ICAEW's Forecast Profit Turns To Loss

It seems that the student recruitment drive, the continuing investment in renovating Moorgate Place and transforming business systems across the organisation have resulted in the ICAEW facing a potential budget deficit for 2018 after five years of surpluses.

Economia reports that instead of the predicted surplus of £200,000 out of a budget of £106m for the year, additional costs have pushed the figure to a deficit of just under £2m.

You would have though that the ICAEW, given its well qualified membership, could get its financial projections right!

Chief operating officer Vernon Soare described the situation as “highly unusual”. He stressed the strength of ICAEW’s balance sheet and made it clear that the organisation was “not in financial crisis”.  

Much of the cost, he said, could be attributed to the “investment phase” which has covered extensive restructuring and updating of the Grade 1 listed Chartered Accountants’ Hall, as well as the ongoing digital transformation.

The ICAEW would not be seeking to cover the deficit by increasing member subscriptions beyond the usual annual rise.

Which is all very well and jolly, but I would ask why is it group think within the ICAEW bunker that we have to have a rise every year anyway; as though it is written into stone the membership are milch cows for the milking?

Regarding the refurbishment of the ICAEW bunker in London, that is all very nice too; but I wonder what the membership who don't reside/work in/near London feel about that?

ICAEW Subs Increase By £10

Yesterday's ICAEW AGM voted to increase memebrship fees by £10.

Following the votes, the annual subscription for all members from 1 January 2018 will be £365, an increase of £10 from the current £355.

Do Something Political - Vote!

It is time once again for members of the ICAEW to vote on the AGM resolutions, included within which is the annual increase in subscriptions (this time 3.1%).

Whether you think an increase is justified or not, I urge you to vote.

I would note that despite the fact that many private companies and public ones have resisted increasing their charges over the past few years, the ICAEW without fail continues to increase its subscriptions; almost as though it feels that it has a God given right to do so (or could it be something to do with the enormous hole in its pension fund?).

Hence I have voted against such an increase.

Despite the increases in subscriptions every year, last year the turnout was shameful; less than 6% turnout!

As I wrote at the time:

"Unsurprisingly of those members of the ICAEW that could be bothered to vote, a significant percentage (almost 20%) voted against an increase in the annual subscriptions.

Accountancy Age reports that of the nearly 8,000 members that voted, 19.8% voted against an increase.

The ICAEW has over 138,000 members worldwide, the turnout of less than 6% is a disgrace and shows an alarming disconnect between the bunker in Moorgate and the membership who live and work in the real world."

There is currently a lively discussion on a Linkedin thread about the fee increase. Given that people feel so strongly about the issue, for heaven's sake vote!

The Can of Worms

My post last week about my ICAEW membership card for 2013 finally arriving rather opened a can of worms on the ICAEW Linkedin Group.

Others commented that they had not yet received theirs, and it was also noted that the phrase "Chartered Accountant" is missing from the cards.

As Lawrence Edwards said:

"The notices that annual subs were due came out on time - mine was emailed on the 2nd of November. This is pretty basic stuff, the membership card is the only physical contact some members have with the Institute and it leaves a bad impression to send these out so late.

What I find more concerning is the constant above inflation rise in subs, coupled with the plethora of faculties and interest groups which you have to join if you want access to material that's relevant to your industry. I gather that there is rarely even a debate about subs at Council each year."

ICAEW Members Disconnected From ICAEW

Unsurprisingly of those members of the ICAEW that could be bothered to vote, a significant percentage (almost 20%) voted against an increase in the annual subscriptions.

Accountancy Age reports that of the nearly 8,000 members that voted, 19.8% voted against an increase.

The ICAEW has over 138,000 members worldwide, the turnout of less than 6% is a disgrace and shows an alarming disconnect between the bunker in Moorgate and the membership who live and work in the real world.

Based on the low turnout and (relatively) high vote against an increase in subscriptions, the ICAEW will have its work cut out for it if it is forced to fill the £40M black hole in the pension scheme by increasing subscriptions again!

