURRENT ASSETS 413,637 54,400 Creditors: amounts falling due after more than one year 17 (154,855) (175,456) Net Pension Liability 23 (232,000) (361,000) NET ASSETS 4,834,345 3,134,134 Unrestricted Funds Designated Funds (232,000) (361,000) General Funds 1,052, , ,727 50,028 Restricted Funds 20 4,013,618 3,084,106 TOTAL FUNDS 22 4,834,345 3,134,134 Approved by the Trustees and signed on their behalf. Name: Wilma Campbell Name:. Michael Breslin Date: 10

15 ARGYLL COLLEGE UHI LTD CASH FLOW STATEMENT FOR THE YEAR ENDED 31 JULY Operating surplus/(deficit) 1,650,211 (122,658) Depreciation charges 222, ,507 Impairment of fixed assets - 271,152 FRS 17 recognition in the SOFA (79,000) 6,000 Loss/(Gain) on disposal of fixed assets 5,150 (10) (Increase)/Decrease in debtors (819,820) (63,015) (Decrease) in creditors 613,898 27,366 Net cash inflow 1,593, ,342 Capital Expenditure Payments to acquire tangible fixed assets (1,835,283) (214,736) Proceeds from sale of fixed assets 415, Capital Element of Finance Lease rental payments - (6,634) Net cash inflow before financing 173, ,982 Financing Loan repayments 15,767 12,813 Loans received (661,500) - Net cash inflow / (outflow) (471,816) 121,795 Analysis Of Changes In Net Debt At 1 August 2009 Cash flows At 31 July 2010 Cash in hand, at bank 93, , ,521 Overdraft , , ,521 Debt due within 1 year (24,071) (666,334) (690,405) Debt due after 1 year (175,456) 20,601 (154,855) TOTAL (105,923) (471,816) (577,739) 11

16 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Accounting Policies a) Basis of preparation The basis of preparation of the accounts has changed from the previous year. The financial statements have been prepared under the historic cost convention, with the exception of investments which are included at market value. The financial statements have been prepared in accordance with the Statement of Recommended Practice Accounting and Reporting by Charities (SORP 2005) issued in March 2005, applicable UK Accounting Standards and the Companies Act The principal accounting policies adopted in the preparation of the financial statements are set out below. b) Fund accounting Unrestricted funds are available for use at the discretion of the Trustees in furtherance of the general objectives of the charity. Designated funds are unrestricted funds earmarked by the Trustees for particular purposes. Restricted funds are subjected to restrictions on their expenditure imposed by the donor or through the terms of an appeal. c) Incoming resources All incoming resources are included in the Statement of Financial Activities when the charity is entitled to the income and the amount can be quantified with reasonable accuracy. The following specific policies are applied to particular categories of income: Voluntary income is received by way of grants, donations and gifts and is included in full in the Statement of Financial Activities when receivable. Grants, where entitlement is not conditional on the delivery of a specific performance by the charity, are recognised when the charity becomes unconditionally entitled to the grant. Donated services and facilities are included at the value to the charity where this can be quantified. The value of services provided by volunteers has not been included in these accounts. Investment income is included when receivable. Incoming resources from charitable trading activities are accounted for when earned. Incoming resources from grants, where related to performance and specific deliverables, are accounted for as the charity earns the right to consideration by its performance. Income is only deferred when: The donor specifies that the grant or donation must only be used in future accounting periods; or The donor has imposed conditions which must be met before the charity has unconditional entitlement. 12

