More problems with JAA financial reports

3.5 k views | By Coleby Nicholson

The JAA’s new audit firm has called its 2018 Financial Statements into question and also identified a significant error in last year’s financial report to members.

In an audit Review Report Jeffrey Tulk, partner at Saward Dawson Chartered Accountants, identified the error, which also contained a ‘qualified opinion’, resulting in a ‘retrospective restatement’ of the 2017 Financial Statements.

Such a correction is yet more cause for embarrassment to the JAA over the state of its financial affairs, given that the FY17 accounts published to members not only reported a substantial loss (-$132,000), but also was error-ridden.

The FY17 statements contained five different trading results even though the six-member board, and its previous ‘auditor’, approved the accounting report. The glaring errors, first identified by Jeweller, led the JAA to seek further accounting advice in an attempt to rectify the FY17 accounts which were corrected.

However, in preparing the FY18 Financial Statements, provided to the Australian Charities and Not-for-profits Commission (ACNC) in December, the review report by the new JAA auditor – the third in three years – identified more errors in the FY17 accounts, this time related to people no longer working at the JAA!

Tulk’s report identified an additional $24,551 error “for provisions for annual leave held for employees that were no longer employed at the JAA”. He subsequently issued a ‘retrospective restatement’ for the FY17 accounts.

However, of more concern to JAA members is the fact that Saward Dawson’s FY18 review showing a $31,000 profit to June 2018 is ‘qualified’, in essence calling into the question the validity of the financial result.

According to Australian Accounting Standards (ASS), “A qualified opinion is issued when a specific part of the financial statements contains a material misstatement or adequate evidence cannot be obtained in a specific, material area, and the rest of the financial statements are found to present a true and fair view, in accordance with accounting standards.”

Additionally, the Australian Securities and Investments Commission’s (ASIC) website states: “A qualified audit report is a prima facie indication that the company has not met its obligations under the Act.”

At page 14 Tulk notes: “Basis for Qualified Conclusion - Jewellers Association of Australia Limited has an outstanding amount of $50,000 included in accounts receivable. The amount is over 12 months old and is in legal dispute. There is insufficient evidence provided to show the amount will be recoverable as at year end.”

It is understood that the $50,000 figure pertains to a long-standing dispute with Expertise Events which dates back to April 2016.

The chartered accountant's report calls into question the accuracy of the FY18 financial statements because the JAA knowingly records the $50,000 as a trade receivable, even though the debt has been disputed for more than 24 months and Tulk advises that the JAA board has not provided evidence that it’s recoverable.

When contacted regarding the $50,000 continuing to be recorded as an asset, Tulk advised: “You have to ask the [JAA] directors that question. I have explained why I can’t sign off on that as an unmodified opinion within that qualification."

Interestingly, as Jeweller reported last year, the board approved the FY17 accounts with a zero balance for impairment (bad debts and write-offs), despite knowing that a $50,000 debt was in legal dispute. However, the JAA has since written-off $33,473 for the past 12 months, which is an additional amount to the legal dispute.

If the $50,000, two-year old debt were written off in FY18, in accordance with AAS rules for ‘Impairment and Uncollectibility of Financial Assets’ and in accordance with the report’s Qualified Conclusion, the JAA’s 2018 trading result would have been another loss (-$19,000).

Membership down

The bad news does not stop there. Since making the ill-fated decision to launch its own jewellery trade fair more than two years ago – thereby dividing the industry – membership numbers, revenue, and membership fees have all continued to decline.

The JAA’s revenue fell by 18 per cent to $390,546 in FY18, following a 12 per cent decline in 2017, bringing the total revenue fall to 28 per cent since FY16.

Membership numbers have dropped again, with a further 15 per cent of members quitting the association last financial year. JAA membership is now at an all-time low (514), having fallen by 31 per cent in the past two years.

Consequently FY18 membership income did not cover the cost to run the JAA office. Falling by 13 per cent over the 2017 year, JAA membership fees were outweighed by the basic expenses of running its office. That is, membership income fell to $248,000 while staff, office tenancy, general admin and computer expenses amounted to more than $270,000.

Membership income has fallen by 23 per cent since 2016.

Further analysis shows that the two-year old $50,000 amount called into question by Saward Dawson, now represents 20 per cent of the JAA’s FY18 membership income or 13 per cent of its total ‘assets’.

Positive news

On a positive note, the JAA’s operating expenses were slashed by 44 per cent, from $582,858 in FY17 to $325,909 last year. The two major savings were the relocation from its stand-alone York Street, Sydney premises to serviced offices, saving $44,000, and a $140,000 reduction in staff expenses.

The latter was due to the May 2017 departure of its former executive director, Amanda Hunter, whose remuneration represented 52 cents in every JAA membership dollar. The JAA has yet to appoint a new executive director.

The JAA’s November AGM saw the re-election of two elected directors for a further two-year term. Cameron Marks continues in the same position he has held since May 2017 while Jo Tory moved to an elected director position, from the previous position of co-opted director. Selwyn Brandt stood down as JAA president on 31 December. He had been a board member for seven years and the JAA constitution forbids another term. Tory was announced as new president on 8 January.

Three other directors will continue in their roles: George Proszkowiec - buying group director, Ronnie Bauer - retail director and Karen Lindley - supplier director, which leaves one board position still vacant.

Jeweller contacted Tory for comment and at the time of publication was awaiting further clarification.