Screen East - Declassified Documents Regarding Closure of Regional Screen Agency, Screen East

s40
From: s40
Sent: 03 September 2010 10:38
To: s40
Subject: FW: Screen East
To be aware

From: s40
To:
s40
Cc:
Subject: RE: Screen East

Fully understand!

From: s40 @ukfilmcouncil.org.uk]
To:
s40
Cc:

s40

Be assured there is no lack of hard work or commitment here, just hours in the day!

s40

From: s40 @Culture.gsi.gov.uk]
To:
Cc: s40

Ok we can be flexible.

To:
s40
Cc:

Yes, we understood that Sam would also be joining us for the first part of the meeting too.

I’m not sure that we will need an hour for the first part. s40 and I are 100% on Screen East at the moment.

To:
s40
Cc:

Sam Foley will be joining us too for the Screen east discussion. So we’ll discuss abolition issues at 2.30 and Screen
East at 3.30 if that’s okay.
1

s40

From: s40
To: s40
Importance: High

s40

We are discussing this after the meeting on the Film Council at 2.30. Jon is now free to join us. We can then report
chapter and verse to Jonathan.

s40

From: s40 On Behalf Of STEPHENS JONATHAN
To: 'Woodward, John Internal'; STEPHENS JONATHAN
Cc: ZEFF JON; s40 JUDGE SIMON

John,

Many thanks, We’ll be in touch tomorrow morning.

s40
Private Secretary to Jonathan Stephens

Department for Culture, Media and Sport | 2-4 Cockspur Street | London SW1Y 5DH
email: s40 @culture.gsi.gov.uk | tel: 020 7211 s40 | mob: s40 |fax: 020 72116259
Please be aware that Private Office will not keep a file copy of this e-mail or any attachment. It is the responsibility of
the policy or business division to ensure that documents are properly filed.

From: Woodward, John Internal [mailto:johnw@ukfilmcouncil.org.uk]
To: STEPHENS JONATHAN
Cc: ZEFF JON; s40 'simon.judge@gsi.gov.uk'; s40
Subject: Screen East

Dear Jonathan,

Further to my letter to you of 27th August, I received a report from our internal audit team this morning who visited
Screen East yesterday to find out more about the irregularities they reported to us last week. This interim report is
now being written up and will be with us and you tomorrow.

It is too early to be totally clear about what has happened but the very least I can report to you now that there have
definitely been some very serious irregularities in the application of Screen East’s financial systems leading to the
misuse of lottery and other public funding.

In addition there is also the clear suspicion of fraud on the part of Screen East’s financial controller. I therefore
spoke to Screen East’s Chairman today and he confirmed to me that they will be notifying the police forthwith.

2
Screen East’s Board is also meeting today to discuss their financial situation and to decide whether or not to put the
company into receivership immediately. We will know what the position is later this evening.

Do you think we might talk speak tomorrow when I can give you more information and when it will be clearer what
options exist for minimising the loss of public money?

Best wishes,

s40

--------------------------------------------------------------------------------
UK Film Council, 10 Little Portland Street, London W1W 7JG. A company limited by guarantee registered in England number 3815052
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3
s40
From: s40
To: s40 KIRKMAN PAUL
Cc: s40
Importance: High
s42

thanks,

s40
DCMS legal advisers

0207 211 s40

DUPLICATED ON PAGE 1
s40
From: s40
To: s40 FOLEY, Samantha
Subject: RE: SCREEN EAST
Yup, have changed that!

From: s40
To: s40 FOLEY, Samantha
Subject: FW: SCREEN EAST
Importance: High

s42
s40
DCMS legal advisers

0207 211 s40

From: s40
To: FOLEY, Samantha; s40
Subject: SCREEN EAST
Importance: High

Any thoughts on the attached please which I’ll aim to submit this evening.....
1
s40
From: FOLEY, Samantha

To:
s40
OGDs are in the loop. I am not sure UKFC can insist on the receiver/liquidator though, given its a private company.

Sam

Samantha Foley| Head of Finance | Department for Culture, Media and Sport | 1st Floor
| 2-4 Cockspur Street | London SW1Y 5DH | T: 020 7211 s40
PA: s40

From: s40
To: s40 ; FOLEY, Samantha; s40

s42
s40
DCMS legal advisers

0207 211 s40

From: s40
To: FOLEY, Samantha; s40
Subject: FW: SCREEN EAST

For info.....

