Below is a letter I sent recently. The purpose of the letter is explained in the first two paragraphs.
In addition to sending the letter to the address below (the address for service of notices on the ACNC Register), I also (1) told email@example.com that I had sent an email to the board, and (2) sent the letter to the Chairman, Greg Zwajgenberg via Facebook Messenger (we are not Friends).
Apart from an automated response email from the address below, I did not receive a reply.
By email to firstname.lastname@example.org
30 August 2019
My name is Ted Sherwood. I review ‘Christian’ (and other) charities for the charity Business by the Book as an aid to stakeholder decision-making. After giving the charity the opportunity to suggest corrections and to add their comments, I publish the review on tedsherwood.com.
Recent articles in The Canberra Times (including this one) and RiotACT show that there is considerable interest in the governance and finance of BCC within the BCC community (and, presumably, by some of the prospective parents and teachers, and no doubt with some of your suppliers and funders). I have therefore had a look at the public documents of and about your charity and compiled a list of questions, the answers to which I think that many of these stakeholders (present and potential) will be interested.
- You put forward the fact that you are audited regularly to support your claim that parents need not be concerned about the college’s finances. What is the relevance of an opinion on your financial statements (not your finances) for a period that finished over eight months ago , for your current and projected cash flow?
- The auditor declares in the 2018 accounts that he did not contravene ‘any applicable code of professional conduct in relation to the audit’. Why, then, is
- the compulsory Emphasis of Matter paragraph omitted from the audit report?
- an audit of special purpose financial statements (see below) performed when the grounds for such statements clearly do not exist?
- there no mention in the statements, of the negative, and declining, working capital position?
- The auditor was new in 2018. Did you check the quality of his work before you engaged him? (He is responsible for the questionable audit here.)
- BCC has had at least three different auditors since 2014. Why is this?
- A change of auditor is something that requires ASIC involvement (for good reason), so is a significant event. What was the reason for each of these changes?
- Is there to be another change of auditor for the 2019 accounts?
- It appears from your 2018 accounts that you paid the auditor less than $5K for the audit.
- Is this correct?
- If not, how much did you pay and where is it in the accounts?
Short-term liabilities much greater than short-term assets (i.e. strongly negative working capital)
- Your working capital is heavily negative. Not only this, but it declined further in 2018. Strongly connected with this is the progressive decline in ‘days cash on hand’, ‘months of spending’, ‘free cash flow’, and ‘interest coverage’. Why did you think that it wasn’t necessary to comment on this in the 2018 accounts?
- In the 2017 accounts, you thought, quite rightly, that a note on the going concern assumption was, because of the negative working capital position, required. You acknowledged the threat to BCC’s ability to pay its debts as and when they fell due. The position declined in 2018 – from only 52 cents of short-term assets for every dollar of short-term liabilities to 36 cents – so why have you not included a similar Note in the 2018 accounts?
- Why is working capital negative and, at least until the 2018 accounts, declining?
- Why have the indicators ‘days cash on hand’, ‘months of spending’, ‘free cash flow’, and ‘interest coverage’ all declined progressively over the last three years?
- What is the current working capital position?
- What is the current cash flow situation?
“The College finished 2018 strongly given our being in the middle of a $20+ million building program” [your Annual Report 2018, page 8).
- Why would a building program, financed by government grants and borrowings, have any effect on the operating surplus?
- Are you partly financing your building program from operating revenue?
- How can finishing the year with another decline in working capital, to an even worse negative position, be fairly described as a ‘strong finish’?
Type of financial statements
- The charities regulator, the ACNC, only allows BCC to produce special purpose financial statements if they are not a reporting entity. In 2015 the board signed a declaration – hopefully after a discussion by the directors – that BCC was a reporting entity. This meant that general purpose financial statements were produced. Why then did the board, with three out of the four directors in 2015 still on the board, declare, for the same organisation, but now with more users, that BCC was not a reporting entity?
- With 184 employees and 291 volunteers (May 2019), many suppliers, and a sometimes-volatile BCC community, how did you conclude that there were no users, past or prospective, who were dependent on general purpose financial statements for information?
- The implication of your choice of special purpose financial statements is that all your users can ring the BCC office and command the preparation of financial statements to suit their needs. Is this true?
- By producing special purpose financial statements, you have avoided the legal requirement to include in your accounts, among other things, (1) entities that you control, and (2) related party information.
- Does BCC control any other entities?
- Is there information about related parties that you would prefer not to disclose?
- You say that you disclose in your accounts everything that you have to.
- For secular minimums I use these guides. What guides you in your decisions about what to disclose?
- Why do you think that secular minimums are enough for a Christ-led charity?
- In the 2014 accounts you included, consistent with the ACNC’s preference, a Note about related parties. Why have you not done this in the 2018 accounts, that is, disclosed transactions with related parties, receivables from and payable to related parties, and loans to/from related parties?
- Do you have a conflict of interest policy?
- If not, why not?
- If you do have one, are you willing to make it public?
- ‘Furniture, fixtures and fittings’ have gone from $1.43 million in the 2017 accounts to zero in the 2018 accounts.
- Why didn’t you explain this change?
- What happened to these assets?
- Where in the 2018 accounts are the leased assets (Note 1.(c))?
- Where in the 2018 accounts is the capital expenditure that has yet to be reimbursed?
