Introduction Post-Audit Report Conclusion Appendix A Audit adjustments Appendix B Unadjusted misstatements...

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2 Introduction... 1 Post-Audit Report... 1 Conclusion... 7 Appendix A Audit adjustments... 8 Appendix B Unadjusted misstatements... 9 Appendix C Audit findings and recommendations Appendix D Sector developments The Congregation of the Sisters of Nazareth Charitable Trust

3 The purpose of this report to the trustees of The Congregation of the Sisters of Nazareth Charitable Trust ( the charity ) is to bring to your attention the findings from our recent audit of the accounts of the charity for the year ended 31 March We appreciate that you will already be aware of some of the matters contained in this report. However, in accordance with International Standards on Auditing (UK and Ireland) (ISAs) we are communicating them to you formally. Our work during the audit was performed with a view to expressing an opinion on the accounts for the year ended 31 March Our audit work included consideration of the internal controls relevant to the preparation of the accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. The matters being reported are limited to those that were identified during the audit and that we conclude are of sufficient importance to merit being reported to those charged with governance. We are pleased to report that the audit of the accounts, from our perspective, went well and in accordance with the agreed timetable. We would like to take this opportunity to thank all those with whom we dealt during the audit for their assistance and co-operation, in particular John Graham. We use a risk-based audit approach in which we direct much of our work into the areas where we believe there is a higher possibility that a material error may occur in the accounts. Some areas of the accounts or types of transactions may be considered to be of higher risk due to their nature, their complexity, their size, their method of calculation, where the transaction takes place or how much direct control the charity exerts over the transaction. The Congregation of the Sisters of Nazareth Charitable Trust 1

4 Audit progress and findings (continued) Our resulting audit work included reviewing and testing the processes and controls that exist within the charity s accounting and administrative systems and examining evidence supporting the amounts and disclosures in the accounts. Our audit also includes testing of the other lower risk areas of the accounts in order to provide us with sufficient audit assurance that those areas are not materially misstated. The wide variety of procedures performed has provided us with sufficient audit evidence to conclude as to whether the accounts are free from material misstatement and as a result we currently intend to provide an unqualified audit opinion. As part of our pre-audit planning process, we identified those areas where we believe there is a higher possibility that a material error may appear in the accounts and in the table below we have provided a brief summary of the outcome of our audit work in relation to certain of those higher risk areas we identified when planning our audit work and the conclusions drawn as a result. Key Audit Risks Audit Approach Conclusion Reporting and compliance The new Charities SORP FRS 102 will apply to the accounts for the year ended 31 March 2016 for the first time. We applied our extensive experience to ensure that the annual report and accounts not only comply with all the relevant reporting requirements but also that they effectively communicate the organisation s objectives and achievements as viewed by the trustees. The accounts have been prepared in accordance with the Charities SORP FRS 102 and include all necessary disclosures. The Congregation of the Sisters of Nazareth Charitable Trust 2

5 Audit progress and findings (continued) Key Audit Risks Audit Approach Conclusion Transfer of Nazareth Care Village Belfast The Care Village will be transferred from CSNCT to the Irish Region in the year ending 31 March There is a risk that the accounting implications of this transfer are not appropriately reflected in the accounts, particularly the impairment provision that will be required in the accounts for the year ended 31 March 2016, following the valuation of the building. We applied our experience to ensure that all relevant disclosures are included in the accounts and that the impairment of the building is appropriately treated in the accounts. The impairment of the building at Nazareth Care Village Belfast has been correctly treated in the accounts, with an impairment of 1.82m recognised. Accounting treatment of restricted legacies and donations There is a risk that donations and legacies received by the charity for a specific purpose are recognised as unrestricted funds. Substantive testing Significant donations and legacies were reviewed along with accompanying documentation to ensure that any restrictions imposed by the donor have been identified and applied. Donations and legacies have been correctly recognised as restricted funds along with the relevant expenditure. Inter-entity transactions The Trust is connected to other registered charities and trading companies. There are transactions between the charity and the connected entities. There is a risk that the transactions are not properly reconciled between the connected charities and that not all transactions are disclosed. Analytical procedures Inter-entity balance reconciliations were reviewed and any differences investigated. Inter-entity balances have been reconciled at 31 March 2016 and agreed to the connected entities accounts. The Congregation of the Sisters of Nazareth Charitable Trust 3