To: s40

We have called the police and plan to write to screen east asking for our money. John will be writing to JS today to
confirm our actions.

To: s40

1

To: s40

Stephen

Can you give me a quick update this morning pl? Have you called in the police and send a letter to SE seeking the
return of your money?

s40
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If you are not the intended recipient of this message, please delete it.
All DCMS e-mail is recorded and stored for a minimum of 6 months
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s40
From: s40
To: s40 FOLEY, Samantha; ; KILGARRIFF
s40
PATRICK; s40
Subject: RE: RESTRICTED: SUSPECTED FINANCIAL MISMANAGEMENT AT SCREEN EAST
All

s40 has let me have sight of the paperwork on this both for the specifics, but also I’ve considered in light of
potential pitfalls for other lottery distributors.

As you’ll know, our position on delegation of lottery distribution activities is that it is for Lottery distributor AOs to
satisfy themselves that any proposed delegate organisation is fit for purpose and has appropriate systems in place.
One of the points coming out of the IA report is the skills at Executive level within SE to challenge effectively the
financial information produced. s40 has suggested that UKFC’s processes and systems be reviewed to look for
areas for improvement. As part of that, it would be helpful for wider purposes to know if there was an opportunity
for UKFC to consider the Chief Exec’s governance/financial skills prior to appointing him as Accountable Officer, as
part of their assessment of SE’s fitness for purpose as a delegate distributor.

Could that perhaps be considered in any review of UKFC systems, please.

s40

Lottery Investment Team, DCMS, 2-4 Cockspur Street, London SW1Y 5DH; Tel 020 7211 s40 email:
s40
culture.gsi.gov.uk
Please Note: I work part time and am in the office Mon-Wed, c9am-c3.50pm each day

From: s40
To: s40 ; FOLEY, Samantha
Cc: s40 ; KILGARRIFF PATRICK; s40
Subject: FW: RESTRICTED: SUSPECTED FINANCIAL MISMANAGEMENT AT SCREEN EAST
Importance: High

s40
thought it would be helpful for me to summarise my legal advice in light of this afternoon’s meeting.

s42
s40
From: s40
To: s40 FOLEY, Samantha; s40 ; ZEFF JON
Cc: s40
John Woodward just rang to say that he had decided to write this pm cancelling the framework agreement with
Screen East. This will inevitably trigger, in John’s view, Screen East appointing a liquidator. John has also been
liaising with the RDA today.

I told him that this was his call, but that we had pretty much concluded on Friday, at the meeting with his
colleagues, thatthis was the best course in the circumstances.

I haven’t forgotten about the draft letter for Jonathan to send to John W, but thought best to await today’s
developments.

s40
1
s40
From: s40
Cc: ZEFF JON; FOLEY, Samantha; s40
Subject: RE: Screen East - Cancellation of Framework Agreement
Jonathan is going to do a quick call this evening to John.

L

s40

From: s40
Importance: High

Sam s40

I’m off to a meeting now following which I must get away, so won’t be able to do the letter tonight, but all we need
say at the moment is that this is John’s call but that we agree this seems the best course. What do you think?

s40

To: s40
Subject: FW: Screen East - Cancellation of Framework Agreement

s40 I imagine that this response and the draft letter can be the same thing? Can you do something by COP?

s40

1

From: Woodward, John Internal [mailto:johnw@ukfilmcouncil.org.uk]
To: STEPHENS JONATHAN
Cc: s40
Subject: Screen East - Cancellation of Framework Agreement

Dear Jonathan,

I wanted to write to let you know of the action I now propose to take in relation to Screen East’s issues.

Upon reflection, what we have now uncovered leads me to believe firmly that it would be neither appropriate nor
realistic for me to request Screen East to rectify the various breaches in their framework agreement with the UK
Film Council and I believe that I have no option but to terminate the UK Film Council/Screen East framework
agreement a soon as possible.

As you know, the UK Film Council is entitled to terminate the Framework Agreement forthwith in the event of fraud
or gross misconduct on the part of Screen East in the conduct of its duties in relation to the Framework Agreement
(Clause 6.1.1) and/or in the event that Screen East ceases or threatens to cease to carry on its business (Clause
6.1.3).

