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Failure of the IRP Final Report - No accountability or responsibility

Posted: Mon Dec 11, 2017 3:55 am
by Brett Stevenson
Dear members, and others interested,

Just five things. First one is long, the others are very short.

1. Approach of the Independent Review Panel is concerning - no accountability.
I have just commenced a detailed response to the Independent Review Panels Final Report into CPA Australia. It will be in three parts (Remuneration, CPAA Advice, and Governance), and I have started on the Remuneration part.

Quite frankly I am shocked as I dig a little bit. So this is just to give you a very brief taster as to why I think this Final Report’s failure is that it has lost sight of the whole issue of accountability. Predominantly the board and senior management but really it goes much deeper than that.
I have written in more detail about this below.
The three part detailed response will be emailed out as I complete over December and January.

2. Concern re AHRI and two of the new directors esp. the Chairman.
I’ll also just alert you another concerning matter in relation to the major conflict of interest for the new Chairman (Peter Wilson) and new director (Jon Scrivens) re AHRI, and by default it shines a troubling light on the whole selection process for the new board from the Representative Council to the Nominations and Remuneration Committee through to the board. I
t looks like we are being taken for a ride.
But I shall let the Spillers Group provide you with the details.

3. Special resolutions update.
I have the drafts of the special resolutions to obtain the 100 signatures so they can be raised at the AGM on 22nd May 2018 in Melbourne. I have yet to complete the explanatory memorandum to accompany them but shall do over the next few weeks.
I anticipate that they will be sent out, perhaps along with the detailed responses to the IRP Final Report, over the months of January and February.
We will need to have them signed and delivered to CPA by middle of March at the latest. If members have any suggestions on other resolutions that we could raise please let me know asap.

4. A great letter from Andrew North is attached at the end.
On the core issues (and written on 19th November, before the IRP Final Report) provides a great summary of some of the key issues that still are of concern.
It illustrates that we really need to remain vigilant. We all would like to give the new board a chance to turn things around but lets not be naive.
The interim CEO Adam Awty, the COO Jeff Hughes and many of the management at CPA Australia who have been there for most of the last decade are still there. Surely we cannot attribute silence and tolerating some of the things that have been exposed to just Alex Malley. Crikey we have a very strong ethical code which obligates us as CPA’s in a way than any other profession.

The no accountability approach of the IRP is concerning.

Let me just highlight one issue in relation to remuneration and the IRP Final Report as a motivator for you to read it a little more closely, and to see why I believe the approach of the Independent Review Panel is troubling.
The background
You will all recall that we forced the CPA leadership to provide full disclosure of directors remuneration for the 2016 year by issuing them with a s.202B request.
You will also recall that prior to this we had shared concerns about the level of remuneration to all the leadership at CPA Australia, and they resisted quite aggressively (their memo’s of 2nd March and 16th March 2017 especially) any further disclosure as there was nothing to hide (‘no secrets’) and that they were compliant with the law.
Well, we now know that they did have plenty to hide by not fully disclosing. I shan’t repeat the sorry tale of that disclosure which we all are aware of now.
The IRP’s approach
But I did want to draw your attention to the way they disclosed this, the ‘mistakes’ of the leadership at CPA Australia, the ‘mistakes’ of the auditor (Mark Stretton from Deloittes), and surprisingly the almost cavalier way the IRP has shifted the blame for these ‘mistakes’ from the persons responsible to CPA Australia in general.
It says something about the approach of the IRP’s reluctance to hold anyone accountable for what has gone on at CPA Australia. And possibly most concerning is the way they have shifted the blame to ‘CPA Australia’ in general rather than the auditor and specific CPA staff (e.g the CFO Adam Awty and deputy CFO Nicholas Diss) and the board for poor oversight.
You have a look and see what you think.
Imagine you were writing this section of the report and ask how you would express it given you have been asked to provide an independent review.

CPA Australia provided full disclosure of the directors remuneration on 31st May 2017 in response to our s.202B. It was fully audited.
Trouble is that it was wrong.
Members complained.
Finally CPA Australia admitted they had ‘got it wrong’ and issued an addendum or addition to the initial wrong one to correct it on 30th June 2017. It is certainly not easy to get a clear picture of the full remuneration of directors because of the way they worded the corrected one’. It was also audited by Mark Stretton and given the tick of approval.

