Muslim Aid’s auditor raised concerns about ‘significant deficit on unrestricted funds’

13 Feb 2020 News

Muslim Aid’s auditor warned last year that the charity may not be able to meet its financial obligations, with the charity reporting a £2.3m deficit in free reserves. 

The charity filed its first set of accounts since a major restructure, and these were qualified by its audit firm, Crowe LLP, meaning there were reservations about its financial sustainability.  

Muslim Aid’s assets were transferred from the original trust into a new charitable incorporated organisation as part of a plan to improve its financial governance. 

The charity has told Civil Society News that it is “robustly working” on a financial recovery plan. 

The Charity Commission published the findings of its statutory inquiry in December 2018, having been engaged with the charity since 2010 over concerns about how it was managing its finances. During the inquiry a new board was appointed, new legal structure set up and new chief executive, Jehangir Malik, recruited. 

Trustees were issued with an action plan by the Commission and told that the charity would be monitored for the next 24 months. 

An interim manager, appointed by the Commission, was in charge at the charity until February 2018.   

Reserves deficit

Muslim Aid filed its accounts for the year up to 31 December 2018 at the end of last year, which show it had an income of £24.5m and spending of £23.4m.

But just £4.8m of its income is classified as “unrestricted”, making it difficult to build free reserves. 

At December 2018 its unrestricted funds were in a deficit position of £2.3m, although it held £15.7m in restricted reserves. 

Its funds that are held overseas are treated as restricted, even if that has not been specified by the donor, because in practice those funds will be spent in that country. 

The trustees’ report highlights fundraising and communication successes, including a new corporate partnership and securing national media coverage for its work. But it also acknowledges the financial risks. 

“Muslim Aid has negative unrestricted funds at 31 December 2018 and the current projections indicate that these will continue until at least 2022,” it said. 

The report says that the board and chief executive have a five-year plan to become financially sustainable. This involves restructuring the charity and reviewing its finance function “to ensure that there are sufficiently robust systems of internal control and financial management and that there is sound financial information for decision making”.

Auditors concerns

Charities with incomes over £500,000 are required to get an independent report of their accounts from a qualified auditor before filing them to the Commission. 

Crowe LLP's report, dated 31 October 2019, said the firm could not back the management’s assertion that the charity is a going concern, meaning it has enough resources to continue operating. 

“We have been provided with the current budgets and cash flow forecasts for the year ended 31 December 2020. We have reviewed these forecasts,” the report said. 

The report gave four main reasons for the qualified opinion: 

  1. Regular and reliable forecasts had not been produced 
  2. The auditor had not seen detailed analysis underpinning the forecasts 
  3. There was a “significant” deficit on unrestricted funds which was likely to continue until 2021, and the auditor had “not been presented with a clear plausible plan to eliminate this deficit”. 
  4. The recovery plan was still being developed by trustees and had not been seen by the auditor. 

Muslim Aid: ‘Deficit occurred under previous management’  

Muslim Aid told Civil Society News that the deficit occurred under previous management and that the charity filed qualified accounts because it did not have time to provide more detailed information to the auditor and still meet the deadline to file its accounts with the Commission. 

In a statement it said: “Our 2016 audited accounts state that the deficit occurred in 2016 before the current board of trustees and management took over the running of the charity, and that since February 2018 when the new board was appointed, the rate of deficit that continued in 2017 has been reducing.
“Muslim Aid CIO inherited a number of legacy issues from the original MA 1985 [the previous charity entity before CIO status was acquired] and has been gradually addressing these. The auditors in 2017 restated previous financial statements signed, that also contributed to the deficit.
“At the signing of 2018 accounts (October 2019) the charity had a choice between either spending time and resources to provide the auditors with detailed future projections or file on time with a qualification. This choice was discussed with the Charity Commission. The charity chose to meet the regulator deadline and is robustly working on a 2020 financial recovery plan which has been shared with the Charity Commission.”

A spokesperson for the Charity Commission said: “We have an ongoing monitoring case into Muslim Aid and we are continuing to assess concerns, including in relation the charity’s qualified accounts, to determine whether or not there is a need for regulatory action by the Commission.”

Independent investigation

In November last year Muslim Aid announced it would appoint an independent investigation into serious allegations being made in what it described as a “malicious leaflet” circulating on social media. 

It said: “Everyone associated with Muslim Aid is shocked and saddened at the release of this document, and the trustees of Muslim Aid will be commissioning an independent investigation into the allegations made.

“However serious breaches of personal data and staff security in the head office have occurred in the preparation and dissemination of this document, and with the safety of staff, donors and beneficiaries in mind, we request that the charity be allowed to follow correct procedure in line with its obligations to the Charity Commission of the complaints, the Information Commissioner’s office of the breach of employee data, and potentially the police if it is proved that the charity’s CCTV system was tampered with, thus putting the staff at risk of attack without safety precautions being active.”

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