These events of default have been established as a result of the financial issues referred to above and in particular
the following:

(1) Lottery Funds have been assigned to fictitious Unique Reference Numbers on the GIFTS grant management
system we presume in order to inflate the lottery returns submitted to UK Film Council; and
(2) Screen East’s Finance Manager, was able to make allegedly unauthorised transfers to his personal bank
account in the period April to July 2010;
both the above points demonstrating a complete failure of Screen East’s internal financial controls and
management information systems which amongst other things should be robust enough to detect and deal
effectively with cases of fraud or theft or misappropriation of funding. In our opinion this failure amounts
to gross misconduct by Screen East; and
(3) as evidenced by a letter from Screen East to us on 30 August and by our various discussions, Screen East is
now looking at options for administration and/or liquidation and is threatening to cease to carry on its
business.

The effect of this termination will be to crystallize the Film Council’s funding in the company as a debt to be repaid
immediately. It will then be for Screen East’s Board to determine the next steps but I am informed by their CEO that
the company stands ready to appoint a receiver or liquidator and they may well do this directly after receiving my
termination letter tomorrow morning.

I have not heard definitively from EEDA, the other major public funder of Screen East, but I was told last week that
they too have no confidence in utilising Screen East’s structures going forward and are very likely to take a similar
position in relation to the DCLG sourced funds currently held in Screen East on behalf of EEDA. I hope to speak again
to EEDA’s CEO this evening but in any event I want to proceed to termination by the UK Film Council as soon as
possible.

I would be grateful for any thoughts, comments or recommendations you or colleagues may have as a matter of
urgency and before tomorrow morning.

All best wishes,

John
2
s40
From: s40
To: s40 ; ZEFF JON; s40 FOLEY, Samantha
Cc: s40
Subject: RESTRICTED: Screen East
Good evening all,
Just an quick update to say that Jonathan has spoken with John Woodward. In the conversation
he agreed that the decision on screen east is rightly taken by John Woodward and the UKFC. He
supported John’s proposed next steps and I will keep you up to date with any further
developments.
Many thanks,
s40
Department for Culture, Media and Sport
Telephone: 020 7211 s40
Please be aware that Private Office will not keep a file copy of this e-mail or any attachment. It is the
responsibility of the policy or business division to ensure that documents are properly filed.
DCMS aims to improve the quality of life for all through cultural and sporting activities, to support the
pursuit of excellence and to champion the tourism, creative and leisure industries.

1
s40
From: s40
To: s40 ; ZEFF JON; s40
FOLEY, Samantha
Subject: FW: Screen East - Cancellation of Framework Agreement
Attachments: Screen East Letter from JS.pdf
Sent as drafted.....

To: Woodward, John Internal; STEPHENS JONATHAN
Cc: s40

John,
Please find attached a letter from Jonathan written yesterday.
Many thanks,
s40
Department for Culture, Media and Sport
Telephone: 020 7211 s40
Please be aware that Private Office will not keep a file copy of this e-mail or any attachment. It is the
responsibility of the policy or business division to ensure that documents are properly filed.
DCMS aims to improve the quality of life for all through cultural and sporting activities, to support the
pursuit of excellence and to champion the tourism, creative and leisure industries.
1
s40
From: s40
To: SECRETARY OF STATE'S OFFICE; MINISTER FOR TOURISM OFFICE; MINISTER FOR SPORT AND OLYMPICS OFFICE; MINISTER
FOR TOURISM OFFICE
Cc: Permanent Secretary; s40 ; ZEFF
JON; JUDGE SIMON; KIRKMAN PAUL; FOLEY, Samantha; s40 ; SPECIAL
ADVISERS; s40
Subject: RESTRICTED: SUSPECTED FINANCIAL MISMANAGEMENT AT SCREEN EAST
Importance: High