6 Audit progress and findings (continued) Key Audit Risks Audit Approach Conclusion Opening balances Opening balances may not agree to the closing balances of the audited accounts for the year ended 31 March Substantive testing Opening balances were checked to the closing balances of the audited accounts for the year ended 31 March Opening balances were tested and found to be accurately stated. Capital expenditure There is a risk that expenditure on capital items in relation to care homes has been capitalised in the accounts of Nazareth Care Charitable Trust instead of the charity. Substantive testing Care homes where capital work has been carried out during the year were identified and the capitalisation of expenditure checked to the charity s accounts. Fixed assets were tested and found to be accurately stated and in line with policy. The accounts have been prepared in accordance with Financial Reporting Standard The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) and Accounting and Reporting by Charities: Statement of Recommended Practice applicable to charities preparing their accounts in accordance with FRS 102 (Charities SORP FRS 102). FRS 102 and Charities SORP FRS 102 are effective for accounting periods commencing on or after 1 January FRS 102 is based on International Accounting Standards and effectively replaces standards that were previously based on United Kingdom rules and requirements. The first time adoption of the Charities SORP FRS 102 has resulted in a number of key changes to the Trustees report and the accounts (including the comparatives) compared to the presentation adopted in the previous year. These are summarised below: The Congregation of the Sisters of Nazareth Charitable Trust 4

7 The trustees report includes the charity s policy for setting the remuneration of key management personnel; Also within the trustees report, there is greater detail in relation to the key risks including mitigating actions and plans; Additional accounting policies are included to provide greater transparency and also include the charity s status as a public benefit entity, information on critical accounting estimates and judgements made by the trustees; and the assessment by the trustees that there are no material uncertainties about the charity s status as a going concern; Governance costs are no longer disclosed separately on the statement of financial activities as they do not, in themselves, constitute an activity. They are now allocated to the relevant activity cost category they support; The trustees expenses and remuneration and transactions with trustees disclosure (note 8) now includes the total amount donated to the charity by the trustees, comprising Sisters pensions and stipends. The staff costs note to the accounts (note 7) now discloses the aggregate remuneration paid to key management personnel; and The statement of cash flows has been updated to reflect the new FRS102 format. We do not propose any modifications to our audit opinion and, therefore, we intend to issue an unqualified opinion in our auditor s report. The wording of our auditor s report has been updated to reflect the revised accounting framework. A list of the adjustments which have been made to the figures presented to us for audit are attached as Appendix A. These have all been discussed and agreed with and You have confirmed as trustees, that you concur with these adjustments. The Congregation of the Sisters of Nazareth Charitable Trust 5

8 We enclose a list of misstatements identified during our audit which remain unadjusted at Appendix B. The list does not include items which are considered to be clearly trivial. We will obtain written representations from you, as trustees, that these are not to be adjusted, due to their lack of significance to the overall result portrayed by the accounts. Part of our work included assessing the accounting policies and disclosures in the accounts in line with the requirements under FRS 102 and the Charities SORP FRS 102. Our work included a review of the adequacy of disclosures already in the accounts and consideration of the appropriateness of the accounting policies and estimation techniques adopted by the charity. We believe that the disclosed accounting policies, significant accounting estimates and the overall disclosure and presentation to be appropriate for the charity and in compliance with FRS 102 and Charities SORP FRS 102. We enclose the final draft letter of representation which we will request the trustees to approve and sign at the same time as the accounts. Our work during the audit included an examination of some of the charity s transactions, procedures and controls with a view to expressing an opinion on the accounts for the year ended 31 March We found no significant deficiencies in the accounting and internal control systems during our audit. Our observations and recommendations as a result of our audit work are given in Appendix C. Each comment has been given a priority rating ranging from A to C. A indicates that, in our opinion, immediate action is required; conversely C indicates that the matter, although important, does not warrant urgent attention. The Congregation of the Sisters of Nazareth Charitable Trust 6

9 The detailed observations and recommendations included in the Appendix relate to: Salaries and wages; and Income. The matters have all been discussed with Robert York, Christopher Stringer and John Graham. In accordance with our profession s ethical guidance and further to our planning letter to you there are no further matters to bring to your attention in relation to Integrity, Objectivity and Independence. We have included details of current sector developments which may be of interest to you in Appendix D. As part of our commitment to the charity sector, during the year the Charity Team issues occasional Updates and Insights on matters of relevance to the sector and also holds a number of seminars free of charge throughout the year. We would be delighted to welcome representatives of your charity to our seminars or to add trustees and management to our distribution lists if this would be welcome. This report is for your private use only. It has been prepared on the understanding that it will not be disclosed to any third party, or quoted or referred to, without our prior written consent and we can therefore assume no responsibility to any other party. If you require any further information or assistance, we shall be very pleased to help you. We would be pleased to receive your comments and reaction to this report. Yours faithfully The Congregation of the Sisters of Nazareth Charitable Trust 7

