Why filing accounts are important – EPMU comes clean, but where did the $6.6M go?

A post by the Owl

Background – for all readers of the Owl know that I am 100% behind members of Unions and my bone of contention always started when Gary Parsloe and Helen Kelly asked me as a taxpayer and ratepayer to support them against the POAL.

I have written that “okay if you want my support I would find out a bit about you” I very innocently looked up MUNZ’s and NZCTU’s information on the incorporated societies website only to find it was either missing, incorrect and members where getting short-changed.

NZCTU has 30 plus affiliated unions and a number of them have just not complied with the law of the land. Once again I question the governance at the top of the NZCTU.

Now after a year the EPMU have ,under instructions from the Registrar, finally filed their full accounts from 2005 and as expected their previous “cut and paste” and “excel accounts” never showed the true story to the public.

Remember this was the same time that Andrew Little was their National Secretary, he remained the head of the union until 2011 as well as maintaining his role as Labour party president from 2009.

Observation from the Owl

One of the big debate from their “cut and paste” set of accounts was a loss on the balance sheet of $6M. We can now reveal why. Please remember a number of CA’s have also blogged on WOBH about their inability to make sense of the original accounts filed.

The NZEBA Limited issued shares of $6.6M to the EPMU then the EPMU wrote off the value of the shares.

Questions the Owl would be asking if I was a member.

  1. Had the NZEBA Limited accrued $6M of losses and then shares issued to cover the debt?
  2. Why issue 6M shares only to write off the value?
  3. How can a simple business of being a “bargaining agent” end up costing $6M?
  4. Why wasn’t the full set of accounts filed correctly with the Registrar from day one especially when the EMPU had full audited accounts in their offices?
  5. Who was running NZEBA Limited?
  6. What was the outcome of the 2005 tax audit?
  7. Why was $1.0M of software investment written off?

As always – all information is freely available in the public domain (in this case a few years late).

The Owl’s assistant also asks:

Why does a Union Subsidise side businesses whose results are hidden from members other than via the consolidated figures.

If I was a member I would want to know about each subsidiary especially ones where $6,000,000 goes. But in the EPMU caser there are four entities in the consolidated result with no separate accounting for each one.

The mixing of entity types does not work well.

In this case we have an incorporated society owning two companies and charitable trust and Journalists Prize fund (normal trust I think).

The point is that it a structure where money could be sucked out of an entity to associated parties without any accountability. This was the prime accounting failure in finance company collapses and how can anyone know it is happening here.

 


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  • coventry

    NZEBA Limited ? can’t see any company of this name listed at the companies office.

    • Guest2

      read the notes to the accounts and then compare what they originally filed – Owl has a really good point – it is all laid out there, you have to read 2005 onwards – look at contingent liabilities and entity reporting – plus from what I can read it was 4.8m shares issued then additional to 6m.

      really great to see the full picture and I agree, anyone registered as an incorporated society or charities should provide full disclosure – it is only fair – well done

      • Callum

        Original share capital was $2.2m (from 2001 accounts) then advance of $4m was also transferred to shares giving the $6m total. Given we don’t have the earlier financial statements it is hard to establish how the losses occurred.

      • Time For Accountability

        Prior share cost was $2.2m
        Then as at 31 March 2003:

        The $4.2m loan from empu to NZEBA Ltd was converted to shares at full value. Giving a total of $6,388,806. This assets was never worth that value rather it was worth nothing. We sort of knew this because each year around that time there was a $5m reduction in equity when the subsidiaries were consolidated.

        All assets and liabilities of NZEBA Ltd were transferred across to epmu at a gain to the union of $1,511,768 (refer statement of movements in equity 31 March 2003.

        The asset of $6.4m in shares was written off in the parent books as worthless on 31 March 2006 when the EPMU adopted the NZ IFRS accounting standard.

        What is still not known is when and how the loss actually occurred other than it was pre 2001. The EPMU with not appear to file audited accounts or consolidated accounts prior to that date.

      • Time For Accountability

        I Really struggle with the carrying value of $6.4 mill from at least 31 March 2003 until 31 June 2006.

        The rational stated in the IFRS notes were that prior to 31 March 2006 shares were included at cost because there as no market to determine value. It was not a question of unable to know the true value – there was none.

        This is not the cost of two sausages at Clare Curran’s recent BBQ it is nearly $6.4m – that is large by any measurement standard.

        I personally would have no faith in the audit when this sort of accounting is not qualified in the audit report.