Gilding The Lilly

Five days ago I wrote about my surprise that Michael Izza had not commented on the potential £40M pension deficit in the ICAEW's 2011 accounts:

"for reasons that are unclear he does not say a word about the pension deficit of £40M that completely undermines that finances of the ICAEW, and is the tail that is wagging the dog of the ICAEW's drive for new members via its international "strategy".

How very odd that he doesn't mention it? "

It seems that I am not alone in believing that such a significant potential shortfall deserved more prominence. Kevin Reed is also of that view:

"MAKING FINANCIAL REPORTING more relevant and easier for to stakeholders to understand has been a long-running issue. 

Let's face it - when things go wrong there will always stakeholders up in arms as to why they'd not been able to predict such a terrible moment by reading the accounting runes. Conversely, there will be some clever sausage that looks in hindsight at the statements and figures to highlight that the problem's been clear all along.

As a non-accountant of the most severe kind - but as a journo with an interest in these issues - a couple of areas within the latest annual reviews from ICAEW and CIMA left me slightly perplexed.

Firstly, the ICAEW's pension scheme financial position has been valued by actuaries as in deficit of £40.1m at 31 December 2011, compared with the triennial valuation measured in 2010 at a deficit of £19.9m. This has the potential of forcing the ICAEW to stump up another £5m and review its pension funding plan. A fall in gilt yields is the main culprit behind the deficit's degradation.
Having traipsed up and down the pension schemes numbers - which spread across four pages - I admit to originally missing out the figure, which was included within the narrative section of the notes.

The deficit is mentioned twice within the institute's financial statements - in the review pages and again in its notes to financial statements. The ICAEW's summary of its position, the review, is online where the deficit is again flagged up.

The ICAEW told me that it is satisfied about the coverage afforded to the deficit, and its potential ramifications, within its year-end statements. Note the ‘potential', as the valuation itself was a ‘desktop' valuation, or estimate.

While I don't pretend to be able to pull out the institute's various pension scheme calculations through its statements of financial position (or balance sheet as I'd know it), particularly as ICAEW stakeholders are - let's face it - accountants, it still irks.

As a journo I'm not owed anything by the ICAEW. But maybe in the context of its members, and its role in making reporting as clear as possible, perhaps such an important ‘number' deserved more pronounced presentation.

And while on the topic, it also seems strange that CIMA feels it can't specifically reveal chief executive Charles Tilley's pay packet.

CIMA's annual review 2011 reveals its water consumption (3,400 cubic meters), but not the salaries of its senior management.

Some details are contained within the financial statements, but these are anonymous. We know that the highest paid executive's dosh has moved from the £210k-£220k bracket to £220k-£230k between 2010 and 2011. Is that Tilley? Dunno, assume so. Has ‘his' pay gone up from £220k to £220.1k, or £210k to £230k? A 100 quid or twenty grand? Dunno.

The average CIMA staff salary (wages + NI) fell to £33,349 from £36,224, with total staff numbers up to 426 from 369.

And of course, you're dying to know, the ICAEW does state their executives' pay. Chief Michael Izza earned a total of £477,000 - £372,000 in salary and £105,000 in ‘deferred variable pay', or performance-related pay."

My thanks to Kevin Reed for his Tweet following my publication of this article:

"Kevin Reed ‏@Goonerreed

Hat tip to Ken for flagging up the #icaew pensions data in 1st instance. Will add to my copy"

What About The Pension Deficit Michael?

Michael Izza (CEO of the ICAEW) has just published a brief review of the 2011 ICAEW results, entitled "2011: A Year of Growth for ICAEW".

He says:

"We have just published the ICAEW Annual Review for 2011, and as you will see the headlines are positive. Member and student numbers are up and income has grown, despite a tough economic backdrop in many parts of the world."

Yet for reasons that are unclear he does not say a word about the pension deficit of £40M that completely undermines that finances of the ICAEW, and is the tail that is wagging the dog of the ICAEW's drive for new members via its international "strategy".

How very odd that he doesn't mention it?

ICAEW Results - Pension Deficit Drains ICAEW Lifeblood

In May 2011 I wrote the following about the ICAEW's results:

" the defined benefits pension scheme, which was closed on 30 June 2010, is expected to show a £22.6M deficit as of 31 March 2010 following the completion of an actuarial valuation.

