Tax, legal, shareholding and governance cloud hangs over community transport provider FACT after follow up audit inspection by Cambridgeshire County Council

PUBLISHED: 20:38 26 January 2019

An independent report commissioned by Cambridgeshire County Council into the running and awarding of home to school contracts to Fenland Association for Community Transport revealed major issues over procurement, membership numbers and cross subsidisation of commercial and community contracts. Picture(s): Archant

An independent report commissioned by Cambridgeshire County Council into the running and awarding of home to school contracts to Fenland Association for Community Transport revealed major issues over procurement, membership numbers and cross subsidisation of commercial and community contracts. Picture(s): Archant

Archant

County council auditors sent into community transport provider FACT - three months after a damning investigation that led to the departure of manager Jo Philpott - found an organisation in financial turmoil.

The majority of the issues are historic  which we have dealt with Cllr Kit Owen, vice chairman of FACT, HACT and ESACT (FHE) after the PKF report was discussed by councillors. He has now left the FACT board. Picture: ArchantThe majority of the issues are historic  which we have dealt with Cllr Kit Owen, vice chairman of FACT, HACT and ESACT (FHE) after the PKF report was discussed by councillors. He has now left the FACT board. Picture: Archant

The division between charitable and commercial operations was in disarray with big questions over share ownership and division of costs.

The audit concluded that urgent changes were needed as the current arrangement “does not provide assurance over the segregation of finances between the not-for-profit and trading organisations” and “effectively it amounts to subsidisation of the trading companies”

Many of the concerns of the specialists were passed to the county council audit committee on Friday in a five page report.

The auditors found loans had been made from the not-for-profit parts of FACT/HACT/ESACT (Fenland, Huntingdon, Ely and Soham) to three limited companies set up by the former board to run commercial home to school taxi style contracts for the county council.

The PKF report into FACT, HACT and ESACT being discussed at Shire Hall, Cambridge, last July July. Picture: HARRY RUTTER / Archant 2018The PKF report into FACT, HACT and ESACT being discussed at Shire Hall, Cambridge, last July July. Picture: HARRY RUTTER / Archant 2018

However no loan arrangements were put in place and no interest had been charged – putting FACT in jeopardy with both Charity Commission law and HMRC rules.

“This is currently not in line with charities financial rules” said the report. With the highest loan being that of £152,000 to the Fenland ACT Trading Company the cash involved is of “significant value”.

Shared overheads, shared staff and shared vehicles were all not being properly accounted for, says the report, and this needs to be done to avoid tax liabilities.

Business rates, too, might be an issue if community transport operations are being shared from the same premises as a commercial fleet.

Former FACT manager Jo Philpott leaves Shire Hall following audit committee hearing into the running of the March based community transport provider. Three days later she resigned. Auditors are still clearing up the mess left behind. Picture: ARCHANTFormer FACT manager Jo Philpott leaves Shire Hall following audit committee hearing into the running of the March based community transport provider. Three days later she resigned. Auditors are still clearing up the mess left behind. Picture: ARCHANT

What was also identified is who actually owns the three limited companies set up 13 months ago to run commercial operations.

Council auditors report a “lack of clarity” over ownership of shares.

“There are various questions around the legal status of the trading companies and the accounting for these companies, which need further investigation,” says the report.

New chairman Gary Christy is bringing in a new team and promises a new era of transparency at FACT as it prepares to celebrate its 30th anniversary.

He has already overseen the departure of long serving board members and accepted, in advance, the council’s recommendation to change FACT’s auditor of the past six years.

He recognises much needs to be done to restore trust in FACT and pledged to continue the changes.

He said he had spoken to staff last week about the future and the plans for how FACT should now forward.

“We did the first of an all staff meeting to talk about the future and the 30 years, and I’m with the management team over the next couple of weeks working on vision and plans for the next few months,” he said.

Dave Humphrey, the spokesman for the Cambridgeshire Bus, Coach and Taxi Association and who fought to get the £200,000 PKF report, said company owners remain concerned about the scale of the loans from a charity to a private entity.

“It has infuriated local taxi and coach operators,” he said.

“Who wouldn’t love to have £152,000 business loan, interest free, to set up a company with no - personal - investment whatsoever to then have many of their running costs paid for?”

He said association members have been pressing hard for resolution to this “unfair advantage” since the findings of the PKF report.

“It showed that on the “balance of probability” much of the public’s money had been gained using false information, given in breach of state aid law and surely represents illegal profit generated whilst operating under not for profit permit regulations.

“Then, instead of being used for its intended purpose to assist the needy is found to be financing the formation of private commercial companies (whose shareholders apparently can’t be ‘identified’) to then compete against non subsidised local businesses.”

He said: “How can you expect anything other than anger from both company owners and members of the public when Cambridgeshire County Council imply all the above is fine as long as a few changes are made and endorses these loans by recommending the creating of ‘formal written loan agreement’ which astonishingly FACT had decided wasn’t necessary?”

Friday’s committee was told that county council chief executive Gillian Beasley was liaising with district councils about the current state of affairs. She told them a “final calculation” was still in progress over how much FACT might have to repay in monies wrongfully obtained under state aid requirements.

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