17 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Accounting Policies (continued) d) Resources expended Expenditure is recognised on an accruals basis as a liability is incurred. Expenditure includes any VAT which cannot be fully recovered and is reported as part of the expenditure to which it relates: Costs of generating funds comprise the costs associated with attracting voluntary income and the costs of trading. Charitable expenditure comprises those costs incurred by the charity in the delivery of its activities and services for its beneficiaries. It includes both costs that can be allocated directly to such activities and those costs of an indirect nature necessary to support them. Governance costs include those costs associated with meeting the constitutional and statutory requirements of the charity and include the audit fees and costs linked to the strategic management of the charity. All costs are allocated between the expenditure categories of the SoFA on a basis designed to reflect the use of the resource. Costs relating to a particular activity are allocated directly, others are apportioned on an appropriate basis e.g. floor areas, per capita or estimated usage as set out in Note 10. e) Tangible fixed assets and depreciation Land and buildings Tangible assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its useful life. Freehold Buildings are depreciated over their expected useful life to the College of 50 years. Leasehold property is depreciated over the life of the lease, 33.3 years and 100 years for Leasehold properties at Oban. Equipment Equipment costing less than 2,500 per individual item is written off to the income and expenditure account in the period of acquisition. All other equipment is capitalised at cost. All equipment is depreciated over its useful economic life as follows: Land and Buildings - Leasehold Oban 1% Straight Line Land and Buildings - Heritable 2% Straight Line Land and Buildings - Leasehold 3% Straight Line Fixtures, Fittings and Equipment 10% Straight Line Plant and Equipment 10% Straight Line Motor Vehicles 20% Straight Line Library Books and Software 20% Straight Line Capitalised Hand Tools 25% Straight Line Computing Equipment 33% Straight Line 13

18 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Accounting Policies (continued) f) Operating leases Rentals paid under operating leases are charged to the statement of financial activities. The obligation to pay future rentals on operating leases is shown by way of a note to the Accounts. g) Pension scheme Staff may join the Strathclyde Pension Fund (SPF), which is administered by Glasgow City Council and which requires contributions to be made to its number 1 fund. This is a defined benefit scheme that is externally funded and contracted out of the State Earnings Related Pension Scheme. Contributions to the scheme are charged to the SOFA so as to spread the cost of pensions over employees' working lives with the College in such a way that the pension cost is a substantially level percentage of current and future pensionable payroll. The contributions are determined by qualified actuaries on the basis of periodic valuations. h) Taxation The College is an exempt charity within the meaning of Schedule 2 of the Charities Act 1993 and as such is a charity within the meaning of section 506(1) of the Income and Corporation Taxes Act (ICTA) Accordingly, the College is potentially exempt from taxation in respect of income or capital gains received within categories covered by section 505 of the ICTA 1988 or section 256 of the Taxation of Chargeable Gains Act 1992, to the extent that such income or gains are applied exclusively to charitable purposes. The college receives no further exemption in respect of Value Added Tax. 2. Legal Status The charity is a company limited by guarantee and has no share capital. The liability of each member in the event of winding up is limited to Voluntary Income Restated Unrestricted Restricted Total Total Capital Grant Income - 1,591,611 1,591, ,766 Core Funding 2,264,631-2,264,631 2,057,358 Other Revenue Grants 187, , ,676 European Grant Income - 19,014 19,014 55,759 2,452,278 1,610,625 4,062,903 2,392,559 14

19 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Activities for Generating Funds Restated Unrestricted Restricted Total Total Rental Income 48,376-48,376 24,383 Nursery Income 200, , ,999 Hairdressing Income 11,860-11,860 8,596 Vending Machine Income 11,332-11,332 9, , , , Investment Income Restated Unrestricted Restricted Total Total Bank Interest Incoming Resources from Charitable Activities Restated Unrestricted Restricted Total Total Education Provision 222, , , , , , Other Incoming Resources Restated Unrestricted Restricted Total Total Gain/(Loss) on Sale of Assets (5,150) - (5,150) 10 - (5,150) - (5,150) 10 15

20 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Resources Expended- Charitable Activities Restated Direct Support Costs Costs Total Total Education Provision 2,761, ,850 2,870,283 2,954,707 2,761, ,850 2,870,283 2,954, Resources Expended Governance Costs Restated Direct Support Costs Costs Total Total Staff Costs - 12,094 12,094 16,078 Auditors' Remuneration 6,710-6,710 6,510 Legal Fees 9,485-9,485 9,707 Professional Fees 4,188-4,188 33,478 20,383 12,094 32,477 65, Support Costs Breakdown by Activities Education Provision Governance Basis of Allocation Staff Salaries 108,850 12,094 Time spent 108,850 12, Net Incoming Resources for the Year This is stated after charging: Restated Depreciation 222, ,507 Auditors' Remuneration - Audit Fees 6,710 6,510 Auditors' Remuneration - Other Fees - 32,120 16

