CHAPTER V.

SPECIAL CONSIDERATIONS IN DIFFERENT

CLASSES OF AUDITS.

(Continued.)

VIII. ACCOUNTS OF INSTITUTIONS.-(a) CHARITIES. Under this head may be considered the accounts of Hospitals, certain endowed Schools and Almshouses, and similar institutions.

In the early part of 1890 a Committee of the Charity Organisation Society appointed a sub-committee, consisting of four well-known Chartered Accountants, to enquire into the best methods of preparing and auditing the accounts of Charitable Institutions.

This sub-committee devised pro formâ accounts, which were recommended for the use of various types of charitable institutions, and copies of these forms are reproduced in Appendix "B." For institutions without property, or trading, or indebtedness at the close of the period, a simple Account of Receipts and Payments is prescribed; for institutions having property, but not carrying on trading operations, a Balance Sheet and an Account of Receipts and Payments are recommended; or, if there be current liabilities at the close of the period, an Income and Expenditure Account. While, in the case of institutions carrying on trading or manufacturing operations, a Trading Account is prescribed in addition.

With regard to Endowed Charities, certain statutory provisions obtain; but inasmuch as they do not practically affect the Auditor's position it has not been thought necessary to include them in the Appendix.

The distinguishing feature of most charities' accounts is the receipt of subscriptions and donations. These will, of course, require to be vouched in the usual way; but, perhaps, the most effective check consists in the publication of a list of subscribers and donors along with the accounts.

Another important point is that charities are not liable for income-tax; it should, therefore, be seen that none has been paid, and that the tax deducted from dividends received upon investments has been refunded.

The following extracts from the "Instructions for the guidance of Secretaries," prepared by the before-mentioned sub-committee, will form an appropriate conclusion to this section::

"1. Where Form I. [a simple Receipts and Payments Account] is used, the Cash Book should be kept upon a columnar method, so that the analysis appearing in the Treasurer's Cash Statement may be easily followed by the Auditors.

"2.-Where a Banking Account is kept, all cash balances should be paid into the Bank on the last day of the period to be reviewed.

3.-A list of all books kept by the Institution should be handed to the Auditors, all the books being open to inspection.

4.-In Forms II. and III. (involving an Income and Expenditure Account) the accounts should be kept in Ledger, opening in the form in which they will be presented in various financial statements.

"5.-(Immaterial.)

"6.-The Books should be balanced and the Statements for audit prepared prior to the visit of the Auditors.

“7.—All Deeds and other Securities should be kept in a Deed Box at the Institution's Bankers, the box having three locks, the keys of which should be held respectively by the Treasurer, Secretary, and another member of the governing body.

"8. (Immaterial.)

66

9. Before going to press the printer's proof of the Subscription Lists and Accounts should be examined by the Auditors.

"10.-(Immaterial.)

“11.—All vouchers of payment should be arranged in the order of the dates of payment prior to the audit.

66

12. All Bankers' Pass Books, made up to the end of the period under review, should be at hand at the time of audit."

Many of these points do not relate solely to Charities' Accounts, but will be found useful at all times; they are, however, mentioned in this connection because they appear to indicate the lines upon which the audit should run.

(b) CHURCHES.-In many respects the audit of Church Accounts is a peculiarly thankless task. Apart from the fact that they are hardly ever submitted to the Auditor in anything approaching proper form, it is almost invariably the case that no effective internal supervision is exercised, and frequently large sums will pass through, say, a verger's hands without any proper check being kept upon his dealings.

The Auditor must check everything he can, and try to teach his clients the elements of commercial caution; but it is probable that he will never feel quite happy with a church audit. The writer well remembers, upon one occasion, being refused permission to count a balance of over £100 (practically a running balance) that was in the hands of the verger: not long afterwards-but, nevertheless, after repeated warningsthe suspicions of the vicar were at length aroused, and the verger was instructed to pay his balance into the bank. It seems unnecessary to add that he was unable to do so.

CHURCH SCHOOLS receiving a Government grant are required to keep an account of all receipts and payments in the prescribed (columnar) form. Such account is made up annually on the 31st May, and summarised upon a statement which for some occult reason is called the Balance Sheet. This statement (of which a duplicate copy must be furnished) has to be signed by the Treasurer and the Auditor, and-together with the Cash Book and all vouchers-submitted to the Government Inspector upon the date appointed for his visit. It is not necessary to produce vouchers for subscriptions received, nor yet for small payments; but it is important to remember that, if the accounts are not in order, payment of the grant of the Education Department will be delayed.

Since the 30th September 1891 the abolition of "Schoolpence" has simplified the accounts of most Church Schools.

Since June 1898 the Education Department has required that the accounts of the receipts and expenditure of every school receiving a share of the aid grant shall be annually audited by a Chartered Accountant, an Incorporated Accountant or in cases where no one so qualified is available-by some other person (not being a manager or treasurer of the school), whose competency is proved to the satisfaction of the Department.

(c) COLLEGES AND SCHOOLS.-These accounts call for but little comment. The usual method of audit may be said to consist of a cross "between that employed in "Charities" and "Hotels" (q.v.), but it may be added that only a detailed audit is likely to be found entirely satisfactory.

Many UNIVERSITY COLLEGES are subject to the Statutes made by the Commissioners appointed under the Universities Act 1877, under which duly audited accounts have to be submitted to the University. In most cases a tax is payable upon the amount of income received.

ENDOWED SCHOOLS are nominally under the control of the Charity Commissioners, to whom copies of the Annual Accounts

should be forwarded. The principal point to be remembered is that the Governors have no power to apply the corpus of the endowment to current purposes.

IX. BUILDING AND FRIENDLY SOCIETIES, ETC. --(a) BUILDING SOCIETIES.-The enormous number of frauds some of them of disastrous proportions-that have occurred in the accounts of Building Societies within the last few years should suffice to make the Auditor of these accounts more than usually cautious.

The Building Societies Act 1874 left the appointment of the Auditors to be dealt with by each society in its rules, but it was generally considered that at least two Auditors must be appointed, the usual custom being for the directors to appoint one Auditor, and the shareholders the other. In many cases, however, Chartered Accountants were not appointed, and it is probable that most of the disasters are attributable to this circumstance. This condition of affairs has been partially remedied by the Building Societies Act 1894, which requires that at least one of the Auditors shall publicly carry on business as an accountant. In the majority of cases the Auditors so appointed have been Chartered Accountants, but it will be seen that this is still not required by the statute; moreover the wording of the section is so vague that cases still exist of accounts not being audited by bonâ fide public accountants at all. It is well, however, not to lay too much stress upon the evils attending the appointment of a wholly unqualified man as Auditor, for the danger does not by any means stop here. It will usually be found that the whole management of a building society virtually devolves upon one man, who besides having both books and cash under his entire control-turns the whole of the board round his little finger. Add to this the fact that many building societies are virtually banks (and this fact has not been materially altered by the recent Act), and that the system of bookkeeping employed is generally of the most primitive kind, and some idea of the responsibility of the Auditor's position may be gained. The complexion of affairs is hardly improved where there is more than one real worker