Submission attached....
file:///C|/.../DOCS/03%2009%202010%20FW_RESTRICTED_SUSPECTED_FINANCIAL_MISMANAGEMENT_AT_SCREEN_EAST.htm[10/06/2014 11:17:37]
Restricted
To: Ed Vaizey 3 September 2010
Suspected financial mismanagement and fraud at Screen East
Issue
1. UK Film Council has alerted the Dept to serious financial irregularities at Screen East,
one of the nine Regional Screen Agencies, in the application of Screen East’s financial
systems. These irregularities have led to the misuse of Lottery and other public funding.
In addition, there is a clear suspicion of fraud for private gain on the part of Screen
East’s financial controller. These matters are being investigated by UKFC’s Internal
Auditors and the Police have also been notified by Screen East about the suspected
fraud for private gain.
Timing
2. Immediate – but for information only.
Recommendation
3. That you note the detail below, but that no further action is taken at this time, given the
risk of our prejudicing a police investigation. We will update you as soon as there are
any developments.
Background
4. The nine Regional Screen Agencies are private organisations which operate at arm’s
length from UKFC. They receive some Exchequer and Lottery funding from UKFC, but
also funds from other sources, including RDAs.
5. Last week UKFC was alerted by the Chair of Screen East to possible financial
irregularities within the organisation. It seems there have been a number of fraudulent
activities stemming from cashflow problems associated with a large ERDF grant and this
has included inventing Lottery awards. There has also been fraud for private gain.
6. We understand that about £800k of DCMS funds (Lottery and Exchequer) could be at
risk. CLG funds (ERDF) and BIS funds (awarded through the RDA) are also at risk. As a
result of a report received this afternoon from its Internal Auditors, UKFC has decided to
refer the suspected fraud involving Lottery funds to the police. UKFC is also considering
whether to write to Screen East this evening requiring the return of its funds within the
terms of the Funding Agreement between the two organisations, and also advising
Screen East to appoint a liquidator right away.
7. UKFC is developing plans for handling funding in Eastern Region should Screen East go
into receivership.
8. UKFC has acted properly in alerting us promptly to this situation and its internal auditors
have reported that they believe UKFC has established an appropriate structure for
obtaining assurance on the governance and control arrangements operated by RSAs, as
delegated bodies. The Permanent Secretary will however be writing formally to UKFC
early next week seeking an update on the situation and an assurance from the CEO that
the systems are adequate in light of this case.
Restricted
9. UKFC has agreed to do a systems check next week of all the other Screen Agencies.
Advice
10.
s42
Handling
11. Press Office have been briefed that we should respond to any public and stakeholder
enquiries by saying that the matter is under investigation, and that until that investigation
is concluded it would be inappropriate to comment further. This is a robust and
necessary position and will be deployed in the face of any enquiry until such time as the
police advise us otherwise, at which point we will update you further.
Clearance
Samantha Foley, Head of Finance. The Permanent Secretary is aware of this issue.
s40
Copy List:
Secretary of State
Ministers
Jonathan Stephens
Andrew Ramsay
Simon Judge
Jon Zeff
Patrick Kilgarriff (Legal)
Samantha Foley
Paul Kirkman
s40
SpAds
s40
s40 s40
INTERNAL AUDIT REPORT
for The UK Film Council
SCREEN EAST – INTERIM REPORT
Confidential – Commercial in confidence

Draft
Version 02d
September 2010
150 Aldersgate Street, London EC1A 4AB P

Tel +44 (20) 7334 9191 Fax +44 (20) 7248 3408
www.moorestephens.com
SEPTEMBER 2010
UK Film Council
SCREEN EAST
Contents
Executive Summary................................................................................... 3
1. Introduction ...................................................................................................... 3
2. Headline findings ............................................................................................. 3
UKFC assurance processes...................................................................... 7

3. Screen East Lottery and GIA income and payments for 2009/10 and 2010/11 8
4. Movement of lottery funds to other Screen East bank accounts ...................... 8
5. Fictitious Lottery transactions........................................................................... 8
6. Potentially fraudulent transactions ................................................................... 9
7. Current bank balances ..................................................................................... 9
8. Best assessment of the net funding position of Screen East ........................... 9
9. Appendix A: Key dates................................................................................... 11
10. Appendix B: Audit Definitions......................................................................... 12
Moore Stephens LLP Internal Audit Report | Commercial in confidence | 01d 2 | 12

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SCREEN EAST
Executive Summary
1. Introduction
1.1. In response to alleged financial irregularities reported by Screen East (SE) to the UK Film
Council (UKFC)on 26 August 2010, we were commissioned by UKFC to undertake an
investigation against the following remit:
 Review Screen East Lottery and GIA income and payments for 2009/10 and
2010/11;
 Confirm whether funds have been inappropriately moved to other bank accounts
within Screen East;
 Investigate the already identified fictitious Lottery transactions (and any that become
apparent during the review) to determine whether any payments have been made, to
whom and when;
 Identification of any potentially fraudulent transactions whether for personal gain of