Putting aside whether even the second one is still correct (and Andrew North contends that it isn’t and I believe him rather than CPA going on recent history) it is worth considering two matters. I have attached a summary schedule which hopefully makes it easier to understand.

a. the size of the mistake

$1,282,588 (23% of the total kmp remuneration, or 34% of the directors remuneration requiring to be disclosed). That is a pretty significant mistake wouldn’t you say. 
Remember this is a hot issue and subject to considerable heated discussions at the time (as it is now), and they are being forced to fully disclose. So you would think they (both CPA Australia and the auditor) would give it close attention to get it right.
But no, they got it wrong by 34%.

Crikey, that takes some believing. Can you imagine BHP providing in response to a query from ASIC or the ASX to make sure their executive remuneration was correct, dishing up an audited schedule which was incorrect by 34%, and saying whoops, we got it wrong?
I think that would redefine gullibility.

Well that is what CPA Australia and the auditor have said.

b. the response and approach of the IRP to this matter.

i. p.57 Final Report.
“While the two disclosures, read together, satisfy the requirements of section 202B, the failure to include overseas subsidiaries in the initial disclosure does not reflect well on CPA Australia given its leadership role in the accounting profession.”
No mention is made of anyone specifically responsible be it the CFO and deputy CFO, or the CEO’s oversight or the boards oversight.
No, they are all specifically excluded and the general blame and responsibility is laid on the doorstep of the broad CPA Australia organisation.

Note also that no blame is apportioned to the Auditor who apparently was ‘looked to’ by CPA Australia (again no-one specifically) for external advice.(see p. 57 of final report).
It is just very strange wording and an odd approach, and unfortunately I believe it typifies the IRP’s approach all the way through this report, that there is no-one specifically (be it a person, or group of persons such as the board or the management, or the CFO’s or the accounting staff) mentioned as accountable.

It is a general CPA Australia that is at fault if ‘anyone’ at all.
I shan’t go on.
You have read of page 57 of the final report to see if I am being misleading.
How is it possible that we have a COO/CFO (Adam Awty) on a remuneration of $950,000 in 2016, and a debut CFO (Nicholas Diss) on $320,000, and board members on a minimum of $95,000 each (some much more), a general counsel on who knows how much, and other managers on between $250,000 and $600,000, yet they still were not sure how to complete the s.202B statement. In other words was full disclosure of remuneration such a rarity to them that they needed to ask the auditor from Deloitte who seemingly could not get it right himself.

Gee, I think a very bright light needs to be shone on CPA Head Office. Crikey we journeymen/women (not too are what the gender neutral term is) members provided them with the advice free of charge on that one and they still messed it up.
And I think it is fair too say all we did was look at the Corporations Act, and then applied a little bit of brain power.

After reading the CPA efforts and the IRP Final Report on the s.202B statement, one would think we were talking about rocket science.
In reality all we wanted was just a full disclosure of remuneration.

ii. Have a look at the chart of directors remuneration done by the IRP on pages 45 and 46 of the Preliminary Report, and again in the final report on pages 48 and 49.
Apart from some glaring mistakes by the IRP such that have rounded down the CEO’s salary from $1,786,331 to $1.77m rather than the normal approach adopted with the others to $1.79m, just look at the way their are no obvious ways to see the totals (as in the chart provided so you can quickly see the relationship to the annual report and the mistakes).

In the final report they made it even softer by reducing the remuneration amounts to parts of a million rather than the actual dollar value.
So, for example the directors fees paid from CPA Australia Advice board were shown as $0.38m not $380,000. It may seem unusually pedantic but we are not a listed company, and you just have a look at the way they express their very high remunerations. Usually always in specific dollars.

Not a big deal but its these little subtle touches that concern me.
For example it does not specify the missed amount of $1,182,588, which is 34% of the incorrect amount. Have a look at in the Final Report which deals specifically with this issue raised by members.
Why would they not do a schedule to explain what the difference was such as I have attached to quickly summarise what the issue was. I suggest members should read the second s.202B statement by CPA Australia issued on 30th June, and it is not that easy to get the big picture.

