RNLI 2013 accounts : highlights

[jordanbasset]

OK,

PS: The above may be helpful to some peeps wishing judge for themselves the merits of RNLI’s model. I’m confident that an independent accountant or actuary will agree that it’s a simplified but commercially accurate description.

Thank you for the post, enlightening

 

[JumbleDuck]

PS: The above may be helpful to some peeps wishing judge for themselves the merits of RNLI’s model. I’m confident that an independent accountant or actuary will agree that it’s a simplified but commercially accurate description. As ever, I have no intention of responding to either Sybarite’s insults or bone-headed comments.

That is very interesting, thank you. Is it reasonable, if simplistic, to think of "reserves" as "total stuff owned"?

I expect we'll hear soon that the French have much better accounting practices ...

 

[dom]

That is very interesting, thank you. Is it reasonable, if simplistic, to think of "reserves" as "total stuff owned"?

I expect we'll hear soon that the French have much better accounting practices ...

Yes that’s right; the two sides of a Balance Sheet must balance by definition. The asset-side informs us about the accounting value of what the entity owns and the liability-side informs us about the respective interests the entity’s stakeholders have in those assets. It is easy for a shareholder to see that he for example has a £xyz interest in the accounting value of ABC Company’s assets.

A charity’s asset side of its balance-sheet (things it owns) is no different from an ordinary company like this.

A charity’s “reserves” are, however, a more esoteric concept in that they represent the accounting value of what the charity owes to its designated beneficiaries (in this case future distressed sailors).

One could therefore think of the RNLI’s “reserves” as its "aggregated future obligation" to rescue endangered sailors. This obligation must, in accounting terms, be precisely equal to the assets the RNLI has to satisfy this obligation (the balance-sheet concept).

As for the French; the accounting of State entities is very different. For example, neither the British nor the French formally value their roads (i.e. asset-side) or their citizens’ right to use them (liability-side, or “reserves”). Quite obviously it would not be possible to spend this "citizens future right" on fixing potholes!!!

 

[SimonFa]

Dom,

That's a great summary, well done.

I have a quick question - how do charities treat Capex depreciation. Presumably its not driven by tax considerations but all that Capex will depreciate and need replacement?

 

[dom]

I have a quick question - how do charities treat Capex depreciation. Presumably its not driven by tax considerations but all that Capex will depreciate and need replacement?

You’re too kind!

The question of Capex turns out to be very pertinent for entities like the RNLI or Welcome Trust. As you say a charity’s assets are depreciated in accordance with their expected life-span/accounting policies, but Capital Allowances are functionally irrelevant for tax exempt entities.

However, commitments to ongoing medical research (on the part of Welcome) and an appropriate lifeboat infrastructure (on the part of the RNLI), require these trusts/charities to pre-commit to substantial future cash flows. It would be imprudent to do this, and indeed suppliers wouldn’t want to accept major orders, in the absence of ample reserves to pay for the goods should the UK hit a recession or people temporarily favour another charity.

In other words, kill the RNLI’s “Investment Portfolio” (£278m not the £661m which represents Total Reserves = Total Assets) and one would kill its ability to operate. Now who on earth would want that?

 

[Sybarite]

You’re too kind!

The question of Capex turns out to be very pertinent for entities like the RNLI or Welcome Trust. As you say a charity’s assets are depreciated in accordance with their expected life-span/accounting policies, but Capital Allowances are functionally irrelevant for tax exempt entities.

However, commitments to ongoing medical research (on the part of Welcome) and an appropriate lifeboat infrastructure (on the part of the RNLI), require these trusts/charities to pre-commit to substantial future cash flows. It would be imprudent to do this, and indeed suppliers wouldn’t want to accept major orders, in the absence of ample reserves to pay for the goods should the UK hit a recession or people temporarily favour another charity.

In other words, kill the RNLI’s “Investment Portfolio” (£278m not the £661m which represents Total Reserves = Total Assets) and one would kill its ability to operate. Now who on earth would want that?

I am not aware if the Charities SORP 2005 changed things but there was a time when it was not necessary for a charity to obligatorially capitalize its fixed assets. The idea of capitalizing them and then writing them off over their effective life through a depreciation (capital allowances for tax purposes) charge was to provide comparibility of one accounting period to the next and to allow comparison with other entities.

However, charities vote a budget each year which may or may not include fixed assets. Charities though do not compete commercially. When they met their budgets, both operating and capital, depreciation was not necessarily of any further use to the running of the charity. It used to be acceptable but it was not a method I would recommend under normal circumstances. I have used it in special circumstances in the past with the blessing of the auditors.

 

[Sybarite]

OK,

THE BORING BIT
Imagine us lot here raised £10m to set up a new anchor manufacturer called Spocna Ltd. Our Balance Sheet would initially comprise (Cash £10m and Shareholder Reserves £10m). Spocna Ltd might invest in a new factory costing £5m, in which case the Balance Sheet would show (Shareholder Reserves £10m, Factory £5m and Cash £5m). Spocna’s Shareholder Reserve’s would not go down a dime due to its factory purchase.

