This is the first time the audit regulator has issued substantial fines and bans over an abusive tax avoidance scheme, rather than audit and accounting failures and abuse.

The charity’s auditor, Hillier Hopkins, and audit partner Philip Collins have also been given fines and reprimands.

The regulator started the inquiry in December 2013 after the Cup Trust was denounced as a ‘sham charity’ in highly critical reports from the Public Accounts Committee and National Audit Office, amid claims it was seeking to abuse gift aid rules.

The FRC investigations relate to the establishment and operation of the charity, as well as abusive tax planning issues, and the preparation and audit of the financial statements for the years ended 31 March 2010 and 31 March 2011.

The case against Mehigan related to his conduct as a director of Mountstar (PTC) Ltd, the corporate trustee of the Cup Trust during the relevant period, which was an entity based in the British Virgin Islands (BVI).

Mehigan has admitted that his 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 objectivity and professional competence and due care.

The FRC investigation found that Mehigan had conflicts of interest which resulted in him signing company resolutions and approved correspondence to the Charity Commission on behalf of the charity’s trustee which contained statements that were false and/or misleading.

He also failed to take properly scrutinise the adoption and operation of the tax scheme, and approved the financial statements when they had not been prepared in accordance with the relevant accounting standards.

An ICAEW spokesperson told CCH Daily: ‘Mr Mehigan will be excluded from ICAEW membership in accordance with the FRC decision,’ but the institute would not comment further. 

Mehigan qualified as a chartered accountant (ACA) in 1984 and was previously a tax partner with a number of large accountancy firms, including EY, Arthur Andersen and Robson Rhodes. He is currently a director at NT Advisors, the specialist tax boutique.

In 2015, when he was a director and shareholder of NT Advisors, he also faced an ICAEW disciplinary investigation. He was severely reprimanded and fined £7,500 for engaging in public practice through NTA (both LLP and Ltd) without professional indemnity insurance (PII) over a period of eight years.

Fundraising failures

Mountstar, which was the Cup Trust’s trustee, had three directors. The FRC said that the company, on behalf of the Cup Trust, entered into a fundraising agreement with a partnership called Harry (or Harrison) Associates.

The FRC stated: ‘Mr Mehigan himself had no financial interest in the adoption and outcome of the scheme. However, Mr Mehigan had longstanding ties with a business associate resulting from, inter alia, their collaboration in tax avoidance schemes since 2005, and their continuing interest in, or involvement with, various businesses.

‘In particular, Mr Mehigan and this business associate continued to have a joint direct financial interest in the outcome of the continuing litigation of tax schemes they had previously jointly promoted.

‘Mr Mehigan's long association and continuing common financial interests with his business associate, who would benefit substantially from the scheme, compromised Mr Mehigan's ability to consider matters relating to the scheme solely in the interests of the charity.’

Mehigan signed three resolutions containing a statement confirming that the transactions being undertaken by the charity were solely for charitable purposes and in furtherance of the charity’s charitable objects, which were materially false and/or misleading.

He also approved the 2010  and 2011 financial statements which disclosed the gift aid claims as contingent assets; and at the same time did not disclose the fees due to Harry Associates under the fundraising agreements as contingent liabilities. this meant that the financial statements did not give a true and fair view and/or were not prepared in accordance with the applicable accounting standards under UK GAAP, specifically FRS 12 Provisions, Contingent Liabilities and Contingent Assets.

Collins and Hillier Hopkins fined

The case against Collins and Hillier Hopkins relates to the audit of the charity’s financial statements for 2010 and 2011.  Collins and Hillier Hopkins 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 FRC disciplinary tribunal has recommended Mehigan is excluded from the accounting profession for a recommended period of 10 years, and pays a fine of £70,000, plus £80,000 towards costs.

Collins has received an FRC reprimand, £20,000 fine and must pay £20,000 in costs.

The auditors, Hillier Hopkins, have been fined £100,000 and told to pay £100,000 towards costs. The firm has also been given a reprimand.

In a statement to CCH Daily, the auditors, Hillier Hopkins, said: ‘Hillier Hopkins has fully co-operated with the Financial Reporting Council’s investigation into the 2010 and 2011 audits of a registered charity, The Cup Trust.

‘Our engagement with The Cup Trust was solely to act as Independent Auditor of its financial statements for the above years. We had no involvement in either the design or the marketing of the activities of the Cup Trust.

‘We regret, and accept, the FRC findings that the audit evidence collected in three specific areas fell below our usual high standards.

‘We are pleased that the FRC concluded (as intimated by the nature and level of the sanction imposed against us) that this is not reflective of our compliance history, that our principals and staff were not engaged in behaviour that was dishonest, deliberate, or reckless and nor did our audit cause any party any financial loss.’

Hillier Hopkins is ranked 47th in the Accountancy Top 75 Firms annual survey with a fee income of £13.5m, of which audit accounts for £3.5m of total revenue. 

Lack of compliance with ethical standards

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.’

The Charity Commission told CCH Daily that its inquiry into the Cup Trust is 'ongoing', but would be concluded in a matter of 'weeks'.

FRC settlement agreement with John Mehigan is here

FRC particular of fact and acts of misconduct for John Mehigan is here

FRC settlement agreement with Hillier Hopkins and Phillip Collins is here

FRC particular of fact and acts of misconduct for Hillier Hopkins and Phillip Collins is here

Report by Pat Sweet