employees of Screen East or for Screen East itself;
 Identification of bank balances at current date;
 Best assessment of the net funding position of Screen East to appraise UKFC.
1.2. We visited SE on 1 September and met with the Chief Executive (SE designated
Accountable Officer) and the Head of Business. The Finance Manager was not available
to meet which hindered discussions as full explanations could not be provided.
1.3. Limitations of scope
1.4. We have based our findings on the information produced by the Head of Business and
Chief Executive. The numbers in this report have not been independently verified by
Moore Stephens. We have not undertaken an audit of transactions, controls or systems
in producing this report.
2. Headline findings
2.1. Business model
2.2. Flaws have appeared in the SE business model as EU income streams have come on
line. The financial structure of EU funded projects requires SE to meet 100% of
expenditure initially and then to reclaim a proportion of those costs at a later date. This is
a common requirement of EU funded projects but is based on representations from
funded bodies that the initial outlay can be covered from other sources. SE’s cash
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position has not really supported this assertion without the use of Lottery funds. This has
impacted significantly on SE’s cash flow management.
2.3. The SE CEO stated he had previously had concerns about SE’s ability to deliver on the
European Carbon Trust fund due to the need to spend in advance and then
retrospectively claim back from the fund (at 40% with the remaining 60% to be covered
by RIFE claims). He stated they had raised this concern with the fund but had been
informed that they should continue. No such concerns were raised with the UKFC until
after these concerns had materialised.
2.4. Banking arrangements and cash flow management
2.5. The banking systems and cash flow management systems are poor. SE’s financial
systems have not responded adequately to the new income streams coming on line. The
EU income streams have a different cash flow profile to the UKFC funding. As a result,
more sophisticated cash flow processes are required which accurately recognise the
timing of cash inflows and outflows, document assumptions and clearly identify how any
anticipated shortfalls will be met.
2.6. With the exception of the £3m ERDF award from EEDA, funds are not adequately
segregated. Although separate bank accounts have been set up, they have not been
properly used from the point of view of segregation. The key control is the segregation of
funds through the chart of accounts in the accounting system, supported by regular bank
reconciliations.
2.7. Cash flow management has been undertaken on a consolidated basis i.e. all money seen
in one pot against which to fund liabilities, whether they are designated or not (with the
exception of the £3m ERDF funding).
2.8. Current deficit
2.9. It is clear to us, and accepted by SE, that not all of the current ‘deficit’, i.e. cash balances
and liquid assets less designated funds and current liabilities, should be attributed and
met from lottery funds. The ‘one pot’ approach SE appears to have adopted dictates that
any deficit should be apportioned across the delegated funds.
2.10. Governance
2.11. Although we have not met with Board members or examined governance processes as
part of this review, it appears that there have been weaknesses in the operation of SE
governance and control processes which have been compounded by the quality of
financial information provided to the Executive and the Board.
2.12. Based on our observations and our discussions with the Chief Executive and Business
Manager, there has not been adequate internal oversight or challenge of the financial
position of Screen East.
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2.13. The composition of the Board and its structure, and the establishment of the Audit
Committee (as a result of a UKFC recommendation), should have provided an
appropriate base for an effective governance structure. This should have been adequate
for an organisation the size and complexity of Screen East.
2.14. Management controls
2.15. Although we have not tested management controls as part of our review, it appears, from
our discussions that management controls have existed, however they have not been
operated effectively.
2.16. There are concerns over whether adequate skills have existed at Executive level to
challenge effectively the financial information produced. This would have impacted upon
the effective operation of key financial controls at senior manager level. Although
management reviews of financial information appear to have taken place, the quality of
these reviews is questionable. Examples of inadequate control include:
 During our visit the Chief Executive commented that he had just discovered
through talks with Barclays that SE had three bank accounts that he was unaware
of. At the time he did not know the balances on the accounts which subsequently
turned out to be nil. In the short time available and given the lack of explanation
and documentation available, no effort was made to establish that the accounts
had been legitimately set up.
 SE has not utilised online banking, instead relying on receipt of monthly paper
statements through the post. Explanations provided by the CEO included the
complexity of online banking, the additional charges for using online banking and
resistance from the Finance Manager. In the absence of any information to the
contrary, this suggests untimely cash monitoring and a less than proactive attitude
to financial management.
 A number of BACS payments into the Finance Manager’s personal bank account
were identified shortly before our visit by SE. No supporting paperwork was
available for these payments other than the basic BACS payment report which
simply states the fact that the payment was made. We questioned the CEO on the
process in place to make BACS payments to establish how one person could
apparently make payments to themselves without anyone else’s knowledge. The
response was a simple statement that the CEO did not know how the payments
were made (the Business Manager commented that they use Barclay’s keypads
that provide them with a passkey to input to the system to release a payment). We
understand that since our visit that Screen East have found further similar
payments.
2.17. The limitations of the SE Chief Executive in relation to financial skills and awareness of
financial processes was evident.
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2.18. Financial systems
2.19. SE’s success in obtaining funding from other sources, including the EU, has resulted in
the recent growth of the company and increased complexity of the business. The
systems in place, particularly in relation to cash management, and the competency of the
staff in this area, at Board and Executive level, have not kept pace.
2.20. The Head of Business and Chief Executive confirmed that the accounting records had
not been maintained since 1 April 2010 and key financial controls had not been operated,
such as bank reconciliations. We asked whether this had been subsequently addressed
and SAGE brought up to date but this could not be confirmed despite annotations on the
bank statements suggesting that some posting had taken place.
2.21. Other relevant factors
2.22. The SE Chief Executive reported in his letter to the UKFC Accounting Officer, HR issues
relating to the Finance Manager ( s40 . The Finance Manager had submitted a
grievance against the Chief Executive alleging bullying. This suggests a break down in
the relationship between two individuals who have a critical role in the financial
management and control processes of SE, where trust and good communication are
fundamental requirements.
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UKFC assurance processes

