VOCSC ACCOUNTS: AGAIN?

Some VOC Spares Company Ltd shareholders are wondering why the company's Annual General Meeting was postponed and why the accounts for the financial year ending October 2010 are not yet available. The current Board of Directors comprises Arthur Farrow (Chairman), Ian Savage (Managing Director), Tim Kingham (Company Secretary), Ian Alexander, John Kinley, George Spence and Richard Wheeldon. They might also be wondering about the accounts for the year ending October 2009, which showed a turnover of more than £390,000 against the previous year's turnover of just over £290,000 yet claimed an operating loss of £474.00. Meanwhile, ordinary members of the Vincent HRD Owners Club whose subscriptions have financed the VOC Spares Company since 1975 might ask themselves why trade customers get a 25% discount instead of the same 10% offered to VOC members. They might also ask themselves who makes spares for the company and how much the company's mark-up on the wholesale prices is. And then they might also start asking about the recurring problems with the accounts and the profit and loss figures that do occasionally emerge from the mists...

VOC SPARES COMPANY LTD ACCOUNTS #1

In May 2010, Vincent HRD Owners Club member John Smith Daye wrote to the Secretary of the club, Andrew Everett, querying the draft VOC Spares Company Ltd accounts just published in the club's monthly journal MPH. According to the VOCSC Ltd's accounts, reported turnover as at 31.10.2009 was £391,959 as opposed to its reported 2008 turnover of £294,187. 

The VOC Spares Company Limited

Accounts for the year ended 31^st October 2009

Queries from John Smith-DAYE FCA, on behalf of the Suffolk Section of the VOC (a shareholder)

1. Stock write off

The accounts extract published in the VOC magazine “MPH” alluded to a stock write off in the sum of £10,000, covering slow moving and obsolete items. In view of the fact that the major product that is being served by the supplies of the VOC Spares Co is normally more than 55 years old (the Vincent motorcycle), I would like to know more detail of the items written down in this manner as I fail to understand from the information so far given what could be considered as obsolete. If there is indeed stock that is slow moving, perhaps it should be marketed at a discount to VOC members to realise whatever value it may have.

2 Gross profit margin

It is pleasing to note that the turnover for the year has increased by 33%, but not so pleasing to see that the margin has slipped from 39% to 27%. I would ask that the directors offer an explanation for the dramatic change in this margin.

3. Other income £14,198

Until I had sight of the full accounts, I was not aware what this item covered – it transpires that this has been shown as “previous year’s adjustments”. This is unusual, as it should be reflected through a restatement of the preceding year’s figures and an explanation given in the notes to the financial statements. In any event, I would expect some explanation to be given in the notes of the reasons behind the adjustments even though they have been put through the current year. A “PYA” is normally effected if there has been a change in accounting policy, or the correction of a fundamental accounting error. The figures adjusted is material in the context of the accounts as presented – without the addition of this income, the accounts reflect a significant loss in the year under review. Further explanations are needed for the reasons behind this adjustment, and indeed the reasons behind the apparent loss for this year.

4. Trade debtors

The figure has increased from £14604 (2008) to £69533 (2009). A simple calculation suggests that this represents 56 days of sales (2009) against 15days (2008). This is an extremely unusual variance, particularly given the nature of the trade. An explanation for this would be appreciated.

5 Creditors – VOC loan £15000

Although this is separately disclosed in note 8 to the financial statements, in my opinion there should be further disclosure concerning the nature and terms of the loan, given that the VOC is a major shareholder in this company and the directors of this company are I believe mainly members of the VOC. A “Related Party” disclosure is therefore relevant.

6 Directors report – business review

“The directors are satisfied with the results of the year” is hardly an adequate review of the business, given the nature of the queries above, and the major change in trading conditions following the physical move of the trading base. Although the detailed profit and loss account records factory alterations and moving costs totalling £7603, this is not highlighted in the statutory financial statements anywhere.

7 Related party trading

No separate clear disclosure is shown of the trading and balances due to the VOC in respect of regalia sales, whereby I believe there is an arrangement for a percentage of the profits from this area to be returned to the VOC. Is this perhaps the “commission paid” figure in the detailed P & L account?

8 Other creditors and reserves £8350

It would be interesting to know what is included within this sum, as it is unusual in my opinion in accounts such as these.