It seems that funding contributions of £6M a year for three years, followed by £3.5M a year, will be made until the deficit is eliminated.

It is reasonable to assume that the long suffering members of the ICAEW will be expected to pay increased subscriptions to cover these funding contributions. "

One year on, and the pension deficit continues to drain the lifeblood of the ICAEW.

In fact the pension deficit (based on a December 2011 desktop review) has worsened to £40.1M:

"at which level a trigger event is recognised on the covenant agreement.  The situation is being monitored to determine whether this represents a temporary event and discussions are continuing with the trustee. This review will not be concluded until after the date of signing of these financial statements. At that date our estimate of scheme funding was 82.5%, at which level we would expect the trigger event to be deemed temporary.

If the red trigger event is not deemed to be temporary and the covenant agreement is enforced, an additional funding contribution of £5.0m to the scheme would be required and the funding plan reviewed as to duration and size of payments; the current covenant agreement would also end. Such a contribution does not have a direct impact on the income statement and no provision has been made within current liabilities owing to the uncertainty of the temporary event."

Be warned, by the sound of it there may be a major increase in subscriptions.

However, much like local councils, it seems that the ICAEW has found a way to boost its finances (other than just by increasing the annual subs); namely by levying fines. The retained surplus after tax for the year was £4.1m (2010: £1.8m), after receipt of £2.4m of one-off fines and recoveries of past costs from the Accountancy and Actuarial Discipline Board (AADB).

The Road To Nowhere

As noted on this site in July, the ICAEW is parting company with CCH wrt publishing a monthly magazine for its membership and will use another publishing house.

As from February 2012 Accountancy (as published by CCH) will be subject to a number of changes:

- Instead of being free to all ICAEW members, Accountancy will be £79.20 per annum (£99 to non-members)

- The previously free Accountancy website will now only be available for an annual subscription of £239

- The website address has switched from www.accountancymagazine.com to www.accountancylive.com.

Given that ICAEW members resent having to pay (within their subscriptions) for a magazine that is invariably binned still in its shrink wrap cover, I cannot see that they will be prepared to stump up an extra £79.20 per annum for another magazine covering the same issues that their new Institute magazine will presumably cover.

As for charging £239 to access the website, well that's just daft!

Membership Fees

The FCABlog has a handy summary of the fees charged by the various accounting bodies in the UK.

The ICAEW and ICAS come out as the most expensive.

ICAEW Awarded Carbon Trust Standard

ICAEW has been awarded the Carbon Trust Standard, and is the first professional accountancy body to achieve this certification.

"The Carbon Trust standard was achieved following a programme of recording, measuring, and managing ICAEW’s carbon emissions each year between April 2008 – March 2011.

As part of our programme ICAEW installed new lighting systems, controlled by movement sensors, developed a system of switching off plant and equipment during non-operational hours and installed energy efficient water cooling equipment.  These changes on both ICAEW sites in the City of London and in Milton Keynes ensured the right carbon outputs for certification."

I trust that it was time and money well spent, as the Taxpayers' Alliance was of the view last year that the Carbon Trust should be shut down; as their letter (29 September 2010) to Chris Hune clearly states:

"Dear Mr. Huhne,

It has been reported that the Carbon Trust is under review and could be abolished. At the TaxPayers’ Alliance, we’ve done a lot of work on how to deliver spending cuts. Your department needs to find considerable savings and we feel that around £100 million that could be saved by abolishing the Carbon Trust should be one of them for a number of reasons.

The Carbon Trust doesn’t address a genuine market failure. If large businesses can genuinely save money by cutting their energy use, then they have an incentive to do so. Particularly with other policies – such as the Renewables Obligation – increasing energy prices and the introduction of the Carbon Reduction Commitment. If they need external advice to achieve that result, they can pay for it instead of taking money from ordinary taxpayers.

The quality of their advice is suspect. The Royal Borough of Windsor and Maidenhead, recognised as a pioneer for their energy saving work, felt that the advice they received was not reliable. The minutes of their Sustainability Panel record that:

“The Chairman went onto explain that he felt the Council had been sold a wonderful idea but that only a third of the predictions were going to occur which he felt boiled down to the original plan being wildly optimistic.”