2.23. UKFC has put processes in place to obtain assurance on the governance and control of
the regional screen agencies. In the case of Screen East, the principal elements UK Film
Council required, which Screen East have implemented, are summarised below:
 Appointment of an experienced Board with a diverse skill set;
 Establishment of an independent Audit Committee with responsibility for oversight

of governance, risk and assurance;
 The Chief Executive is the designated Accountable Officer;
 The Accountable Officer is required to submit an annual statement of assurance to

the UKFC Accounting Officer confirming that appropriate financial controls have
been operated by RSA throughout the financial year. This has been received
annually from SE with no exceptions reported;
 SE has appointed independent auditors, responsible for the annual audit of SE’s
financial statements. Unqualified accounts have been received from LEES
Accountants for 2008/9 and preceding years. (The 2009/10 were originally held up
pending conclusion on a contingent liability. Those accounts have yet to be
approved by the SE board in light of the current issues). We understand from the
SE Chief Executive that LEES have experience of auditing public and grant funded
bodies;
 UKFC has implemented a rolling programme of internal audit reviews of RSA

lottery award processes. The last visit was in 2007 with one planned for later this
year under the 2010-11 Internal Audit plan.
 Management assurances - The relationship with the RSAs is underpinned by a

comprehensive framework agreement which is monitored by the UK Partnerships
section of the UKFC. UK Partnerships review returns submitted by RSA’s prior to
funds being awarded.
2.24. In our view, UKFC has established an appropriate structure for obtaining assurance on
the governance and control arrangements operated by RSAs, as delegated bodies.
Based on our experience of other lottery distributors and grant giving organisations, the
assurance framework established by the UKFC represents good practice. The
framework properly reflects the role of the UKFC in a delegated arrangement and
recognises the total responsibility of the Board and Executive of the RSA for the day to
day management and control processes (financial and non-financial).
2.25. In fact the issues have come to light because of Screen East’s reporting obligations to UK
Film Council under those control arrangements. It was because of UK Film Council
chasing Screen East’s non-filing of the Quarter 1 2010-11 LOT form (which reconciles
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SCREEN EAST
Lottery funding and awards) in July that revealed the financial irregularities to Screen
East’s management. Specific response to terms of reference
3. Screen East Lottery and GIA income and payments

for 2009/10 and 2010/11
3.1. Our ability to conclusively review the Lottery and GIA income and payments was
restricted as all funds were processed through a single bank account which did not
provide adequate segregation. The following further observations should be noted:
 We were able to trace UKFC funding into SE’s bank accounts.
 All SE payments, lottery or GIA, have been paid into the SE ‘current account’. No
payments have been made directly into the designated lottery accounts in 2009/10 or
2010/11, although transfers in and out have taken place.
 In terms of payments out of the bank accounts, it is difficult to attribute specific

transactions to the GIA or lottery awards, although there is a mechanism in place for
achieving this through the chart of accounts in SAGE (SE accounting system) and, in
the case of lottery transactions, GIFTS.
4. Movement of lottery funds to other Screen East

bank accounts
4.1. As noted above, as all UKFC payments are made into one account which is not a lottery
account, it is evident that lottery funds exist in other SE bank accounts. There is a
process of transfer of funds in and out of the lottery accounts but the main day to day
processing goes through the SE current account.
4.2. There are specific transfers to and from the SE current account and Lottery account in
April/ May 2009 and February/ March 2010 which have a net effect of transferring funds
out of the lottery. 2009 transactions – net transfer of £120k to then current account, 2010
– net transfer into Lottery account as part of movements in and out of the ERDF account.
4.3. It is possible. that UKFC lottery funds have been used for non lottery purposes on the
basis that they have not been clearly segregated
5. Fictitious Lottery transactions