Next imagine Spocna hired some staff at a cost of £500K p.a. After one year its Balance sheet would show (Cash £4.5m, Factory £5m and Shareholder Reserves £9.5m). The principle here is straightforward: Shareholder Reserves are NOT reduced via investments, but by costs such as: salaries, heat, light, rates, etc; fixed asset depreciation; or when we incur a liability to someone.

NOW IMAGINE WE SETUP THE RNLI (assuming it didn’t exist)
We might start by raising £660m to donate to our new charity. The RNLI’s Balance Sheet would initially show (“Reserves” £660m and Cash £660m). These are just “Reserves”, not “Shareholder Reserves” because we no longer have any entitlement to this money.

Next we might purchase 150x lifeboats at a cost of £1m each and build 150x launch pads, also at a cost of £1m each. That tots up to £300m and the RNLI’s Balance Sheet would read (Reserves £660m (i.e. unchanged), Fixed assets £300m and Cash £360m). If the RNLI bought that SAR helicopter for £50m: Cash would fall from £360m to £310m, Fixed Assets would rise from £300m to £350m, but Reserves would remain constant at £660m! (£310m + £350m)



THE RNLI IN PRACTICE
Take a look at the RNLI’s accounts you will see a picture similar to the above. http://rnli.org/aboutus/aboutthernli/Documents/annual-report-13.pdf

The RNLI owns Fixed Assets of £364.5m (P39), which you can trace back to the Balance Sheet (P31 LHS). Notice how the RNLI’s only other significant asset is “Investments”, which total £278.7m. Adding investments to fixed assets gives £643.2m (£364.5m + £278.7m), which combined with a few other odds and sods gives the RNLI’s net-asset position of £661.7m (middle of P31). This £661.7m also equals the RNLIs “Total Reserves” (bottom of P31).

“Shareholder Funds” represent the accounting value of the shareholders’ stake in the company. A “Charity’s Reserves” are somewhat different; they represent the accounting value of the stake the charity’s future beneficiaries (in this case distressed sailors) have in the charity. A “Restricted Reserve” simply means for example that the beneficiaries’ collective right takes the form of say a lifeboat. The RNLI clearly can’t spend its "contingent obligation" to rescue you in the future! It can only spend the assets it has to fulfil that obligation

.

Is that it? Something that an accountancy student probably would cover in his first lesson? Have I said anything to the contrary?

I was expecting that you were going to go into the areas where charity accounting options may differ from ordinary accounting in say the treatment of : the capitalisation of assets, depreciation (or not), accruals accounting, accounting to budget, inter-period comparability (or not) ? Maybe you’re planning a further exposé?

“COLLECT & SPEND” vs. “ENDOWMENT” CHARITY MODELS
Charities can fund themselves along a spectrum defined by: (i) “Collect & Spend” on one end (e.g. a one-off disaster fund) and “Endowment” on the other. Endowments are pre-funded with sufficient assets to fulfil the majority of their aims out of investment income, e.g. the Welcome and Rowntree Trusts.


THE RNLI SITS ABOUT MIDWAY ALONG THIS SPECTRUM
P29 of the RNLI’s accounts (RHS) informs us that it spent £117.9m on lifesaving activities in 2013 (costs + equipment depreciation, etc). You might enquire as to how much money would be required to produce this £117.9m per annum.

A panel of fund managers and actuaries would tell you to expect a 6% investment return, without taking excessive risk. This turns out to be trend UK Nominal GDP, but that’s another story. The RNLI would therefore require an investment fund of £1.965 billion (£117.9m/.06) to operate a fully funded model. It only possesses £278.7m of investment assets, so we can conclude that it’s only 14% (£278.7m/£1.965bn) along the way to a fully funded endowment.

In other words folks: you can collect money and spend it, or you can invest it and use the income. Thanks for this enlightenment!

RNLI’s CORPORATE GOVERNACE
The RNLI has an internal Audit and Risk Committee, external auditors (Crowe Clark Whitehill), is regulated by the Charity Commission and has received numerous awards for its corporate governance. One is of course entitled to raise questions, but that is different from combining accounting-ignorance [B](Whose…??)[/B] and business-twaddle into a noxious cocktail to throw in the men’s and women’s faces as they return from a shout.

I have consistently never criticized the brave crews and so you are trying to calumny me to win an argument. Furthermore if you find anywhere I have in any instance criticized them I will withdraw from this forum. I have criticized what I consider to be an over-heavy structure which has the very good fortune to enjoy the support of many donors which support the great work that the life savers do.

I have no intention of responding to either Sybarite’s insults (give me an example - other than RM please) or bone-headed comments

.

Pots, kettles.

And, how would you categorize the movement in total reserves from one year to the next? You didn’t answer.

 

[Tranona]

OK,


And, how would you categorize the movement in total reserves from one year to the next?

That is a pretty dumb question for somebody who professes to understand accounts to ask, when the answer is staring you in the face. It would be unusual for total reserves to remain unchanged from one year to the next.