The organisation is unaccountable and inscrutable. As the Freedom of Information Act does not apply to the Carbon Trust, taxpayers cannot find out how their money is spent. Staff remuneration is high. Their Chief Executive Tom Delay received remuneration of £237,797 in 2008-09. It is difficult to tell how many staff at the organisation receive high pay thanks to its complicated structure.
 
Three executive partners who manage investment funds for the Carbon Trust at the organisation’s investment management arm CT Investment Partners LLP (Peter Linthwaite, Jonathan Bryers and Adam Workman) appear to be very generously compensated. They paid £50,000 initially for their share in CT Investment Partners LLP and – between the three of them – are now getting £380,000
a year in profit in fees from the Carbon Trust. They work out of the same office and the National Audit Office has raised concerns at potential conflicts of interest, saying that there “is a risk that CAT Investment Partners staff could influence publicly funded research and development or incubator support for emerging businesses that they, in time, may back by way of investment and thus from which they may earn carried interest”.

The Carbon Trust has even expanded to other countries, as if it were a multinational company, through its Carbon Trust International programme. In August 2009 they were advertising for a Head of Carbon Trust USA position. They are working to promote the creation of similar organisations in other countries. This is clearly an inappropriate use of British taxpayers’ money.

The Carbon Trust is therefore subject to considerable mission creep, its main work does not address an actual market failure, it is extremely generous in how it remunerates its staff and fails to match up to the principles of transparency and accountability articulated by the Government. While it is possible to conceive of reforms that might improve the organisation, the best way of securing value for taxpayers is to abolish it outright.

Yours sincerely,

Matthew Sinclair
Director
TaxPayers’ Alliance "

Here's what the FCAblog thinks of this absurd waste of time and money:

"Er, wtf mates? Could you maybe go for a Plain English Standard next time, because that's the biggest load of management-speak cobblers I've ever read. "Quantify our footprint"? "Benchmark our performance"? This is obfuscation of the highest order.

If you really want to know what this all means, there's some documentation over at the Carbon Trust's website, including the full standard. Basically, ICAEW is using less carbon than it was in 2008. But carbon measurement is a curious science. For example, the graph of carbon emissions by country says that China is the 'worst' emitter. Yet most of China's emissions relate to production of goods which are then consumed elsewhere in the world. So while Brits throw lots of shit away, China gets the blame for it, carbon-wise. And the other big scam is carbon offsets, where you pay someone who might pollute to not pollute, so that you can instead. It's the discredited system of indulgences, reinvented for the 21st century.

Of course, saving money is A Good Thing. So why not just say that that's what they're doing - they're turning lights and the air conditioning off at Moorgate Place because it means the subscription won't have to go up as much next year? I'm sure members would love that. 

One can only hope that more will be made clear when ICAEW publishes its annual review in spring next year. In the mean time, if you want to undertake a futile gesture, you can always 'vote down' the article on ICAEW's website. Go on, you know you want to..."

Running Scared II - A Question of Ethics

Further to my earlier article today about the dispute between Mike Pallot and the ICAEW.

It seems that the ICAEW managed to pay Mr Pallot the £1500 twice by mistake.

Fortunately for the ICAEW (which did so much to block Mr Pallot receiving a refund), Mr Pallot is ethical and told them that they had paid him twice!

Ethics should of course work both ways, so I look forward to hearing that the ICAEW has told all the members who are overpaying their subs that they are entitled to a refund and that their subs have been reduced accordingly to suit their circumstances.

Running Scared

Accountancy Age report a rather interesting story about a long running and acrimonious dispute between Mike Pallot (a retired PwC senior partner) and the ICAEW.

Mr Pallot was awarded £1,500 against the institute in a small claims court for overpaid subscriptions. He successfully argued that the ICAEW's subscription notices failed to make it clear that he was due a reduced subscription due to his retirement.

He is quoted:

"The ICAEW certainly seems to have gone to great lengths not to set a precedent by refunding me the amounts I paid as a result of what I see as a clear lack of transparency on its part, although I am at a loss to understand why it didn't seek to settle my claim in a sensible way before the matter reached court."

