Welsh Government backed Cylch over plastics plant

And, the charity – which supports the Third Sector in Wales and supports projects directly – has highlighted how the Welsh Government backed its spending on two schemes which were eventually to lose the charity large sums of money.

The comments come in notes to Cylch’s accounts for 2011/2012 which have recently been submitted to the Charities Commission. They highlight how the very survival of the charity was at stake because of the money lost on a plastics project and a training service.

The accounts show that as of 31 March 2012, it had a deficit of £870,412. The auditors, Watts Gregory LLP of Cardiff, noted that the charity had net liabilities on unrestricted funds of £870,412 having spent £583,394 of restricted funds which it should have been holding in cash.

Investigation

Cylch was the subject of a Welsh Government internal audit investigation into government and management practices from December 2012 to January 2013. It has now emerged that the Welsh Government should already have had a good knowledge of Cylch’s activities during the period which was investigated having attended board meetings.

Cylch, in its trustees report for the year ending March 2012, written in April 2013, noted that: “Cylch Board meetings are attended by representatives of its stakeholder partners. The Welsh Government, The Environment Agency in Wales and the Welsh Local Government Association (via Waste Awareness Wales) each have a co-opted seat on the Board and a standing agenda item to report to. Their contributions have been crucial over the years.
R. Owens is given by Cylch as the Welsh Government official attending the meetings.

Cylch said that its successes during 2011/2012 were overshadowed by the difficulties faced by two major enterprise investments that our stakeholder partners had deemed a good extension towards creating a closed loop economy.

While the Welsh Government is continuing to keep secret the findings of its investigation, it is thought that it has given Cylch a clean bill of health apart from requiring it to improve its organisational activities.

The notes to the Cylch accounts state that the Trustees are of the opinion that no action will be taken against Cylch. Since the year end the charity have continued to receive core funding from the Welsh Government, although no formal agreement is currently in place.

Cylch acting chief executive Richard Thomas told letsrecycle.com: The government review has been completed and we have been given a number of recommendations that we are in the process of looking at. These are essentially to update the procedural systems that we have had in place as an organisation. As it is an internal government report we are unable to share the findings, but it found that there was no deliberate wrongdoing but that there were weaknesses that needed to be addressed and that is what we are doing at the moment.

However, a Welsh Government spokesperson declined to elaborate on the findings claiming it was still reviewing them. She said: “We are currently reviewing the findings of the internal audit investigation into governance and management practices at Cylch and will have a fuller statement once we have considered the report in more detail.”

Financial

The difficulties facing Cylch were mainly financial and the charity had to write off more than 2 million in 2011/12.

The largest loss of 1.28 million relates to the failed Plastics Sorting Ltd bottle recycling project (see below for more details). And a second project, on training and recruitment, also cost the charity money.

In its latest accounts, which were submitted three months late to the Charity Commission, it is revealed that a recruitment and training business set up by Cylch Cylch Quality Learning Ltd got into a serious financial state.

The accounts note that in February 2012 it was learnt that Cylch Quality Learning was in a serious financial state. It was no longer financially viable. This was caused by a misunderstanding about the nature of some of the contract funding. The accounts note that the company was put into voluntary administration and we do not expect to recover any of the investment made in that venture. The accounts also note that Mal Williams (chief executive) was a director and member under disclosures for this company.

A third sum was written off under the heading element of loan written off totalling 425,213 to the Cleanstream Group Community Interest Company which had common directors with Cylch. Cleanstream was set up to contain scarce expertise to be deployed strategically to assist members in growing or collaborating.

Leader

Cylch has lead the way in promoting the Third Sectors involvement in Wales in the recycling sector and under chief executive Mal Williams had also championed the cause of kerbside recycling, being a prominent supporter of the Campaign for Real Recyclings court action over commingling.

In January 2013, when details of the Welsh Governments investigation emerged, Cylch said: In the best interests of Cylch, Mal Williams, while no longer working as CEO, remains as a trustee during a transitional phase while current reviews and formalities are concluded. These formalities are hoped to be concluded in time for the postponed AGM (date TBC), at which time Mal Williams will also step down as trustee. His knowledge and outstanding responsibilities in relation to his time as CEO remain necessary to Cylch during a time of transition.

Mr Williams signed off the trustees report in April this year and remains on the board.
Acting chief executive Richard Thomas, told letsrecycle.com this week that he believed there is now light at the end of the tunnel. We are remedying the financial situation but cannot comment in detail.

In terms of staffing, Mr Thomas said that Cylchs numbers had reduced from 18 and it was now in a transitional phase.

Plastics Sorting Ltd

The investment into Plastics Sorting Ltd was the main financial blow to Cylch. The business, which was eventually sold to an Irish-owned firm was liquidated last month (see letsrecycle.com story).

The notes to the accounts explain the history of the project and reveal that ahead of the business going into liquidation, Cylch was still hopeful of a sale.

The notes state:

“This was a strategic investment that began with an application for a capital grant to the Regional Capital Access Fund for plastics sorting equipment to assist a private sector operator to provide a sorting facility to add to his washing plant but, opportunisticaily, escalated to a joint venture with a significant social enterprise shareholding that assisted in purchasing a hotwash plant from a local plastics reprocessor, transporting it from a warehouse in Germany and installing it in a Pontllanfraith warehouse for commissioning. Afterwards operating it to produce feedstock for the aforementioned local reprocessor and other buyers.

“The plant took a long time to commission three months was the expected lead time but eventually it took over eighteen months to get the plant running properly and profitably there were many expensive technical issues and the venture expended a CIP loan and two other grant funds deemed as designated for this horizontal integration – this attempt to close the loop for recyding plastic bottles in Wales. The venture was severely damaged by changing economic circumstances. There was an unforeseeable downturn in the plastics market in October/November 2011 and, after concerted efforts to solve the problem over the Christmas of 2011 PSL Ltd was reluctantly put into administration in January 2012.

“In addition we are selling some of the equipment that was not owned by PSLtd or needed in that plant. To date there are no buyers for it.”