JSD

5.5.2010

Mr Smith Daye is a chartered accountant and this was not the first occasion on which he had raised questions about the accounts of the company, set up by the Vincent HRD Owners Club in 1975 to produce spare parts for Vincent H.R.D. and Vincent motorcycles. Mr Smith-Daye and others had noticed an anomaly that has never been explained by any of the directors of the VCSC Ltd. The draft accounts had been presented, signed off by the company’s accountants on 7.4.2009 and by VOCSC Managing Director George Spence on 8.4.2010. The accounts were amended and the record shows amended accounts lodged at Companies House in July and, strangely, August 2010, indicating two sets of amended accounts. However, the accounts available from Companies House are those signed off by the VOCSC accountants and by the firm’s MD on 7.4.2010 and 8.4.2010 respectively. Had Mr Spence, who is also Vice-President of the Vincent HRD Owners Club, already amended the VOCSC accounts when he signed them on 8.4.2010, thereby rendering Mr Smith-Daye’s query about the Other Income entry a month later redundant? If so, why did none of the firm’s other directors – Messrs Meadowcroft, Alexander, Kinley, Wheeldon, Savage (appointed 18.4.2009) and Hewitt (resigned 18.4.2009) - seem aware of such an amendment when the matter was discussed at the AGM on 15.5.2010?

VOCSC Director and VOC Vice-President George Spence (right)

Were the draft accounts presented at the AGM different to the set intended for Companies House? After all, the Managing Director of the VOCSC Ltd would surely not have amended the accounts after signing them. Nor would he have backdated his signature. Yet the VOCSC Board of Directors had agreed in response to John Smith-Daye’s concerns to look into his queries and make any amendments necessary. So either the firm’s MD had carried out these amendments prior to signing the accounts on 8.4.2010 or the dating of accounts lodged at Companies House was wrong. 

Although VOC official Arthur Farrow, appointed to the VOCSC Ltd's Board of Directors on 23.8.2010 is now Chairman of the Board of the VOCSC Ltd, with Ian Savage installed as Managing Director in 2009, George Spence remains a director of the firm. There were fourteen applicants for the position of Managing Director, some of whom were highly qualified for the job. However, just one applicant was interviewed and appointed: Ian Savage. The VOCSC Director who handled Mr Savage's appointment was Vincent HRD Owners Club senior executive and Spares Liaison Officer Dick Wheeldon, who was also quite busy at the time with The John Lumley Motorcycle Collection. 

VOC SPARES COMPANY LTD ACCOUNTS #2

In 2005, VOC Spares Liaison Officer and VOCSC Director Dick Wheeldon described VOCSC Ltd turnover as “the best ever”, with monthly sales reportedly averaging £18,000. Prior to the AGM, however, VOC Secretary Andrew Everett had circulated the following statement about the then VOC Treasurer Roy Huxley on behalf of the VOC's Executive Committee: 

In 2010, Mr Huxley wrote publicly: "Since resigning from the VOC Executive Committee, (due to major problems in trying to work with an obstructive bullying Chairman), I have tried to distance myself from anything to do with the running of the Club and Club politics as the Chairman made my tenure as Treasurer so traumatic that my health suffered and I was obliged to pull right away from anything to do with the VOC."  

Roy Huxley had expressed concerns about the VOCSC Ltd’s accounts, stating that he had been refused access to the full accounts by Tim Kirker and George Spence. Mr Huxley wrote to the VOC journal MPH about his concerns but his letter was not published by the then Editor, Robert Watson, also a member of the club’s Executive Committee. In other words, the dissenting views and opinions of one of the Vincent HRD Owners Club executives, the Treasurer nonetheless, were suppressed and withheld from the club’s membership.

The auditors who did sign the 2003/2004 VOCSC Ltd accounts off subsequently agreed that their audit was not correctly carried out and refunded the fees they had received, thereby vindicating the concerns of two professional accountants regarding that year’s accounts and calling into question the motives of VOC executives who prevented the club’s Treasurer from doing his job, pushed to have the accounts approved and tried to gag anyone raising objections. John Smith-Daye, the chartered accountant and VOC member who would later question the 2008/2009 accounts in 2010, was also concerned about the 2003/2004 accounts, especially by an article published in MPH stating the the 2003/2004 accounts of the VOC Spares Company Ltd included a £49,000 stock adjustment but that nobody should worry as it was only a “paper adjustment”. The article was written by George Spence, Managing Director of the VOCSC Ltd and Vice-President of the Vincent HRD Owners Club, which is the largest single VOCSC shareholder. Mr Smith-Daye duly tabled his concerns ahead of that year’s VOCSC Ltd Annual General Meeting.