21 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Staff Costs and Numbers Staff costs were as follows: Restated Salaries and wages 1,767,468 1,626,581 Social security costs 118, ,516 Other pension costs 53, ,243 Total 1,940,127 1,881,340 No employee received emoluments of more than 60,000 The average number of employees during the year, calculated on the basis of fulltime equivalents, was as follows: Restated Number Number Teaching Staff Other Staff Total Trustees Remuneration and Related Party Transactions The Board of Management received 1,232 (2009: 2,354) in the year for reimbursement of travel expenses. Michael Breslin (Executive Director) is the only board member to receive remuneration. Rena MacDonald is a salaried employee of the college but receives no remuneration in respect of her role as a director. Argyll and Bute Council and HIE Argyll and the Islands are members of Argyll College. 845 (2009: 1,872) was due from Argyll and Bute Council and 2,853 (2009: 1,980) was due to Argyll and Bute Council. 1,288 (2009: 1,748) were received during the year from Argyll and Bute Council as revenue grants. At the year-end 160,650 (2009: Nil) was due from HIE Argyll and the Islands. No revenue grants were received during the year from HIE Argyll and the Islands (2009; Nil) and 367,543 (2009; 15,069) were received as capital grants. This capital grant was for the Glenshellach project. During the year the college paid MacLeod Construction Ltd Nil (2009: Nil), Kenneth MacLeod is a director of Macleod Construction Ltd. 17

22 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Tangible Fixed Assets Land and Land and Plant Buildings Buildings and Computer Motor Leasehold Freehold Equipment Equipment Vehicles Total Cost or valuation At 1 August ,518,101 1,255, ,033 1,236,151 45,042 5,445,629 Additions 48,676 1,614,778 70, ,942-1,835,283 Disposals (492,361) (10,124) (502,485) At 31 July ,074,416 2,870, ,920 1,337,093 34,918 6,778,427 Depreciation At 1 August , , ,126 1,144,458 28,622 1,829,439 On disposals (77,796) (3,710) (81,506) Charge for the year 53,478 37,536 52,647 74,833 4, ,931 At 31 July , , ,773 1,219,291 29,349 1,970,864 Net book values At 31 July ,776,307 2,701, , ,802 5,569 4,807,563 At 31 July ,195,674 1,124, ,907 91,693 16,420 3,616,190 The net book value at 31 July 2010 represents fixed assets used for: Direct Charitable purposes 1,776,307 2,701, , ,802 5,569 4,807,563 Other purposes: Administration ,776,307 2,701, , ,802 5,569 4,807,563 18

23 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Debtors Trade debtors 18,033 15,401 ESF debtors 48,241 29,227 Other debtors 890, ,083 Prepayments 10, , , Creditors: Amounts falling due within one year Loans 690,405 24,071 Trade creditors 33,001 27,540 HP Liability - 1,389 Other taxes and social security costs 30,343 30,563 Other creditors 17,722 49,830 Accruals 48,366 52,880 Deferred income 1, , , Creditors: Amounts falling due after more than one year Loans 154, , , , Loan Maturity Amounts falling due: In one to two years In two to five years After five years ,071 72,213 58,571 24,071 72,213 79, , ,456 19

