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Brien Holden Institute "missing" $1 million questioned

31/10/2018By Matthew Woodley
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The Brien Holden Vision Institute (BHVI) could find itself offside with the charities watchdog over a $1 million staff bonus that it failed to record in its annual reports.

Australian accounting standards state that a liability must be reported when “the money outflow is probable” and can be “measured reliably” which would seem to suggest that, by not accounting for the bonus as a liability in 2013, BHVI’s financial position has been overstated for five years.

Despite this, BHVI’s lawyers have attempted to defend the omission, claiming it did not need to be recorded until more concrete terms were agreed with the recipient.

The latest developments plunge BHVI deeper into a growing scandal centred on its handling of the bonus payment to the long serving employee.

The controversy may have played a part in the subsequent resignation of the charity’s then-chairman and director Professor Brian Leyland whose explanation of the seemingly lax process in awarding the bonus was later contradicted by BHVI’s CEO Ms Yvette Waddell.

The $1 million payment first came to light earlier this year when a letter, signed by ‘concerned staff’, was sent to Layland and then-CEO Professor Kovin Naidoo, questioning the appropriateness of a “substantial bonus” and requesting an investigation.

It was also subsequently sent to various media outlets, including Insight and the Sydney Morning Herald, which prompted further enquiries.

Insight’s investigation discovered that Leyland’s explanations around the bonus process also contradicted contemporaneous board resolutions in 2013 and 2017.

While the board resolutions disproved some of Layland’s claims – including whether the bonus had been resubmitted to the board in 2017 prior to it being awarded – they also exposed fresh governance problems for the charity, particularly around its obligation to record the significant bonus as a liability.

Board resolutions

A February 2013 resolution supplied by BHVI confirmed the board had initially decided to award the employee a $1 million bonus in the form of a house owned by the charity. However, the house was never transferred to the staff member and, in the ensuing four-and-half-years, its value increased to around $2.5 million, creating a dilemma for the board.

A July 2017 resolution, also supplied by BHVI, showed the bonus had again received board approval after the employee “elected” to receive a cash payment in lieu of the house, rather than paying $1.5 million to BHVI to compensate for the increased house value.

However, while these resolutions somewhat supported BHVI’s defence of its governance processes, they also raised at least one further concern when an Insight review of BHVI’s financial statements uncovered that the bonus had not been accounted for in any of the its annual reports, thereby overstating the charity’s financial position for five years.

BHVI later confirmed the $1 million liability had not been recorded; despite the fact such an omission would appear to be in contravention of standard accounting practices.

Legal advice retroactively sought by BHVI following Insight’s enquiries attempted to dispute this understanding.

“It seems to me the 13 February 2013 decision could be characterised as a proposal that would not be binding until actual terms had been agreed with the senior scientist. This in part could depend on what and when it was communicated to the senior scientist,” BHVI’s legal counsel said.

“A resolution that the senior scientist be paid a bonus of a value of $1 million inclusive of all tax, tentatively with payment being by way of transfer of the property he was living in, at a time yet to be determined should not create a liability until there agreement as to terms to pay (or transfer) and when.

“It seems to me that the better view is that it was a tentative proposal until it was communicated to the senior scientist and actual terms agreed with the senior scientist, which appears to have been 2017. It was not required to be included in the 2013 statutory accounts.”

However, such advice could be called into question. While the Chartered Accountants Australia and New Zealand (CA) is unable to provide comment on individual cases, a representative pointed to the Framework for the Preparation and Presentation of Financial Statements as set out by the Federal Government’s Australian Accounting Standards Board.

The relevant accounting standard would appear to contradict the retrospective reasoning provided by BHVI’s legal counsel.

“A liability is recognised in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably,” the standard states.

In this instance, the probable outflow of resources – initially the house and subsequently the cash payment – and its amount could be “measured reliably”, as the board resolutions unequivocally listed the value of the bonus at $1 million.

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In plain English, it means the $1 million bonus should have been recorded as a liability as soon as the board, irrespective of any subsequent events that may have complicated the issue, approved it.

ACNC concerns

The liability would then remain ‘on the books’ until paid and, as such, not recording the liability could land BHVI in trouble with the Australian Charities and Not-for-profits Commission (ACNC).

A spokesperson for the national charity regulator said it was unable to comment on a specific charity’s circumstances, however they did indicate it would take “firm action” if serious breaches were found.

“The ACNC has a range of compliance powers, including formal warnings; directions; enforceable undertakings; injunctions; suspension or removal of responsible persons – commonly referred to as board or committee members; and revocation of charity status,” the spokesperson said.

“Revocation of charity status is the ACNC’s most severe enforcement power and strips an organisation of its entitlement to access Commonwealth charity tax concessions. In addition to the formal compliance powers, the ACNC has the power to apply administrative penalties to a charity if it makes false or misleading statements.”

Multinational professional services firm PricewaterhouseCoopers (PwC) has audited BHVI’s annual reports since at least 2013. PwC partner Mr James McElvogue audited the accounts from at least 2013 until 2016, but declined to comment when approached by Insight for an explanation as to why the liability hadn’t been recorded.

Should it be determined that a serious breach has been made, it could have potential ramifications for several of BHVI’s long-term board members.

New chair Mr Frank Back, Associate Professor Charles McMonnies, Mr Anthony-Chapman Davies and Dr Gullapalli ‘Nag’ Rao were all board members when the 2013 resolution was passed and they authorised each of BHVI’s subsequent annual reports.

Current CEO Ms Yvette Waddell has also been a board member since 2015 and approved two reports that overstated BHVI’s financial position.

If it’s proved that BHVI did not comply with the rules as regulated by the government’s Australian Accounting Standards Board, the fallout from such a mistake calls into question the board members responsible for guaranteeing the accuracy of the accounts.

It has already resulted in the resignation of their chairman, while former CEO Professor Kovin Naidoo’s reluctance to answer questions concerning whether it was related to his own sudden resignation in July, due to legal advice, would also indicate it is at least somewhat responsible for his departure as well – albeit it in different circumstances.

Brian Layland resigned
Brian Layland resigned
Sandra Bailey, new BVHI director
Sandra Bailey, new BVHI director
Yvette Waddell, BHVI CEO
Yvette Waddell, BHVI CEO

Any subsequent investigation might also reveal concerns about FBT and/or issues to do with the employee living in the house rent-free for four-and-half-years.

While the final payment to the employee deducted a weekly rent for the entire period, the July 2017 resolution suddenly more than doubled the rent – from $473 per week to $1,100 per week – with the board citing a “recent market evaluation”.

Layland’s resignation takes effect 31 October while Mr Frank Back has been elected the new chairman. Back, along with Mr Anthony Chapman-Davies and Mr Charles McMonnies, has been a director since 1998.

Whether the current board suffers any further casualties from the controversy remains to be seen.

Ms Sandra Bailey, who holds a board position on the Brien Holden Foundation, will be formally appointed to the BHVI board at an extraordinary general meeting on October 31 and will assume Layland’s functions and powers as alternate director.

 

Editor’s note: Insight in no way implies that the recipient of the bonus acted inappropriately in the lead up to, and upon receiving the payment. Issues highlighted in the story refer to governance, rather than the merits of whether the bonus, or its size, were justified.

More reading

Million-dollar bonus, governance concerns at Brien Holden

BHVI chairman wrong about million-dollar bonus, more governance concerns emerge

Brien Holden Institute chairman resigns

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