10 Appendix A Audit adjustments NL Description SOFA Balance Sheet Dr Cr Dr Cr Other donations (restricted) 65,866 Glasgow Building Fund (restricted) 65,866 Being adjustment to reclassify donations in respect to The Glasgow Building Fund. Rental income - charitable activities 58,126 Investment income - rent 58,126 Being adjustment to reclassify rental income from Blackburn investment properties. Investments 33,750 Profit on disposal of investments 33,750 Being adjustment to correctly recognise surplus on disposal of investments. Freehold Land & Buildings 5,477 Depreciation 5,477 Being adjustment to depreciation charged at Belfast House Furniture & Equipment 11,435 Depreciation 11,435 Being adjustment to depreciation charged at Belfast House Freehold Land & Buildings 21,600 Repairs and Maintenance 21,600 Depreciation 2,160 Accumulated depreciation 2,160 Being the capitalisation of architects fees Fixed assets NRV Blackburn debtor Being capitalisation of boiler at NRV Blackburn 40,888 40,888 Rental income Miscellaneous income Donations and legacies Being reclassification of income 32,353 24,378 7, , ,695 96,238 59,960 The net impact of the above adjustments is to decrease the deficit by 36,278 The Congregation of the Sisters of Nazareth Charitable Trust 8

11 Appendix B Unadjusted misstatements NL Description SOFA Balance Sheet Dr Cr Dr Cr Legacies 10,000 Donations 10,000 Being adjustment to reclassify donation recognised as a legacy at Glasgow. Depreciation charge 15,000 Accumulated depreciation 15,000 Being adjustment to bring depreciation charge in line with the rates stated in the accounting policies. Legal and professional fees 11,643 Trade creditors Being adjustment to accrue for invoice relating to 2015/16. 11,643 36,643 10,000-26,643 The net impact of the above adjustments would be to increase the deficit by 26,643 The Congregation of the Sisters of Nazareth Charitable Trust 9

12 Appendix C Audit findings and recommendations OBSERVATION IMPLICATION RECOMMENDATION MANAGEMENT COMMENT Salaries and wages It was noted that one new starter and one existing employee at Belfast House did not have a signed contract. B If a dispute arises, there is a risk that the terms and conditions in the employment contract may not be enforceable if it has not been signed, leaving the charity at risk. We recommend that all staff contracts are signed by employees as evidence of their consent to the terms and conditions of their employment. Processes should be put in place to ensure all outstanding contracts are chased. Income It was noted during our visit to Lancaster that the Sisters did not pass on a copy of their pension entitlement letters to the Sister Superior to enable her to check that the correct amounts are being received. B If there is no oversight or reconciliation of pension income, there is a risk that this income is incomplete. We recommend that pension letters are reviewed regularly against receipt in the bank statement to ensure correct amounts are being received. It was noted during our visit to Glasgow that cash collection sheets are not used to record cash takings which may then be reconciled to the cash banked. B If there is no documentation to support cash donations, it may be unclear whether the donation is restricted or unrestricted. There is also a lack of audit trail between the amount received and the amount banked. We recommend that cash collection sheets are used to record cash takings. The Congregation of the Sisters of Nazareth Charitable Trust 10

13 Appendix C Audit findings and recommendations OBSERVATION IMPLICATION RECOMMENDATION MANAGEMENT COMMENT It was noted during our visit to Glasgow that there was no supporting documentation to support cash donations for the purpose of the Building Fund. B If there is no documentation to support donations received, it may be unclear whether the donation is restricted or unrestricted. This may lead to the accounts being misstated and/or breaches of trust. We recommend that documentation is retained for donations received. We also recommend that thank you letters are sent to donors as a means of confirming the use of any money donated. It was noted during our visit to Manchester that the Bursar does not retain records of cash collections. It was also noted that the counting and recording of cash donations is undertaken by the same person. B If there is no documentation to support cash donations, it may be unclear whether the donation is restricted or unrestricted. There is also a lack of audit trail between the amount received and the amount banked. We recommend that a cash collection sheet should be prepared by the Bursar, who should initially record the receipts. The amount should then be checked and banked by another Sister. The Congregation of the Sisters of Nazareth Charitable Trust 11

