CFG's trustees did not become aware that its reserves had plunged by nearly three-quarters until two months after the end of the financial year, Civil Society News has learned.
 
And the drop was due partly to the correction of past accounting errors, but this was not disclosed in the trustees’ annual report.

The annual report for the year to 31 March 2014 stated that the fall in free reserves from just under £250,000 at the start of the year to £61,586 at the end was down to a deliberate decision by the board to invest in a restructure and office move.

But sources close to CFG have confirmed that the trustees did not even become aware of the true financial position for the year ended 31 March 2014 until they received an email from chief executive Caron Bradshaw in late May 2014 – almost two months after the year-end.
 
As late as March they had been advised that the original budgeted £31,000 loss may grow - but were reassured that this was still expected to result in a year-end reserves figure of around £190,000 – well within the target range.
 
But in fact the year-end loss was £161,000 and reserves left at the close of the year were less than £62,000.
 
At the June 2014 board meeting a presentation was given by treasurer Mark Hilton to explain the discrepancy in the year-end position versus the original budget and reforecast.  He said errors had been identified in the way the organisation had been accounting for membership income, VAT and certain expenditure, and additional unbudgeted expense had been incurred on the office move and consultancy costs.
 
It was also revealed that CFG’s auditors BDO asked the board to consider including a section specifically titled ‘Going concern’ in the trustees’ annual report.  But the board decided that it would be sufficient to simply include in the accounting policy section of the accounts a statement about the going concern basis.

Credit control

A report to the September 2014 board meeting from interim head of finance Tom Kelman also exposed the umbrella body’s lax approach to credit control, with just over 50 per cent of its debtors at that point more than 120 days old.

Recruitment issues

The umbrella body has faced ongoing staffing problems this year.  Six of the 19 full-time posts are believed to be vacant, including at least one of the three senior management jobs created in the restructure, to which directors were recruited back in January but both left within weeks. The top finance role, recently advertised as head of finance, is also believed to be vacant.
 
Insiders have also told Civil Society News that the relationship between some members of the board and the executive has become strained.

Special adviser asked to stand down

John Tate, CFG's special adviser for the last 12 years, has told Civil Society News that during the summer he repeatedly challenged the organisation over its financial management and governance, and on 17 October the board narrowly voted to demand his resignation as a special adviser.
 
CFG’s chair, Ian Theodoreson is understood to have taken the view that Tate, as a special adviser, should not have been engaging in issues that were the preserve of trustees.
 
Tate said that after attending the June board meeting he was “very worried about how CFG was being run” and discussed this with a number of trustees “who largely shared my views”.  He tried several times over the summer to persuade the chair to address the issues.
 
“So it seems I was asked to resign because I have spoken my mind and raised issues that some of the board does not want to discuss or address,” Tate said.

Former vice-chair quit as special adviser

Upon learning of Tate’s resignation, Gill Gibb also quit as a CFG special adviser.  Gibb had until the summer been the charity’s vice-chair and was asked to stay on as a special adviser when her six-year term came to an end, to provide some continuity while the management team was being rebuilt.

In her resignation letter to trustees on 16 October, which she has made available to Civil Society News, she wrote: “I feel very unhappy the board feels unable to work effectively with John who has the best interests of CFG at heart and has over 20 years worked tirelessly for the good of the organisation.

“John has a challenging way of approaching issues but boards should have robust debates and it is wrong in governance terms not to challenge.”

Gibb also used the letter to voice her own concerns about CFG’s situation particularly the staff recruitment problems, poor financial forecasting and inadequate debt control.

Kevin Curley – the former Navca CEO who joined the CFG board two years ago - also resigned as trustee after the September board meeting, citing personal reasons unconnected with CFG.  He told Civil Society News that he resigned from various board posts in the summer because of ill health and is now concentrating on setting up a new charity. He also remains on the NCVO policy advisory council and continues to chair the African aid charity Sengwer Aid.

CFG response

Civil Society News asked CFG to explain why the end-of-year loss was notified to trustees so late in the day, why the credit control was allowed to be so relaxed, why the accounting errors were not disclosed in the annual report, and why John Tate was asked to step down.

But CFG declined to answer these direct questions, saying this information was confidential to CFG and related to “work-in-progress discussions before a final position was agreed between the board and with our auditors”.

Instead, chief executive Caron Bradshaw issued a comprehensive statement outlining the progress made on the change programme that was instigated last year.  She said the board were kept fully briefed throughout the process of “changes internally, challenges encountered and the financial position”.

“The executive has and continues to operate on the basis of ‘no surprises’ and have at all times been entirely open with the board,” she said.

“The level of detail in the annual report reflects the impact of the restructure and relocation accurately, giving a true and fair view of CFG’s position, which was signed off by the trustees, in accordance with the requirements of Sorp, and was agreed after full discussion of our position with CFG’s auditors.”

She said recruitment is continuing of an “exciting new team” to reflect the “new culture of the organisation” but that recruitment plans have been amended or delayed to reflect the financial position.

“It is sad to say goodbye to individuals who have served CFG over a prolonged period but in prioritising the needs of the beneficiaries it is not unexpected to part company with those who no longer share a vision for the organisation.”

Positive first-half performance

Bradshaw concluded that CFG's performance over the first two quarters of the financial year proves beyond doubt that recent decisions to change approach were right.

“We have delivered a record successful annual conference, received over 1,600 bookings for our Sorp training (which reaches an audience far beyond our core membership) and our programme of activities continues to develop to address member needs.

“As a result of these changes we anticipate making a surplus in the current year for the first time since 2011/12.”

She added that all major change programmes impact on the individuals involved in them.  “It is fair to say that CFG has been no different. In the recent past the board has needed to reflect on its own role, skills mix and engagement with CFG’s development. Despite some discomfort over the summer, which has now been addressed, the staff team enjoys the full confidence of the trustees and, as stated in the trustees’ annual report, continues to work together to serve the wider sector.”

Disclosure:  John Tate is an unpaid non-executive director and chair of Civil Society Media Ltd, the publisher of Civil Society News.