5.1. The three ‘fictitious’ URNs (Unique Reference Numbers identifying specific Lottery
applications and awards) have been used to inflate the lottery returns submitted to UKFC.
This appears to have had the effect of increasing funding drawndown from UKKC. With
the ‘one pot’ approach adopted, this would have had the impact of increasing SE’s overall
cash position which may then have been used for non lottery purposes.
AHL Limited
SEPTEMBER 2010
UK Film Council
SCREEN EAST
5.2. No award payments to third parties have been made against the URNs in question.
6. Potentially fraudulent transactions

6.1. There have been 8 BACS transfers to s40 personal bank account in the
period April to July 2010, amounting to £11,000. These are unexplained and represent
potentially fraudulent transactions which required further investigation.
6.2. With the assistance of Barclays, SE are undertaking a review to identify any other
payments to the personal bank account.
6.3. Note: On 2 September 2010, the UKFC Accounting Officer advised the SE Chief
Executive and Chairman that the suspected fraud should be reported to the police
without delay.(On 3 September the SE Chief Executive confirmed that this had been
done.)
7. Current bank balances

7.1. The unaudited bank balances at 31 August 2010 (per Barclays bank fax received 1/9/10)
are:
Screen East Lottery Nil
Screen East Lottery BPA 140,267
ERDF core Nil
ERDF BPA 3,001,110
ERDF Transition Nil
Screen East BPA 923,036
Screen East/ Digital Nil
SE Legacy Fund BPA 11,303
Screen East Nil
ERDF Transition BPA 1,185
SE Legacy Fund (0.61)
Total 4,076,902
8. Best assessment of the net funding position of

Screen East
8.1. Unaudited delegated funds at 27 July 2010 (creditor balances) calculated by the Head of
Business from the delegated balances at 31 March 2010 as audited by SE external
auditors:
AHL Limited
SEPTEMBER 2010
UK Film Council
SCREEN EAST
Lottery 344,240
DFAF 240,000
GIA 82,000
ERDF – core 3,000,000
ERDF interest 2,296
CIF legacy 22,420
RtR 135,000
EEDA 500,000
Total 4,325,956
Note: In solvency terms the above balances are not recognised as debts of the company
until repayment of the balance is demanded by the creditor
Summary of financial position based on unaudited figures produced by SE
Bank balances 4,076,904
Designated funds (4,325,956)
Debtors (estimate) 150,000
Creditors (estimate - including Inl Rev) (101,000)
Shortfall (200,052)
Note: There is potentially information missing from the above, for example, any further
outstanding claims, any costs not yet claimed?
AHL Limited
SEPTEMBER 2010
UK Film Council
SCREEN EAST
9. Appendix A: Key dates

Our discussions with the SE Chief Executive and Head of Business highlighted the following key
dates which should be noted:
1 June 2010 – SE draft audited accounts for the year ended 31 March 2010 submitted to UKFC
by LEES Accountants Limited
9 June 2010 – Chief Executive questions Finance Manager on the cash position of SE. The
Finance Manager replied saying ‘he didn’t know’. This was a verbal communication.
17 June 2010 – Due to loss of confidence in the Finance Manager, SE Chair and Chief Executive
met with the external auditors to go through the accounts. This was an unusual approach and
was not part of the normal accounts closure process.
18 June 2010 (estimate, exact date not known) – Chief Executive produced a ‘financial review
paper’ which was shared with the Chair, Finance Manager and auditors. Submitted to the Audit
Committee.
July (estimate, exact date not known) – SE Board and Chief Executive decided that they could
not approve the accounts due to the contingent liability and its potential impact on the solvency of
SE.
22 July – Insolvency practitioner invited to SE Board meeting to advise Directors on the solvency
position. The Board were advised they were not trading whilst insolvent as payment of the
potential liability and not been demanded and therefore it remained contingent.
July 2010 – auditors consulted on the financial position of SE. Extensive financial analysis
undertaken by the Head of Business (a qualified accountant)
26 July – ‘consolidated’ cash position produced by the Finance Manager with assistance from
the external auditors.
27 July – SE balance sheet restated by the Head of Business in monitoring the solvency
position.
16 August – Screen east request at a meeting with EEDA a loan of £110,000 which EEDA
rejected.
26 August – UKFC verbally informed of potential irregularities.
27 August – Moore Stephens LLP, as UKFC internal auditors, instructed to visit SE and report
against a set remit.
30 August – SE Chair and Chief Executive wrote to UKFC Accounting Officer advising of
financial irregularities’ improper use of lottery funding and the financial position of SE.
1 September – Internal auditors visit SE to meet the Chief Executive and Head of Business.
2 September – Internal auditors report to UKFC.
2 September – SE Board meeting.
AHL Limited
SEPTEMBER 2010
UK Film Council
SCREEN EAST
10. Appendix B: Audit Definitions