The case, and the fact that the ICAEW went to so much trouble to try to avoid setting a precedent, gives rise to a number of questions:

1 Why did the ICAEW not simply settle out of court?

2 Why did the ICAEW waste so much time and money on trying to prevent the claim succeeding?

3 How much money did the ICAEW waste by being so intransigent?

4 What is the potential liability facing the ICAEW from back claims made by retired members, and others (eg unemployed), who now realise that they have been overpaying their subscriptions?

5 If the ICAEW knows the answer to 3, why hasn't it done the ethical thing and alerted the members who have overpaid that they are owed a rebate and that they are overpaying their subs?

It seems to me that the ICAEW is running scared, I advise all members to double check their subscriptions.

Accountancy Parts Ways With ICAEW

Accountancy Magazine have announced that they will relaunch the magazine in January 2012 to widen access to accounting and finance professionals, and that the 10 year contract with the ICAEW will end.

Cathy Wolfe, CEO of Wolters Kluwer UK, says:

"The strong growth of Wolters Kluwer's digital publishing means that we see a great future for Accountancy magazine on multiple platforms. We plan to take the journal in new directions, to meet the evolving needs of accountants and a wider group of finance professionals.http://www.blogger.com/img/blank.gif

The relaunch will follow the ending of the current 10-year contract under which Accountancy has been published by CCH as the official journal of the Institute of Chartered Accountants in England and Wales. This publishing association is ending by mutual agreement, allowing Wolters Kluwer and ICAEW each to pursue their respective publishing plans.

At the same time, Wolters Kluwer is in discussion with ICAEW to identify areas where we will continue to work together."

This gives rise to a few interesting questions:

1 Given that the magazine will no longer be the official journal of the ICAEW, may we now expect more critical articles about the the ICAEW as from next year?

2 Does this mean that the ICAEW members will no longer be forced to pay for the magazine, and may in fact have their annual subscriptions reduced? I guarantee we will see no reduction in membership subscriptions (even if the magazine is no longer sent out to the membership)!

3 Are the ICAEW going to launch their own magazine, if so at what cost to the membership?

Re questions 2 & 3, here is part of the answer (as per the ICAEW site)

"From February 2012, PCP will take over a suite of existing ICAEW communications reaching over 156,000 members and students in the UK and internationally. PCP will build a significant publishing team that will be responsible for eight different member and student magazines and linked website channels. As part of the agreement, PCP will also be launching a new magazine, in print, digital and online formats, that will be provided free of charge to ICAEW Chartered Accountants, students and affiliates.

Robin Fieth, Executive Director of ICAEW said “Our tender process began at the end of 2010 and involved many leading publishing groups and customer publishing agencies. PCP offered us a unique and innovative solution to develop our publications in a way that will help drive forward our brand and reinforce ICAEW as a world leader of the accountancy and finance profession – they were a natural agency to partner with.”

Dan Davey, Managing Director of PCP said “To win a long-term, multi-million pound contract with a superbrand such as ICAEW in our first year is testament to the unparalleled opportunity that we, as part of the Progressive group of companies, can offer clients. It was clear right from the start of the tender process that ICAEW and PCP, together, could build a market-leading proposition that will set a new standard in business-to-business and membership communication.”

Factoid: The new magazine is not "free" (despite what the ICAEW says), the costs of publication and delivery are built into the annual ICAEW subscription (whether or not the member actually wants the magazine).

It will be interesting to see if the new magazine suffers the same fate as Accountancy currently suffers in the hands of many of the members of the ICAEW, namely being cast into the bin still in its plastic wrapper.

Pension Deficit

In 2009 I wrote about the ICAEW's defined benefit pension scheme:

"The ICAEW have finally realised that the current arrangement, whereby subscriptions are increased each year to fund the pension black hole, is unsustainable. Therefore the ICAEW is going to cancel the final salary (defined benefit) pension scheme (closed to new members since 2000) next year (ie 2010)."

I noted then that the scheme had a £19M deficit.

Today Accountancy Age reports that the defined benefits pension scheme, which was closed on 30 June 2010, is expected to show a £22.6M deficit as of 31 March 2010 following the completion of an actuarial valuation.

It seems that funding contributions of £6M a year for three years, followed by £3.5M a year, will be made until the deficit is eliminated.

