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13 July 2020
We're aware that Federation members have been waiting for the release of our 2018 external audit. Below is a statement from National Treasurer Simon Kempton which explains the reasons for the delay, along with assurances about the process going forward.
I would like to take the time to explain to you why there has been a delay in publishing our 2018 external audit, so that you are fully informed of the position.
To do this, I must first go back a few years and remind you of how the Federation processed and managed its finances before undertaking significant reforms.
As you know, the Federation was previously built using rank structures, with proportionate representation for Constables, Sergeants and Inspector ranks. The finances were organised in a similar fashion. Until 2017 each of our 43 Branches would collect member subscriptions and retain 30% of that figure locally, passing 70% to Federation HQ; this portion would fund national activity, such as the bulk of legal claims.
Of the proportion passed to the Federation HQ, this was further divided along those three rank structures, with a fourth portion used to fund what was then known as the Joint Fund.
Already, you can begin to see how complicated the structures were and how unique this was compared to similar organisations. This was simply a result of how the Federation was first formed back in 1919, with those same broad structures put in place.
There was the potential for massive duplication of effort and expenditure with parts of the organisation funding and running their own websites, IT provision, staff etc. And this was massively inefficient, leading to avoidable waste, for example where rank committees might undertake similar work streams alongside each other.
And we also saw some smaller Branches occasionally struggling financially with no mechanism to ensure they received help or assistance where needed.
Each Branch would organise separate audits of their accounts. Some Branches, because of their size or complexity, would organise multiple audits where local funds were broken down in line with the rank structures. Finally, Federation HQ would organise their three rank committees and the Joint Fund to be separately audited. In total, the Federation would pay for dozens of separate audits, by different companies who would approach those audits in different ways, and this was also hugely inefficient and costly.
So, in 2017 the Federation changed how we manage our finances, including our approach to our external audit, opting to undertake a single audit across all these areas. At the same time, instead of subscriptions being collected locally and broken down in the 70:30 ratio, 100% of subscriptions would be collected centrally and then distributed through to the Branches to use locally in line with properly formulated budgets.
This reform was complex enough without the external attack on our IT systems last year which caused further delay and difficulty.
Unifying these audits after nearly a century of things being done differently by each Branch was a huge undertaking. It involved pulling together well over 50 sets of accounts from the Branches and Leatherhead. It was as if that same number of businesses had decided to merge all at the same time.
The Federation brought in one of the world’s most respected audit firms, KPMG, to ensure the job was done properly and with the right level of external scrutiny applied to the accounts. This was important to ensure our members could have trust in how their money was being used.
At the same time, we had to identify which monies should be part of this audit and which should be audited separately, because over the decades Branches have offered different services to members (and in some cases to others) which are legally separate from what we think of as “Federation money”. This includes some charities and benevolent funds as well as Group Insurances, all of which are probably synonymous with the Federation for many of us, but which are part of legally different entities.
This was so complex that it took time and specialist legal advice to ensure it was done correctly. It has resulted in delays in publishing our accounts that have been hugely
frustrating for all of us. However, those delays were unavoidable because getting the job done right, first time, was more important than getting it done quickly.
During this process, it was important to be able to demonstrate transparency, so we introduced an internal audit function. This is commonplace in private industry but not previously within the Federation. This role, independent of the organisation, has the task of auditing how we comply with our Rules, Regulations and with proper practice. The Federation also set up an Audit and Risk Committee to further oversee compliance with good practice and policies.
And finally, we introduced new training for all Federation Treasurers and Trustees, at every level, ensuring that they have the knowledge to scrutinise how we use our members’ money.
That all said, no matter how complex and time consuming these issues have been, we have made significant progress. The 2017 audit was completed and has been published as per our Regulations. The 2018 audit will shortly follow. And we expect the 2019 audit to similarly be completed and published by the end of this year.
This has been a long, frustrating process, but a necessary one. Only by modernising
our approach to finances can we ensure that the Federation will be able to support our members well into the future. We all, as members, can be satisfied that the time taken to complete the process will be time well spent, bringing us an audit process which is modern, efficient, transparent and fit for purpose.
Simon Kempton, PFEW National Treasurer