 

[Sybarite]

What gets me is that people prefer taking a pot shot at me rather than questioning the enormous sums involved. eg their pension liability (for employees) is twice their planned spend on boats and equipment.

When I previously mentionned pensions, I was taken to task IIRC by dogleg who said it was for the dependent families of lifeboatmen lost. There is a pension provision for them : £6m out £288m.
They have identified - in their cost - cutting process, 150000 man hours which need to be better employed. It's obvious not many of them have worked in industry.

New boats this last year : £11.6m Surplus for the year : £49m. Does this not tickle anybody's curiosity?

 

[Sybarite]

That is a pretty dumb question for somebody who professes to understand accounts to ask, when the answer is staring you in the face. It would be unusual for total reserves to remain unchanged from one year to the next.

I know what the answer is but from what was being said I had doubts for him.

 

[Rigger Mortice]

A fine example of a man in a hole continuing to dig..............

 

[dogleg]

I know what the answer is but from what was being said I had doubts for him.

as a FCA what reserves level should the RNLI hold?

 

[JumbleDuck]

Is that it? Something that an accountancy student probably would cover in his first lesson? Have I said anything to the contrary?

I don't think I have ever seen alpha male, willy-waving accountancy before. It's rather entertaining.

 

[dogleg]

New boats this last year : £11.6m Surplus for the year : £49m. Does this not tickle anybody's curiosity?

shoreworks including new boat houses for Tamars and Shannons are not cheap, can you confirm that the French no longer have any slipway launched offshore lifeboats or beach launched offshore lifeboats? there are probably 45 approx offshore stations in the BI where lying afloat is not possible

new bh at Swanage will cost £3.5m, expensive OTT some will and have said but it lies in a world heritage site the Jurassic Coast and planning requirements are extremely tight and demanding as are environmental demands by national bodies.

recently built slipway boathouse had to make special provision after a pool nearby at lw mark was found to contain a rare marine plant which added to the cost, is planning as tight in France?

If you are so well qualified as an accountant why don't you write to Poole and suggest they change their practices or why don't you suggest how much reserves are required for safe running? I can recall the mid 1970's when funds were down to about 2 months reserves and there was real fear that stations would be closed, as I have said before I want my son and now my grandson to have the best possible equipment and boats

 

[NUTMEG]

Never done this before. For some reason I find Sybarites posts here offensive, ill informed and overly aggressive. The sort of chap one would avoid in a pub. For that reason I have put him on ignore. Life's too short and besting a fool achieves nothing.

As an offshore member and regular additional donator I am happy with the RNLI. If you don't like the management, don't contribute, they will rescue you in any case.

 

[Tranona]

New boats this last year : £11.6m Surplus for the year : £49m. Does this not tickle anybody's curiosity?

Your big problem is that you seem to have the simplistic view that the only thing that matters is expenditure on new boats. You should really try and understand the way that the RNLI operate and the projects it is currently undertaking and then you might realise that purchase or building boats is a very small part of its costs. This is nothing new, as people here who know the organisation have tried to explain.

However you choose to ignore information that does not fit with your warped view of the world, so it really is a waste of everbody's time trying to engage with you.

Never was the old chestnut "There is none so blind as those that choose not to see" so true as in your case.

 

[Rigger Mortice]

Your big problem is that you seem to have the simplistic view that the only thing that matters is expenditure on new boats.

A stereotypical bookkeepers view.
I've worked with many accountants in the past. The best ones, and some were superb, were able to really understand the broad picture as well as the detail. The pen pushing book keepers were only able to see the detail..."the cost of everything, the value of nothing."

 

[skipperwales]

What's fantastic about this thread is the broad support for the RNLI.
Like others here I've a reasonable amount of experience having been incolved at the sharp end, in several roles, for 20 years ish. At the sharp end the operational managament is by volunteers and while nothing is perfect and there are clear tensions between pressure for local solutions and maintenance of a clear corporate approach by the RNLI, the reasons for these are pretty obvious and it seems to work well.
There is concern centrally about a potential fall in income from legacies in the future and so the clear plan is to get the shore building stock up to scratch, get the lifeboat fleet modernised with a reduction in the number of different classes of boats deployed to make efficiency savings and to ensure sufficient funds behind the organisiation to provide a hedge against a fall in income in the future. I'm not an accountant, but it all seems pretty sensible to me, theyre a great organisation to be involved with and they do the job.

 

[Resolution]

I don't think I have ever seen alpha male, willy-waving accountancy before. It's rather entertaining.

Shouldn't be - accountancy is meant to be boring.

But As Scuttlebutt is becoming famed for its willy-waving, perhaps we should be awarding the participants scores and set up a W-W League?

 

[Rigger Mortice]

Shouldn't be - accountancy is meant to be boring.

But As Scuttlebutt is becoming famed for its willy-waving, perhaps we should be awarding the participants scores and set up a W-W League?

40 - Love.
Dom still has the serve......