- Why have you not explained, in the 2018 accounts, the decline to zero (from $42K) for the regularly appearing (and typical) item ‘Deposits’?
- Where have they gone?
- In the 2017 accounts you included a ‘Movements in Carrying Amounts’ (of Property, Plant and Equipment’). Why did you omit this information in the 2018 accounts?
Liabilities, commitments and contingencies
- What are the details of your borrowings at year end? Now?
- What contingent liabilities did you have at year end? Now?
- What capital commitments did you have at year end? Now?
- What lease commitments did you have at year end? Now?
- ‘Lease liabilities’ have gone from zero in the 2017 accounts to $552K in the 2018 accounts. Why have you not explained this?
- What are these lease liabilities?
- Why have you not disclosed, in the 2018 accounts, what has been leased?
- What are the assets/items?
- In the 2018 accounts, why have you not explained why the regularly appearing item ‘Income in advance’ has declined from $142K in the 2017 accounts to zero?
- What is the reason?
- Why is ‘Repayment of borrowings’ zero in the 2018 accounts when $605K of ‘Secured bank loans’ were due in 2018?
- Why have you not explained, in the 2018 accounts, why the regularly appearing (and typical) item ‘Trade payables’ declined from $211K to zero?
- Why no ‘trade payables’?
- In the 2014 accounts (and possibly those for 2015 – you have not made them available) you disclosed capital commitments. Why have you not disclosed these in the 2018 accounts?
- In the 2017 accounts you included the details (interest rate, due date) of your $5.18 million borrowings. Why have you not made the same disclosure in the 2018 accounts for the borrowings (which are now $10.67 million)?
- In the 2016 accounts you included a Note on ‘Contingencies’. Why did you have no information about contingent liabilities in the 2018 accounts?
- In the 2014 accounts you disclosed lease commitments. Why have you not disclosed these in the 2018 accounts?
- ‘Capital levies’ were zero in the 2017 accounts, then $931K in the 2018 accounts.
- Why didn’t you explain this change?
- BCC has an online request for donations, but BCC has no licence to fundraise in any of the states that have a licensing regime applicable to charities. Why?
- The ATO requires BCC to maintain a gift fund for its two DGR funds, Brindabella Christian Education Limited Building Fund and Brindabella Christian Education Limited Library. Why are neither of these funds mentioned in the 2018 accounts?
- Why are no donations disclosed in the 2018 accounts?
- In the 2018 accounts you have introduced a new expense ‘Early Learning Centre’, $2.42 million. Why have you not explained this change?
- What the expenses that are included in this item?
- Why have you used a mixed classification for expenses?
- Why have you not explained, in the 2018 accounts, the change in accounting for ‘Student activities’?
- Two figures in the 2017 column for ‘Other Expenses’ (Note 3) in the 2018 accounts are materially different from those in 2017 accounts. Why have you not explained this change?
- What is the explanation for the change?
- The expense ‘Insurance’ declined dramatically from $414K in the 2017 accounts to $117K in the 2018 accounts. Why have you not explained this change?
- What is the reason for this big reduction?
- What is the composition of ‘total remuneration paid to key management personnel’?
- Where are workers’ compensation payouts included?
- How much was paid in 2018?
- In the 2018 accounts you have not identified, by position, the composition of the $458K ‘total remuneration paid to key management personnel’. You used to do it, so why stop?
- Clause 10 of your constitution provides that ‘a person who signs and returns to the Secretary a form approved by the Board’, and who is then ‘admitted to membership by a two-thirds majority of the Board’ is a member. Why have you consistently rebuffed attempts by parents to become members?
- Does the required form exist?
- If not, why not?
- If so, are you willing to make it public?
- In the 2014 accounts you disclosed the number of members. Why have you not disclosed in this in any of your public accounts since, including in the 2018 accounts?
- How many members does the company have?
- Your constitution provides for the election of directors from the membership [clause 33]. The Canberra Times reports, and you do not deny, that you closely control who becomes a director. Why do you do this?
- Since 2014 there have been at least three directors, in a board of five, who have not stayed on the board for longer than about 18 months. This suggests something systematically wrong, especially when it is the same directors who continue each time. What is the cause?
- You recently lost another director due to him not being happy with the decisions being made (or not made).
- Do you intend to replace him?
- If so, when?
- And with whom?
- You have said that ‘the board recruited based on skill set when required’. How then can you justify, for a large K-12 school, not having recruited at least one educator in the last few years?
I intend to publish on or after 10 September 2019.
In His love
- Alyn Doig (also a director of Life Unlimited Church Limited, the church that owns the property on which the Charnwood campus of BCC sits)David WhittemGregory Zwajgenberg (sic)Wendy ChesworthUntil recently Michael Kilham was also a director. ↑
- The Canberra Times 24 August 2019. ↑
- There’s a technical definition of ‘reporting entity’ (see aasb.gov.au), but here’s the ACNC’s interpretation for the layperson: ↑
- Annual Information Statement 2018, ACNC Register. ↑
- From the Conceptual Framework, aasb.gov.au: ↑
- The Canberra Times 24 August 2019. ↑
- The 2018 Directors’ Report reveals that ‘significant capital expenditure is planned over the coming years to further develop the school’s facilities’ ↑
- The Canberra Times, Saturday August 24 2019 ↑