Jessica Fino 12 Jun 2017 11:33am

FRC bans ICAEW member in Cup Trust probe

John Anthony Mehigan, an ICAEW member, has been fined £70,000 and banned by the Financial Reporting Council (FRC) for his role in the discredited Cup Trust charity, which was involved in a £46m tax avoidance scheme

The watchdog announced on Monday it has concluded its investigation, which started in December 2013 and has also resulted in fines and reprimands for audit partner Philip Collins and the charity's auditor Hillier Hopkins.

Back in 2013, the FRC said it would be investigating whether any member associated with The Cup Trust committed “misconduct with respect to the establishment and operation of this charity and any related tax planning issues”.

One year later, the FRC extended the scope of its investigation under the Accountancy Scheme to include the preparation and audit of the financial statements for the years ended 31 March 2010 and 31 March 2011.

Mehigan was a director of Mountstar, the corporate trustee of the Cup Trust during the relevant period, while Collins and Hillier Hopkins were involved in the audit of the charity.

Hillier Hopkins was engaged to carry out the audit, and Collins was the engagement partner in each year.

The Cup Trust was registered as a charity in 2009; under the scheme, the Cup Trust bought £176m of government gilts and sold them to “donors” for £17,000. Participants in the scheme then sold the gilts and donated proceeds back to the trust, claiming tax relief for the donation.

Overall, the Cup Trust submitted claims for £46m in Gift Aid on £176m of payments from participants in the tax avoidance scheme, but it only gave £152,292 to charitable causes between April 2009 and March 2013.

Mehigan was excluded from the profession for a recommended period of 10 years and fined £70,000, plus £80,000 to be paid towards the executive counsel’s costs.

Collins received a reprimand and a fine of £20,000, plus £20,000 in costs. Hillier Hopkins also received a reprimand and was ordered to pay a fine of £100,000 and a further £100,000 in costs.

Gareth Rees, executive counsel to the FRC, said, "The administration of charities, and the operation of tax avoidance schemes, are both matters where professional accountants should be aware of the heightened level of public interest in their work, and consequently the importance of complying scrupulously with ethical and competence standards.

“The lengthy period of exclusion for Mr Mehigan reflects the seriousness of his failure to exercise independent judgment when making key decisions on behalf of the charity.

“The admissions made by Mr Mehigan, Hillier Hopkins and Mr Collins have resulted in a significant saving in time and costs which has been taken into account in the agreed sanctions.”

Mehigan admitted that his conduct fell significantly short of the standards expected of an ICAEW member and acknowledged his actions amounted to breaches of ICAEW's Fundamental Principles of Objectivity and Professional Competence and Due Care.

Meanwhile Collins and Hillier Hopkins have each admitted that their conduct fell significantly short of the standards to be expected of members of the ICAEW and amounted to breaches of the ICAEW’s Fundamental Principles of Professional Competence and Due Care.  

The charity and the Charity Commission received fierce criticism over the years, particularly by the Public Accounts Committee (PAC) and the National Audit Office (NAO).

In June 2013, the PAC branded the Charity Commission's failure to block abuse of charitable status in a tax avoidance scheme as "unacceptable".

Margaret Hodge, chair of the committee, said at the time that the Cup Trust example had caused "damage to the reputation of the commission and charity sector".

Meanwhile, the NAO concluded that the commission’s approach had been too passive. It did not make enough checks when it registered the Trust in 2009 to ensure it met the legal requirements to register as a charity and was reluctant to take strong action during the initial investigation, it said.

But the Commission defended itself at the Royal Courts of Justice in London by saying that it had doubts about the Cup Trust dating back to 2011 but took no action because the organisation's activity were determined legal. The Commission said the decision was made following information received from HMRC that proved the “last straw”.