I don’t want to make a mountain out of a molehill here but I believe this is a cameo of the approach of the IRP on many of the issues where specific accountability and responsibility could be laid but they seem to defer and present in such a way that it is avoided.
Remember remuneration is THE issue upon which all the members submissions to the IRP were unanimous in regarding as scandalous.

iii. In the end the IRP recommends changes but seemingly no-one at fault because responsibility and accountability are just avoided beyond a general CPA Australia.

iv. I would just encourage members to read the Final Report with this question in their minds:
  • why did the IRP express this item this way?, or
    why didn’t they do this? or
    why haven’t they specified the persons responsible? or
    why have they seemed so accepting of CPA Head Office representations and excuses while not so of any of the critics who raised these matters?
There are lots of questions you can ask but to my mind they all come back to
why have the IRP taken this approach?

And the answer that keeps coming into my head is troubling, hence why I use the terminology of a ‘professional whitewash’.
Surely accountability and taking responsibility are so fundamental to corporate governance that it seems silly to even state it.
Yet somehow in this whole final report I believe they have been avoided.

A great letter from Andrew North
It is attached in pdf format

Schedule of Remuneration for 2016 (KMP and other directors)
It is attached in pdf format.
If anyone would like the excel format let me know and I will shoot it through.

Well I trust you find this helpful



Re: Failure of the IRP Final Report - No accountability or responsibility

Posted: Wed Dec 13, 2017 12:35 am
by JWheldon
Why the CPA Australia report made me quit accounting body

Opinion article in AFR 12 Dec 2017
by Stephen Taylor

It is some time now since I noted via these pages just how easily problems can arise in getting effective governance and appropriate levels of transparency in large member organisations.

I especially noted the concerns with CPA Australia's governance practices and its seemingly excessive director and management remuneration.

Since then, the CEO Alex Malley has been terminated, the board has resigned, and an independent review conducted. While much of the review's contents were reflected in an earlier preliminary report, some of the governance and decision-making highlighted in the final version can only be described as utterly appalling and a massive condemnation of those involved.

Three issues stand out in this respect.

First, the obscene termination payout to the Naked CEO. The review panel concludes this was an indisputable legal entitlement, but more importantly, at page 56 of the report, we now have an explanation – of sorts – about how such a legal obligation arose.
Big extensions

The report states that, having been told in early 2015 by its external advisers that an existing two-year termination payment obligation was seriously out of line with commercial expectations, the CPA board did absolutely nothing.

Well, it did nothing for at least a year or so. But then it did do something. It actually voted to increase the obligation to three years!

Amazingly – or perhaps not – the review panel could apparently find nothing in the board papers from that meeting to justify this decision.

It is hard for me to believe that a decision labelled "commercially out of line", and evidently lacking any properly documented rationale, can be viewed as anything other than appalling.

It personifies both greed and poor governance. The directors present at that decision and who supported it should, in my view, publicly apologise to the members of CPA Australia for such an utter governance failure.
The dodgy marketing

Second, chapter seven of the final report highlights the lack of any clear value proposition in some of the most contentious marketing decisions – especially those that arguably marketed the CEO more than the CPA brand.

Am I alone in being amazed that the review panel should have to point out that marketing expenditure (especially the most significant items therein) should be "designed to differentiate CPAA and made with 'proper oversight and caution' "?

What sort of board would fail to apply such caution and proper oversight? Only a board whose members should be ashamed of themselves.

Third, we have the CPA Advice saga. The details contained in chapter nine indicate a business case (if you can call it that) which proved hopelessly optimistic in terms of the number of CPAs who would take up the authorised representative status.

Again, I ask – how can a board be so ineffective as to not provide a more rigorous dissection of what has proven to be nonsense? Even the review panel recommends a comprehensive post-implementation evaluation of CPA Australia Advice!

But where does all this leave members? The chief executive and board responsible for this disgrace are gone – but with not a hint of regret or apology to be found. I simply can't find any accountability.

I'm currently a member of CPA Australia and Chartered Accountants ANZ. But after reading the review panel report, I think I'll put my money to better use in 2018 and ignore the CPA membership renewal notice. How else can I hold the organisation accountable?

I doubt I will be alone in that decision.