24 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Reserves Restatement As at 1 August , ,962 Transfer of deferred capital grants into reserves 3,084,106 3,469,830 FRS17 Pension adjustment (361,000) (55,000) Restated Opening Reserves at 1 August ,134,134 3,556,792 The above reserves adjustments arise due to the recognition of the FRS 17 pension liability on the balance sheet and also as a result of the restatement of the accounts from under the FE Colleges SORP to the Charities SORP. 20. Restricted Funds Movement in funds Balance at Incoming Expenditure Balance at 1 August 2009 resources (gains)/losses Transfers 31 July 2010 Capital Fund 3,084,106 1,591, ,599 (409,500) 4,013,618 ESF LEADER Project - 19,014 19, ,084,106 1,610, ,613 (409,500) 4,013,618 Capital Fund the restricted capital fund has arisen as a result of the restatement of the accounts from under the FE Colleges SORP to the Charities SORP. This relates to capital grants received by the college which have ongoing restrictions placed on them. ESF LEADER Project - these funds are received from the ESF for work solely in relation to the leader project. 21. Unrestricted Funds Movement in funds Balance at Incoming Expenditure Balance at 1 August 2009 resources (gains)/losses Transfers 31 July 2010 General charitable funds 411,028 2,942,346 2,710, ,500 1,001,727 Designated funds: Capital Projects ,000 51,000 Pension Fund (361,000) - (129,000) - (232,000) 50,028 2,942,346 2,581, , ,727 Capital Projects the capital projects fund is designated to cover planned future capital expenditure of the College. Pension Fund the pension liability fund is designated to meet potential pension liabilities under FRS17. 20

25 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Analysis of Net Assets between Funds Tangible Net Net fixed current pension assets assets liability Total Restricted funds 4,013, ,013,618 Unrestricted funds 793, ,782 (232,000) 820,727 Total funds 4,807, ,782 (232,000) 4,834, PENSION COSTS Argyll College UHI Ltd operate one pension scheme, the Strathclyde Pension Fund (SPF). The total employer s pension cost for the period was as follows: 31 July July Contribution to SPF Total pension cost Strathclyde Pension Fund (SPF) The College s employees belong to one principal pension scheme, the Strathclyde Pension Fund(SPF), which is of the Defined Benefit Type. The assets of the SPF scheme are held in a separate, trustee administrated fund. The College paid contributions of 17.3% for the period from 1 April 2009 to 31 March 2010, this increased to 18.2% from 1 April Employees contribution rate is calculated on a tiered contribution basis dependant on pensionable salary. The following information is based upon a full actuarial valuation of the Fund at 31 July 2010 by a qualified independent actuary. Principal Actuarial Assumptions At 31 July 2010 At 31 July 2009 Pension Increase Rate 2.9% 3.7% Salary Increase Rate 4.9% 5.2% Expected Return on Assets 6.6% 6.8% Discount rate 5.4% 6.0% 21

26 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY PENSION COSTS (cont ) The current mortality assumptions include sufficient allowance for future improvements in mortality rates. The assumed life expectations on retirement age 65 are: At 31 July 2010 At 31 July 2009 Retiring today Males Females Retiring in 20 years Males Females The assets and liabilities in the scheme and the expected rates of return were: Long-term rate of return expected at 31 July 2010 Value at 31 July 2010 '000 Long-term rate of return expected at 31 July 2009 Value at 31 July 2009 '000 Equities 7.2% % 798 Bonds 4.8% % 157 Property 5.3% % 73 Other 4.4% % 21 Total Market Value of Assets 1,448 1,049 Present value of scheme liabilities (1,680) (1,410) Deficit in the scheme (232) (361) Analysis of amount charged to the income and expenditure account Service cost Past service cost (108) 13 Total operating charge Analysis of pension finance income / costs Expected return on pension scheme assets (78) (75) Interest on pension liabilities Pension finance costs 13 (2) 22

27 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY PENSION COSTS (cont ) Analysis of amount recognised in statement of total recognised gains and losses Actual return less expected return on pension scheme assets (50) (300) Experience gains and losses on liabilities - - Changes in financial assumptions underlying the scheme liabilities - - Actuarial loss recognised in STRGL (50) (300) Cumulative Actuarial gains and losses (250) (300) Movement in deficit during the year (Deficit)/surplus in scheme at beginning of year (361) (55) Current service cost (170) (116) Employer contributions Interest cost (91) (73) Past Service Costs 108 (13) Expected return on employer assets Actuarial gain/(loss) 50 (300) Deficit in the scheme at end of year (232) (361) Reconciliation of defined benefit obligation Opening Defined Benefit Obligation 1,410 1,023 Current Service cost Interest Cost Contributions by members Actuarial losses/(gains) Past Service cost (108) 13 Estimated benefits paid (7) (5) Estimated benefits paid 1,680 1,410 Reconciliation of fair value of employer assets Opening Fair value of employer assets 1, Expected Return on assets Contributions by members Contributions by employers Actuarial Gains/(losses) 115 (155) Benefits paid (7) (5) Closing Fair Value of Employer Assets 1,448 1,049 23