It is reasonable to assume that the long suffering members of the ICAEW will be expected to pay increased subscriptions to cover these funding contributions.

Kicking Members When They Are Down

From Kevin Reed's blog:

"WHY OH WHY must the ICAEW kick members when they are down?

In the last month the institute has agreed with three of its members that they PAY COSTS of more than £450 each regarding complaints that they entered into individual voluntary arrangements – in other words they were declared insolvent...."

I couldn't agree more, the ICAEW is meant to be for the benefit of the members.

Global Ambition

I see that the Institute of Chartered Accountants of Sri Lanka (ICASL) and the ICAEW have signed a Memorandum of Understanding (MoU), on 25th October 2010, designed to establish closer working relations between the two bodies.

Gerald Russell, ICAEW President, is quoted by dailymirror.lk:

"ICAEW and the ICASL have developed a close working relationship over the years and as a result of this agreement, we look forward to welcoming ICASL members to ICAEW.

Removing barriers for professional accountants across markets, through agreements such as this, is an important part of our international strategy.

ICAEW is keen to work in partnership with accountancy bodies across the world to enhance the profession globally."

Global ambitions are all well and good. However, care needs to be paid by the ICAEW to ensure:

1 That any inter institute membership, if it occurs, will be structured in such a way as to ensure that the brand value of the ICAEW qualification will not be diluted.

2 That, given the recession and high cost of subscriptions, UK members' subscriptions are not frittered away on global ambitions that have little relevance to the UK membership.

Unemployed Chartered Accountants

There is an interesting and useful discussion going on at the LinkedIn ICAEW Group at the moment, concerning the number of Chartered Accountants who are actually unemployed and the role that the ICAEW should take/does take in helping them.

As ever with the ICAEW, there appears to be a disconnect between the views of Moorgate Place and some of the membership. Several pertinent points about subscription levels, and the need for global offices have been raised by a number of ICAEW members.

Here is the opening comment by Martin Lloyd-Penny, the full discussion can be followed by group members here LinkedIn:

"Is Michael Izza correct?

On Monday I met the Michael Izza the CEO of the ICAEW and asked him how many Chartered Accountants are out of work - i.e. those that haven't retired and still want/need to work. Michael thought between 1,000 and 2,000 (out of a total of 135,000) and I think he may have underestimated the scale of the problem facing many of our members. Michael's estimate is based on the number of members that request a reduction in their annual subscription due to financial hardship - which maybe is not a true reflection of the scale of the problem. My view is that the number is significantly higher if you consider the numbers that:-

• Are not working at all and in many cases are claiming benefits
• Are having to find interim work as and when to support themselves – and the interim market is dead and there are literally thousands of highly experienced interim managers who can’t find any work.
• Are working part time and earning significantly less than they were 10 years ago
• Are having to resort to other means to keep a roof over their head – one of my candidates who was a CF partner in a London bank is driving a taxi!
• Are working as bookkeepers at £20 an hour in London – when I advertise that type of job I get up to 100 applicants of which 50% or more are qualified accountants.

Fortunately I continue to find lots of exciting opportunities for my candidates but I am not sure that the ICAEW is aware of the size of this problem. I know that they are trying to provide as much support as possible through CABA so I would like to make sure that the resource is being properly directed."

EU Branch

AccountingWeb reports that The Institute of Chartered Accountants in England and Wales (ICAEW) has opened its third international branch, based in Brussels, which will bring together all the body's work across the European region.

The new arm will be the ICAEW's third international region and follows the launches of the South East Asia (Singapore) and the Middle East (Dubai) regions in 2009. It will be run by the ICAEW's new European regional director Martin Manuzi.

Not everyone sees the benefits of this, Jonathan White asks "and how much and what exactly are the benefits to the rank and file membership here in the UK?"

A Nice Little Earner

The ICAEW has fined members for the first time for failing to meet the requirements for continuing professional development.

Source Accountancy Age.

I recall, many many years ago, forgetting to pay my annual membership fee (mea culpa!) and (despite apologising profusely for my error) being charged approximately £400 by the ICAEW for the privilege of being "readmitted".

Suffice to say my membership fee is now paid by direct debit!