Stephen Taylor is professor of financial accounting at the UTS Business School. ... 211-h02wsl

Re: Failure of the IRP Final Report - No accountability or responsibility

Posted: Wed Dec 13, 2017 11:00 pm
by theallseeingeye
Resignation from CPA Australia will not drive a shred of accountability, nor precipitate the changes that are still desperately necessary to prevent it all happening again. That is quite evident from the new Chairman's response, where he is already blaming a vocal minority of rebels seeking to "destabilise" CPA Australia. Sound familiar?

And even if 10% of the membership resigned, which would be very clear message, he has every incentive to simply blame the previous leadership,take a firmer grip on his new paycheque, and say "let's all forget that and move forward, shall we? "...

In order to re-orient CPA Australia towards a genuinely member-centric service organisation, it is going to require some very clear motions put to the AGM, or worse, the "Killing Bambi" option discussed elsewhere. I have no confidence in the Board now that we have seen the true colours of the new Chair.

Re: Failure of the IRP Final Report - No accountability or responsibility

Posted: Fri Dec 15, 2017 1:58 pm
by The Cranky CPA
There may be more dissatisfaction out there among the CPA membership than anyone is aware of. I have been busy with preparing my CAANZ membership application and have spoken to several CPA and FCPA members in the process. Although members may have not publicly spoken out it seems privately a lot of public practitioners are very unhappy with CPAA. The apathy seems to come from a fear of retribution from CPAA if they speak out publicly. Further there is a lack of credible alternative, CAANZ, may not have the same governance problems as CPAA, but they are also found to be concentrating on the Corporate sector members at the expense of Public Practice members. NTAA and IPA are still relatively small and have no easy transition paths like CAANZ offers. Also the cost factor in changing your Public Practice registration (change of stationery, websites, signage etc.) holds practitioners back.

However after the white wash that is the IRP Final Report, there seems to be great disappointment and many contemplate a move away from CPA towards CAANZ in the coming year. I personally think quite a few members will make up their mind mid 2018 and the decline in membership will not come this year but in the December 2018 renewal,s if no significant changes take place within CPAA.

Re: Failure of the IRP Final Report - No accountability or responsibility

Posted: Fri Dec 15, 2017 3:35 pm
by cpasteve
I spoke to the IPA this week, they are offering a similar pathway across from CPA as the ICAA is and waiving the new member fee etc..

I'll be staying with CPA for another year and probably switching to ICAA or IPA before my next renewal is due.

Re: Failure of the IRP Final Report - No accountability or responsibility

Posted: Sun Dec 17, 2017 6:15 pm
by jendalitz
I agree with The Cranky CPA and theallseeingeye - accountability will only come from members holding the past and present leadership to account. I've renewed for a further 12 months - and am also now a member of CAANZ - and will see what unfolds in 2018 as to future plans. I encourage other members to consider renewing where possible to support Brett and others with AGM resolutions.

Re: Failure of the IRP Final Report - No accountability or responsibility

Posted: Wed Dec 20, 2017 4:03 pm
by The Cranky CPA
CPASteve is correct. IPA offers a very easy transfer path from CPA to IPA. They wave the application fee and even reduce their membership fee if you hold more than one membership of an accounting body (e.g. also CPA or CA) No references needed just proof of your CPA membership. Certainly worth looking into if you are considering leaving CPA Australia.

Re: Failure of the IRP Final Report - No accountability or responsibility

Posted: Wed Dec 27, 2017 1:12 pm
by geoffrt0019
Did anyone really think anything would change with the review... As for Humphrey said never have an enquiry where you don't know the answer. The facts are the new board had Dickson involved in the selection and old board members are on the new board when the report was tabled do they were never going to pursue corporation law breaches against the the old board....also Peter Wilson has a history of being slippery.... I will give my membership renewal money to work vision... A far more worthy recipient

Re: Failure of the IRP Final Report - No accountability or responsibility

Posted: Wed Dec 27, 2017 1:31 pm
by geoffrt0019
Did anyone really think anything would change with the review... As for Humphrey said never have an enquiry where you don't know the answer. The facts are the new board had Dickson involved in the selection and old board members are on the new board when the report was tabled do they were never going to pursue corporation law breaches against the the old board....also Peter Wilson has a history of being slippery.... I will give my membership renewal money to worlet vision... A far more worthy recipient