22nd August 2018
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No need for council and charitable trust to group accounts – QC

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Audit Scotland and the Accounts Commission are mistaken in trying to force the local authority and Shetland Charitable Trust to group their annual accounts, councillors have been told.

The advice is contained in a confidential 45-page opinion by one of Scotland’s top legal brains, Roy Martin QC, produced for the council last year.

The paper has remained unseen outwith the council despite an attempt by councillor Jonathan Wills to have it released. A copy has now been obtained by The Shetland Times and it appears to confirm Dr Wills’ recent claim that the advice “completely devastated” the arguments of the external auditors.

For the past six years the council has had a qualification slapped on its annual accounts because of its failure to include the trust’s financial figures. The auditors maintain the council has the power to control the trust and therefore must include its financial results.

Bullied into trying to comply, the council has found itself in stalemate because the trust refuses to hand over its books for fear its independence and charitable status might be compromised.

The confidential legal advice from Mr Martin argues that there is no requirement on the council to include the trust’s accounts. He advised that the trust is not under the sole control of the council, nor is it an associate, joint venture or subsidiary that the council benefits from or faces potential risk of losses from.

The trust does not have to compile accounts in the same way that the local authority is legally required to do. Nor is it under any obligation to provide financial information to the council about its affairs, the lawyer argues.

He cautions against the trust volunteering the information in case it suggested a connection which might have consequences for both bodies.

The advice also states that the council has no control over the capital of the trust, no voting rights as the council and no right to appoint the trustees.

He believes that consolidating the accounts, far from being an accepted requirement, would be “an innovation”.

The QC argues that trustees do not act on behalf of the council but exercise the “fiduciary duties” of trustees as set out in the trust deed. “Trustees must be seen as individuals exercising their duties as trustees of a trust which is independent of the council as the relevant authority.”

Mr Martin believes that the assertion that the accounts should be consolidated appears to be “based upon assumptions about the relationship between the two entities” rather than on properly applying the relevant accountancy guidelines known as the Statement of Recommended Practice (SORP 2010).

“The essence of this difference is that the commission, Audit Scotland and the former auditors appear to believe that because it is the case that the post of trustee is filled in most cases by a person who is simultaneously a member of the council, the result is that the council, or the individuals in question in their capacity as councillors, gain an influence over, or interest in, the trust which brings it within the scope of SORP. I do not consider this to be the case when the true relationship is properly examined …”

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