        • Callum

          Carrying at cost is legitimate under the old standards pre IFRS, however you still had to impairment test the investment. To me it looks like a simple test in this case, what assets are held in the subsidiary to support the value? I just can’t see any difficult to value assets or any goodwill or similar in a bargaining company that would have few clients outside the union itself. Any time you have significantly lower equity on consolidation you should be asking why.

          • Time For Accountability

            Well stated

    • Time For Accountability

      New Zealand Engineering Bargaining Agents Limited 497418

      • coventry

        Thanks

  • Callum

    In theory if the members look at the consolidated accounts then they do have the full picture of the operations of the union, paying $6m between 100% owned subsidiaries has no effect at all as the transaction are eliminated on both sides.

    Personally I think the stand alone union figures are extremely misleading and as an auditor I would be very nervous about recording a related party receivable or shares in the subsiduary at cost without the assets to back up that amount. Either NZEBA or the Training & Education Fund have a significant shortfall between their assets and liabilities. This is why on consolidation there is a $5m deficit from the individual union accounts. There should have been an impairment test carried out and either the advance or shares should have been written down.

  • Time For Accountability

    I notice in the audit report the auditors give taxation and general accounting advice to the union.

    Given the EPMU looks like it incurred a large taxation bill in 2007 and showed a taxation expense for three years they recorded a loss.

    Does this mean the auditors were auditing accounts with taxation advice that was clearly incorrect?

    I would question if they had the required independence to conduct the audit.

    • Callum

      It is very common for auditors to assemble accounts from client base information and also to file tax returns. This is acceptable where the auditor is not involved in day to day transactions and simply takes a trial balance from the clients system and enters it into a standard reporting package, filing a tax return based on client information is fine but they should not be involved in any tax planning work.

      The reason for a tax bill when making losses is that only certain income and expenses are taxable for incorporated societies, this will generally be interest, investment and rental income. Memberships fees and related costs are non taxable (or deductible) on the basis that you cannot make a profit (or loss) trading with yourself and the union is owned by its members.

  • Time For Accountability

    Regarding the Share increase in NZEBA Limited – The auditors appeared to file the documents for that. HMM – again i would query their independence.

    The mistake to me is not that they increased the share capital it was that prior to that the Parent accounts that had to have been impaired and secondly they should have shown an impairment on the loan.

    Just because 4.4 mill in number of shares were issued it does not mean their value was $4.4m.

    Thus why did they not merely write off the two separate assets?

    Why go through this bizarre process of converting the loan to shares.

    It cannot understand why the loan was converted to shares except that it removed the ability of the EPMU to call for the loan to be repaid.

    Take a conspiracy theory such as the $6.4 mill loss was incurred prior to 2001 by paying fees to associated parties for less than fair value. If the EPMU called up its advance their would have been pressure on the directors of NZEBA Ltd to recover some value.

    We are all just assuming there was nothing left in NZEBA Ltd after the assets were transferred to EPMU but that is not necessarily right and that the losses were trading losses.

    It may have made advances to friendly parties such as donations to the Labour Party paid for out of the loan advance from EPMU thus resulting in negative equity.

    As it stands no one, including a member, would know because the audits and consolidated accounts only started from 31 March 2001 via comparatives in the 2002 audit. Prior to that there is one year of parent only and we have seen how dodgy they are elsewhere.

    • help

      If I wanted to know more who do I ask at EMPU please?

      • Time For Accountability

        Andrew Little it was Ian his time.

        • help

          thanks penning a letter now

  • BJ

    RE question 3. One could do quite a lot of political bargaining with $6.6M

  • GregM

    Interesting to see a certain Andrew Little owns one share in NZEBA. What’s up with that?

    • Callum

      Often done as a structuring thing, probably held on trust on behalf of the EPMU. Given the losses involved you wouldn’t really call it an asset. lol

      • GregM

        Cheers Callum. I’m having trouble getting my head around this. The shares in my global empire are worth exactly the same as the assets if I sold them. Isn’t that how it’s supposed to work?

        • Callum

          Not always, a business can be worth far more than its tangible assets. A cleaning company with good staff and long term contracts is worth more than one with the same number of vacuum cleaners but shitty staff and all it’s contracts coming up for renewal. Businesses are effectively valued on future earnings, look at the share market and you will find companies trading well above and well below net asset backing.

          • GregM

            Thanks Callum, Company 3907378 may have to up the value of its shares :-)

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