ICAS, the professional accountancy body in Scotland, has published a hugely helpful and very readable guide for charity trustees on going concern.
Interestingly, this is an area I’ve become increasingly aware of for multiple charity clients who participate in LGPS. Auditors are beginning rightly to identify that charities who have a closed membership in LGPS are inexorably moving towards a point where they run out of active members. At this point the Fund will have their actuary prepare an exit / cessation debt calculation on a ‘nil risk’ basis. This basis, linked to gilts, results in much higher liabilities than on an on-going or accounting basis.
Eagle eyed auditors have identified that, while a going concern seems likely on the on-going and accounting basis, it is much less certain on an exit basis. This becomes a material concern as membership levels fall below 5 and particularly when they get down to 1 or 2, as if everyone leaves it is likely an unaffordable debt would become due.
Recent changes implemented in Scotland in 2018, and to be implemented in England and Wales from this month, would allow for debts potentially to be deferred / suspended. However, access to such a solution is far from certain.
This is something that becomes more complex to deal with if charities just leave it to happen rather than pre-emptively dealing with it. By engaging with their advisers and the Fund they could look to reach some form of accommodation which would avoid the lump sum debt trigger and, therefore, avoid linked going concern issues.
As the ICAS guide highlights charity trustees need to be alive to these risks.