General Disclaimer
The content of this report is confidential and not for distribution to anyone other than the UK Film Council.
Disclosure to third parties cannot be made without the written consent of Moore Stephens LLP.
Freedom of Information Disclaimer
In the event that pursuant to a request which the UK Film Council has received under the Freedom of Information
Act 2000, it is required to disclose any information contained in this report, it will notify Moore Stephens LLP
promptly and consult with Moore Stephens LLP prior to disclosing such report. The UK Film Council agrees to
pay due regard to any representations which Moore Stephens LLP may make in connection with such disclosure
and the UK Film Council shall apply any relevant exemptions which may exist under the Act to such report. If,
following consultation with Moore Stephens LLP, the UK Film Council discloses this report or any part thereof, it
shall ensure that any disclaimer which Moore Stephens LLP has included or may subsequently wish to include in
the information is reproduced in full in any copies disclosed.
AHL Limited

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s40

Subject: RE: Screen East

Private Secretary to Jonathan Stephens

DCMS legal advisers

DCMS legal advisers

From: FOLEY, Samantha

Subject: RE: SCREEN EAST

DCMS legal advisers

From: s40 @Culture.gsi.gov.uk]

Private Secretary to Jonathan Stephens

Good evening all,

Please find attached a letter from Jonathan written yesterday.

To: Ed Vaizey 3 September 2010

Suspected financial mismanagement and fraud at Screen East

2. Immediate – but for information only.

SCREEN EAST – INTERIM REPORT

Confidential – Commercial in confidence

150 Aldersgate Street, London EC1A 4AB P

2. Headline findings ............................................................................................. 3

UKFC assurance processes...................................................................... 7

4. Movement of lottery funds to other Screen East bank accounts ...................... 8

5. Fictitious Lottery transactions........................................................................... 8

6. Potentially fraudulent transactions ................................................................... 9

7. Current bank balances ..................................................................................... 9

8. Best assessment of the net funding position of Screen East ........................... 9

9. Appendix A: Key dates................................................................................... 11

10. Appendix B: Audit Definitions......................................................................... 12

Moore Stephens LLP Internal Audit Report | Commercial in confidence | 01d 2 | 12

 Identification of any potentially fraudulent transactions whether for personal gain of

 Identification of bank balances at current date;

1.3. Limitations of scope

2.4. Banking arrangements and cash flow management

2.8. Current deficit

2.14. Management controls

2.18. Financial systems

2.21. Other relevant factors

UKFC assurance processes

 Appointment of an experienced Board with a diverse skill set;

 Establishment of an independent Audit Committee with responsibility for oversight

 The Chief Executive is the designated Accountable Officer;

 The Accountable Officer is required to submit an annual statement of assurance to

 UKFC has implemented a rolling programme of internal audit reviews of RSA

 Management assurances - The relationship with the RSAs is underpinned by a

3. Screen East Lottery and GIA income and payments

 We were able to trace UKFC funding into SE’s bank accounts.

 In terms of payments out of the bank accounts, it is difficult to attribute specific

4. Movement of lottery funds to other Screen East

5. Fictitious Lottery transactions

6. Potentially fraudulent transactions

7. Current bank balances

8. Best assessment of the net funding position of

Summary of financial position based on unaudited figures produced by SE

Bank balances 4,076,904

Designated funds (4,325,956)

Debtors (estimate) 150,000

Creditors (estimate - including Inl Rev) (101,000)

9. Appendix A: Key dates

10. Appendix B: Audit Definitions

Freedom of Information Disclaimer

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