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Unanswered questions at JAA AGM

The JAA’s annual general meeting took place on 15 November in Sydney and, apart from electing a new board, one of the other tasks was to present the financial statements for the year ending 30 June.

What is unknown is which set of accounts the board presented to members – version one, version two, or if there was a third version of the year end accounts.

Jeweller sought clarification on this issue from the JAA’s newly appointed accountant Harminder (Harry) Grewal and on 14 November, only one day before the AGM he advised that he would “review this in detail and will have outcome for you by close of business today”.

However that changed when Grewal subsequently advised via email the same day he would inform the JAA if any corrections or adjustments have been made to the 30 June 2017 financials, but “I cannot provide you with any further information due to my obligation being to the members of the JAA and to keep confidential all matters in relation to the JAA.”

This means we are unsure which version of the financial statements were presented at the AGM and given that the JAA is about to begin its annual membership drive it is most important that the wider industry know the true and fair view of the JAA’s state of affairs.

Therefore, we sought clarification from JAA president Selwyn Brandt on Wednesday 22 November – one week after the AGM – and at the time of publication he had not responded.

Regardless of Brandt’s and Grewal’s lack of response, the matter has been referred to the Institute of Public Accountants’ (IPA) compliance division, which is expected to request information on a number of matters in order to determine whether the JAA’s accounts comply with Australian Accounting Standards and other regulatory issues.

Additional uncertainties

Selwyn Brandt, JAA president
Selwyn Brandt, JAA president

In further news, it has since come to light that the JAA’s 30 June 2016 accounts lodged with the Australian Charities and Not-for-profits Commission (ACNC) do not comply with ACNC requirements. The ACNC is the independent national regulator of charities and associations and its role is to “maintain, protect and enhance public trust and confidence in the sector through increased accountability and transparency”.

The saga over the 2017 financial statements began following the 18 October release to members, which Jeweller reported had a number of errors. The most glaring inconsistency was the listing of five different trading results (losses), a fact the board subsequently acknowledged and which led to the withdrawal of the accounts from its website.

While the ‘auditor’ was blamed for the "typographical errors", it does seem unusual that the six-person board also approved the accounts without anyone noticing the various blunders, and Brandt and buying group director George Proszkowiec subsequently signed-off on them.

Additionally, while the financial statements referred to an independent review report being completed, no such report formed part of the accounts. According to ACNC rules, medium and large charities must submit financial reports that have either been ‘reviewed’ or ‘audited’ and the reviewer’s or auditor’s report must be submitted, along with the financial report, to the government regulator.

On 31 October a second set of accounts was produced, rectifying the obvious errors and containing an independent review report signed by the aforementioned Grewal, a member of the IPA.

However, the second report and Grewal’s ‘approval’ only served to muddy the waters further, as he initially stated: “A review is substantially less in scope than an audit conducted in accordance with Australian auditing standards …”; before later seeming to contradict himself, “In conducting our audit, I have complied with the independence requirements of the professional accounting bodies.”

This was not the only error in the second set of financial statements and Jeweller raised further questions with Grewal about possible errors in the cash flow information, most notably concerning some line items that did not reconcile to the balance sheet.

Another source of confusion was the fact that the accounts provided a zero balance for impairment (bad debt provision). This seemed unusual given that the JAA’s trade receivables (debtors) had doubled in the past 12 months from $39,225 in FY16 to $84,788.

Finally, it was also brought to Grewal’s attention that, while the FY16 financial statements contained an impairment figure, the current accounts had none. The IPA’s compliance division is reviewing these matters.

The battle ahead

This latest public relations disaster could not have come at a worse time for the embattled association, as next month it starts invoicing current members for 2018 fees. And given that the JAA membership fell 20 per cent last year, it can ill afford to lose more members.

The JAA went from positive equity to negative equity within 12 months after total revenue fell by 30 per cent and it lost $131,000. That loss could be far worse if ultimately, the JAA has to write-off $50,000–$60,000 in bad debts.

Current members have a right to a full explanation about the JAA’s financial status before they re-join in 2018. They also have right to be assured that the JAA’s losses will not continue and they have a right to know where their membership fees will be spent next year.

"We need to know if we are just throwing good membership money after bad.”

For example, the current accounts show that $150,000 or 52 cents in every membership dollar went towards the JAA’s ‘Key Management Personnel Compensation’ – presumably former executive director Amanda Hunter.

At the same time, the JAA’s revenue dived by 30 per cent in a 12 month period from $612,352 in FY16 to $429,802 FY17 while its staff and administration costs were increasing.

This means that $327,301 or 75 per cent of its total income for the year  – which includes membership fees, sponsorship, commissions and other income – went straight into the hands of staff.

Such a management structure is unsustainable.

As one prominent member told me, “We need to know if we are just throwing good membership money after bad.”

This issue does not only affect JAA members, it also impacts non-members. The JAA traditionally begins its new member (and lapsed member) marketing campaign in December for the coming year, therefore the wider industry has a right to know the exact financial situation of the JAA, now and forecast.

The lack of transparency coupled with its own series of self-inflicted embarrassments means current members and potential new members can be excused for having serious questions about the JAA’s financial position.

Given the latest round of embarrassing errors, it’s time for the board to call in an independent auditor to complete a comprehensive review in accordance with all accounting standards to reassure the industry that its financial controls can be improved.

I am sure that each board member is aware of their legal responsibilities as a director of a public company seeking funding from the public (jewellery retailers and suppliers) especially now that many issues have been brought to their attention.

If the JAA hopes to claw back its reputation to where it can, once again, rightly be described as the peak industry body then it must organise and support an independent investigation. 

If it chooses not to do that then the board will only have itself to blame if more members quit the association next year. And given that membership is at an all time low, and the industry remains divided over many of the JAA’s ill-fated decisions made in the past 18 months, the sooner an auditor is called in the better.

It must be done before the Christmas break so as not to affect membership renewals. The JAA board has everything to gain by being open and transperent and everything to lose if it doesn't.


More reading:
New JAA financial statements raise more questions
Jewellers association financial statements raise questions
Jewellers association needs a Brexit
It’s time for Brandt and JAA to move on

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