28 ARGYLL COLLEGE UHI LTD NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 JULY Capital Commitments The College agreed during the 2009/10 financial year to purchase 3 new motor vehicles at a total cost to the College of 36, Lease Commitments At 31 July 2010 the College had the following annual commitments under non-cancellable operating leases: Property Other Operating leases which expire: Within one year 34,377 28, In the second to fifth year inclusive 129, , Over 5 years 454, , CONTINGENT LIABILITY There are no known matters of contingent liability and consequently no financial provision has been made in these financial statements. 27. POST BALANCE SHEET EVENTS There are no post balance sheet events to note. 24

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30 Wylie & Bisset LLP CHARTERED ACCOUNTANTS Argyll College Annual Report to the Board of Directors ARGYLL COLLEGE UHI LTD ANNUAL REPORT TO THE BOARD OF DIRECTORS ON THE EXTERNAL AUDIT FOR THE YEAR ENDED 31 JULY 2010 Wylie & Bisset LLP CHARTERED ACCOUNTANTS

31 Wylie & Bisset LLP CHARTERED ACCOUNTANTS Argyll College Annual Report to the Board of Directors Date of commencement of Final Visit 4 October 2010 Date of Draft Report to College 3 November 2010 Date of Meeting re Draft Report 3 November 2010 Date of College Responses November 2010 Date of Presentation of Report December 2010

32 Wylie & Bisset LLP CHARTERED ACCOUNTANTS Argyll College Annual Report to the Board of Directors CONTENTS GLOSSARY OF TERMS 1. INTRODUCTION 2. INTERNAL CONTROLS AND AUDIT APPROACH 3. FINANCIAL STATEMENTS 4. INTERNAL AUDIT 5. CORPORATE GOVERNANCE 6. PREVENTION AND DETECTION OF FRAUD AND IRREGULARITIES 7. MANAGEMENT LETTER MANAGEMENT LETTER 2010 APPENDICES A Statement of responsibilities of the board of directors B Independent Auditors Report C Letter of Representation, incorporating Summary of errors and deviations

33 1. INTRODUCTION Wylie & Bisset LLP were appointed as the External Auditors of Argyll College for the year ended 31 July This Annual Report has been prepared following the conclusion of our audit of the financial statements of Argyll College for the year ended 31 July Our audit was carried out in accordance with International Standards on Auditing (UK & Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the College s circumstances, consistently applied and adequately disclosed. The responsibilities of the Board of Directors with regard to the financial statements are set out in the Statement of Responsibilities of the Board of Directors included in Appendix A and in the Independent Auditors Report in Appendix B. The responsibilities of Wylie & Bisset LLP with regard to the financial statements and our audit opinion on the financial statements are included in the Independent Auditors Report included in Appendix B. Our audit report on the financial statements for the year ended 31 July 2010 is unqualified. The Annual Report covers the following areas: 2. Internal Controls and audit approach 3. Financial statements 4. Internal Audit 5. Governance 6. Prevention and detection of fraud and irregularities 7. Management letter Management letter 2010 Our audit findings in each of the above areas are set out in the relevant sections of the report. Our audit work is designed to enable us to form an audit opinion on the financial statements of the College and should not be relied upon to disclose all weaknesses in internal controls in relation to the Colleges systems and financial statements. This report has been prepared for the purposes of the Board of Directors and should not be issued to third parties without our prior written consent. We would emphasise that our comments in this report are not intended to be any reflection on the integrity of the College staff whom we would like to thank for their help and assistance throughout our audit visits. Should you have any queries on the contents of the Annual Report please do not hesitate to contact us.