RA audit puts PW in spotlight

Embarrassing attention is focussed this week on Price Waterhouse’s role as former auditor of the troubled Royal Academy, following revelations of a #400,000 fraud and serious irregularities in the Academy’s trust and pension arrangements.

Ernst & Young, which was called in for a special investigation at the start of the year when fraud was suspected, took over as auditor in June following PW’s May resignation ‘by mutual agreement’ with the RA.

E&Y is now currently completing the previously unsigned accounts for the years ending 1994, 1995 and 1996. Of these, only 1994’s accounts had been finalised by PW though it was never signed off. Following E&Y’s investigations, a report was handed over to the police, and the Royal Academy’s bursar Trevor Clark was arrested.

Last week, a confidential report from E&Y to the RA’s Board of Directors was leaked pointing to a #200,000 hole in the pension fund and u1m of misallocated RA trust funds for the years 1995 and 1996.

The leaked documents, which included the uncompleted draft accounts for 1995 and 1996, revealed the Academy has net liabilities of nearly u3m.

Its banker, the Royal Bank of Scotland, is understood to be reluctant to renew the current #2.25m overdraft facility.

Also among the leaked documents was a note from E&Y in which the firm says the financial situation ‘indicates a lack not only of necessary financial controls but of adequate governance.’ It also refers to the Academy’s ‘lack of a questioning culture’.

Commenting on the affair, the Charity Commission said: ‘A standard reminder letter was sent out to the Royal Academy in early 1995 concerning its accounts for the year to September 1994. We heard nothing back until the new auditors, E&Y, responded this August requesting an extension for the 1994 accounts.’

RA insiders say the Academy’s Council has a tradition of letting the accounts’ completion drift. Until March 1997, charities have had no statutory obligation to file accounts. There is no suggestion PW failed to follow correct procedure.

The RA’s new secretary David Gordon – a Thomson McLintock-trained chartered accountant and former chief executive of both The Economist and ITN – said the Academy’s pensioners would not suffer. He refused to speculate on how the #400,000 went missing, and who was to blame. Neither PW nor E&Y would comment.