VOC General Committee Meeting 11th September 2005

Proposed Agenda items originating from John Smith-Daye FCA, member no. S436

Andy Everett has kindly agreed to put the following two proposals on the Agenda on my behalf, for discussion at the GCM. I feel that it is appropriate for me to expand a little on my thoughts in writing, in case I am unable to attend the GCM in person.

 1

1. That the full financial statements of the VOCSC Ltd be formally made available to, reviewed by and commented on by, the Treasurer of the VOC as the appointed financial officer of the Club, at the earliest possible time they are available and in any case prior to recommendation by the EC for the adoption or otherwise at the Company’s Annual General Meeting.

I became concerned at the contents of the VOCSC Ltd accounts following George Spence’s brief article in MPH which basically said that there had been a £49,000 stock adjustment in the accounts for the year to 31st October 2004, but don’t worry, it is only a paper adjustment. My initial comments are a matter of record as they were published in April MPH – in simple terms, I was worried. Subsequently, I obtained a full copy of the accounts and attended the VOCSC Ltd AGM and I remained worried.

I understand that the appointed financial officer of the Club, the Treasurer Roy Huxley (like myself, a professional accountant) had also expressed concerns at the Company’s financial position. I also understand that he was refused access to the full accounts for the year to 31st October 2004. Having spoken to Roy, I note that he agreed with the thoughts in my letter to MPH, and did not support the response printed and signed by Tim Kirker and George Spence. Indeed, I understand that his (alternative) views were passed to Robert Watson in good time for publication, but not published, such that a balanced view was not given of the Exec’s thoughts.

In appointing the Treasurer, it is surely taken as read that the Club will consult him on matters financial, as well as expecting him to raise concerns and provide advice in this area based on his training and experience. The Club is fortunate in having Roy Huxley as Treasurer, as he is a professional accountant (and auditor), and his opinions, advice and guidance should thus be strongly considered when decisions are to be made concerning the Club’s finances. The accounts for the VOCSC Ltd for the year to 31st October 2004 as presented are factually incorrect and the auditors should not have signed them off as showing a true and fair view of the results for the year – they themselves have accepted that the audit was not correctly carried out and have refunded the year’s fees.  Had the Treasurer been allowed full involvement, I am of the opinion that this situation would not have occurred – hence the above proposal.   

 2.

2. In the light of comments made at the VOCSC Ltd AGM in April 2005 by Mr G Spence as Chairman of the Company suggesting that stock had not been correctly valued for accounts purposes for a number of years, that the VOC as a majority shareholder suggest that he stands down as Chairman of the Company.

There is no dispute that the stock figures in the accounts of the VOCSC Ltd have been incorrect in the past, leading to inflated profits being reported. The Companies Act 1985 is clear in its statements on areas relating to this problem. In particular, there is a duty under Section 221 to keep accounting records showing stock held by the company at the end of each financial year. This duty has been breached, and the officers of the Company could be liable to severe punishments if action is taken. The effect of the stock figure included in a set of accounts can be significant, and is in this case.

Section 226 of The Companies Act 1985 requires the directors of a company to produce annual accounts that give a true and fair view of the state of the company (the balance sheet) and of its results for the year (the profit and loss account). By preparing accounts with significantly incorrect stock values, the directors have also breached this duty.

The directors have, at best, been incompetent in carrying out their duties, or, at worst, have intentionally misled by preparing incorrect accounts. As Chairman of the Board of Directors responsible for these severe breaches of duty, Mr G Spence should stand down.

John Smith-Daye

12^th August 2005

At the 119^th GCM of the Vincent HRD Owners Club on 11.9.2005, the Executive Committee was asked how much of the projected VOCSC turnover that year of £220,000 would be turned back into stock and members were told that most of this income would be reinvested in stock. At this point, according to the minutes of the meeting, former VOC Membership Secretary Rod Hornsby pointed out an anomaly, suggesting that this meant that the VOCSC Ltd would actually show a loss over the previous twelve years. VOC Chairman Tim Kirker responded by saying that this was an issue not worth pursuing before telling the assembly that VOCSC Ltd shares had dropped in value. Today, of 100,000 authorised Ordinary Shares, 58,474 are currently allotted to just over 800 shareholders. Fifteen sections of the Vincent HRD Owners Club in the UK, USA and Canada are listed as holding a total of 766 of these shares. The Vincent HRD Owners Club is the largest single shareholder with 26,622 of these shares, representing roughly 45% of the company's issued share capital.