14 Appendix D Sector developments Updates, Insights and Seminars Further information about the Buzzacott Charity & Not for Profit team and the services we provide to clients can be found on our website: The complete programme of upcoming Buzzacott events, seminars and training courses can be found on our website: Governance Kids Company - The lessons no trustee can afford to ignore In early February 2016, the House of Commons Public Administration and Constitutional Affairs Committee published its report into the collapse of the charity Kids Company. This important report contains recommendations and lessons that no one who is a trustee of a charity can afford to ignore. Our review of this report can be read on our website at: Fundraising A number of examples of poor fundraising practice were brought to light in the media in Following investigations into fundraising practices by Sir Stuart Etherington, Chief Executive of NCVO, a new independent regulator of charity fundraising has recently been established. The Fundraising Regulator will set and promote standards and best practice for fundraising charities, and will have the power to investigate and adjudicate complaints when there is significant public concern. On 24 August, proposals for the operation of the new Fundraising Preference Service (FPS) were published. This would allow donors to make their communication preferences clear to fundraising organisations. It is proposed that this will apply to charities spending greater than 100,000 on fundraising. The Fundraising Regulator will cover all organisations which engage in fundraising, and will be funded through a levy on fundraising organisations. The Regulator announced on 24 August 2016 that they will now write to inform all charities included in the levy of their contribution before they send out invoices. Registration will commence in the Autumn of 2016, but the levy will apply from 1 September Further details are available on the Fundraising Regulator website: Coping with the changing nature of the economy In an increasingly competitive economy, it is imperative that a charity has adequate reserves to protect itself from sudden falls in income (for example through funding cuts) or to meet the costs that are associated with the demands of a new project. With that in mind, the Charity Commission has recently updated and streamlined its guidance on reserves (CC19) which explains the importance of a reserves policy, and what trustees should be doing to monitor the level of reserves. The guidance can be found at: The Congregation of the Sisters of Nazareth Charitable Trust 12

15 Appendix D Sector developments The Charity Commission has also updated its guidance on managing financial difficulties (CC12), which explains trustees duties in cases of insolvency and recommends that trustees review the financial position and performance on a monthly basis. The guidance can be found at: Financial reporting Charity Commission review on reporting requirements In April 2016, the Charity Commission published a report which looked at the quality of annual reports and accounts in both smaller and larger charities. Overall, it was found that 77% of accounts reviewed by the Charity Commission were of acceptable quality, although larger charities were more likely to be of acceptable quality than smaller charities. Some of the key findings of the report were: Trustees annual report The trustees report was reviewed for an adequate statement of their purposes and activities and for a reserves policy. Whilst 85% of charities satisfied the first criterion, only 74% included a reserves policy. Independent assurance reports It was found that only 95% of charities that required an audit report included one (a fall from 100% in the previous two years) whilst 89% of charities requiring an independent examination included such a report (an increase from 81% from the prior year). Meeting the public benefit requirement Only 45% of charities included the necessary statement to confirm that the Trustees had considered the Charity Commission guidance on public benefit This report can be read in full at: SORP 2019 Consultation A period of consultation is underway for all users of charity accounts to comment on how the next SORP, currently due to take effect from 2019, could be improved. It has been commissioned jointly by the Chartered Institute of Public Finance and Accountancy (CIPFA), the Charity Commission and the Office of the Scottish Charity Regulator (OSCR). The key questions include: Should there be a third tier of reporting by only the largest charities? If so, what should the thresholds be and what additional reporting should be required? Should the concept of support costs be removed, given it is difficult to compare support costs between entities? Should an additional column for capital items be included on the SOFA to avoid distorting year on year comparisons? The full consultation document with details on how to submit comments can be found at: The Congregation of the Sisters of Nazareth Charitable Trust 13

16 Appendix D Sector developments Payroll changes Apprenticeship Levy The Government is introducing a new apprenticeship levy with effect from 6 April The levy will take the form of a charge of 0.5% of an employer s pay bill (the total amount of earnings subject to Class 1 secondary National Insurance Contributions), however there is an annual allowance against the levy of 15,000, which means it will only be payable by employers with a pay bill in excess of 3million. Contracted out NI and pension scheme changes With contracted out NI letters and Contracted Out Salary Related (COSR) pension schemes ceasing from April 2016, any employees within these schemes need to be migrated from D rate NIC to A rate. The result brings additional costs to employers as A rate NIC is less favourable and, accordingly, their Employers National Insurance contributions have increased. Scottish tax code prefixes Employment Allowance increased Introduced in the 2014 Budget, the NICs Employment Allowance allows qualifying companies to reduce their employer s national insurance. From 6 April 2016, this amount has increased to 3,000, so eligible businesses and charities can get a greater reduction on the employment costs. Those organisations which have already been claiming Employment Allowance will not need to do anything, as the update will be carried out automatically - usually through payroll software. While there is currently no difference in tax rates between Scotland and the rest of the UK, this may change in the future. This means, from 6 April anybody living in Scotland will pay the Scottish rate of tax, and tax codes will carry an 'S' prefix where HMRC considers the employee should be paying Scottish Tax. Introduction of a National Living Wage From 1 April 2016, a new National Living Wage of 7.20 per hour was implemented to provide a pay boost to workers over the age of 25. The previous minimum wage is 6.70 meaning that the new NLW provides a 50p increase in wage per hour. The Congregation of the Sisters of Nazareth Charitable Trust 14