By Catherine Watson
THE announcement of Phillip Island Community and Learning Centre’s (PICAL) demise fortunately proved to be premature, but it’s worth trying to understand how this trusted institution came so close to failing.
The answer is clear to see in the annual information statements that PICAL submits to the Australian Charities and Not-For-Profits Commission.
PICAL’s Annual Information Statements show the organisation recorded a deficit for six consecutive years between 2017 and 2022.
On October 4 this year PICAL chairman Graeme Turner announced that the Committee of Management would move to wind up the organisation because of debts due to historic underpayment of staff.
THE announcement of Phillip Island Community and Learning Centre’s (PICAL) demise fortunately proved to be premature, but it’s worth trying to understand how this trusted institution came so close to failing.
The answer is clear to see in the annual information statements that PICAL submits to the Australian Charities and Not-For-Profits Commission.
PICAL’s Annual Information Statements show the organisation recorded a deficit for six consecutive years between 2017 and 2022.
On October 4 this year PICAL chairman Graeme Turner announced that the Committee of Management would move to wind up the organisation because of debts due to historic underpayment of staff.
“Estimated historic debts far exceed PICAL's financial reserves or its ability to raise the necessary funds within a reasonable timeframe, rendering PICAL technically insolvent,” Mr Turner said in a statement.
“This historic debt originated over ten years ago due to the incorrect classification of certain roles, which led to some individuals being paid on an incorrect pay scale … It is important to note that this was an administrative inaccuracy and not the result of management, misappropriation or fraudulent behaviour by anyone involved with PICAL.”
In other words, nothing to see here. That's probably not fair, given that the current manager and committee copped a lot of flak during the crisis.
And in fact there is something to see. In 2014 PICAL was in good shape with reserves of $428,695. By 2023 the reserves had been depleted to $138,554, making PICAL vulnerable to exactly the kind of financial shock that occurred.
This table spells out the decline in PICAL’s fortunes.
“This historic debt originated over ten years ago due to the incorrect classification of certain roles, which led to some individuals being paid on an incorrect pay scale … It is important to note that this was an administrative inaccuracy and not the result of management, misappropriation or fraudulent behaviour by anyone involved with PICAL.”
In other words, nothing to see here. That's probably not fair, given that the current manager and committee copped a lot of flak during the crisis.
And in fact there is something to see. In 2014 PICAL was in good shape with reserves of $428,695. By 2023 the reserves had been depleted to $138,554, making PICAL vulnerable to exactly the kind of financial shock that occurred.
This table spells out the decline in PICAL’s fortunes.
Source: PICAL’s Annual Information Statements, 2014-23
Covid and PICAL’s move to new premises do not explain what happened. The call on PICAL’s services rose sharply as it became the largest food relief outlet in the region, but so did revenue, with the State Government injecting an extra $183,595 in 2020 to help PICAL provide services. PICAL got through the first Covid year in relatively good financial shape with a deficit of just $12,249.
2021 and 2022 were the crunch years when PICAL lost a total of just under $180,000.
How did it happen? The answer lies in staffing levels.
In 2018 PICAL employed 2.62 FTE (Full Time Equivalent) staff at a cost of $171,686. In 2019 this increased to 3.62 FTE and by 2021 PICAL was employing 5.08 FTEs (1 full-time staff member, 8 part time employees and 8 casual employees) at a total cost of $352,111.
The annual statements of Bass Coast’s neighbourhood houses show that PICAL was well over staffed compared with the others and living beyond its means.
Covid and PICAL’s move to new premises do not explain what happened. The call on PICAL’s services rose sharply as it became the largest food relief outlet in the region, but so did revenue, with the State Government injecting an extra $183,595 in 2020 to help PICAL provide services. PICAL got through the first Covid year in relatively good financial shape with a deficit of just $12,249.
2021 and 2022 were the crunch years when PICAL lost a total of just under $180,000.
How did it happen? The answer lies in staffing levels.
In 2018 PICAL employed 2.62 FTE (Full Time Equivalent) staff at a cost of $171,686. In 2019 this increased to 3.62 FTE and by 2021 PICAL was employing 5.08 FTEs (1 full-time staff member, 8 part time employees and 8 casual employees) at a total cost of $352,111.
The annual statements of Bass Coast’s neighbourhood houses show that PICAL was well over staffed compared with the others and living beyond its means.
“Not for profit” doesn’t mean the finances will take care of themselves. Sure, most organisations have ebbs and flows, but it’s hard to ignore six deficits in a row.
PICAL’s 2021 financial review records a deficit of $116,364 for the year without undue alarm. “As at 31 December 2021 the current assets of the Association of $230,727 exceeded the current liabilities of $81,158 by $149,569.
PICAL’s 2021 financial review records a deficit of $116,364 for the year without undue alarm. “As at 31 December 2021 the current assets of the Association of $230,727 exceeded the current liabilities of $81,158 by $149,569.
|
“Despite the recent deficits recorded and the impact of COVID-19 (refer Note 21 below), based on the healthy current asset position of the Association, the Committee has determined that the financial report should be prepared on a going concern basis. The Committee has prepared the budget for 2022 based on the principle that the outgoing expenses do not exceed the guaranteed income for the year.”
Outgoing expenses did indeed exceed income in 2022, with a deficit of $62,857 recorded. PICAL’s 2022 financial review again shows little alarm at the dwindling reserves. It was not until 2023, under a new chairman and manager, that the slide towards insolvency was finally reversed. That year the staffing level was reduced to 1.66 FTE at a cost of $159,160, less than the 2018 figure of 2.62 FTE, and PICAL finished the year with a surplus of $10,153. |
Chairman's statement
"Some weeks ago, we shared the financial challenges that placed PICAL at risk of insolvency. At that time the exact details of the impact were yet to be confirmed, but the potential impact was estimated to be greater than PICAL’s reserves. However, following thorough independent legal advice, we have confirmed that our historic financial liabilities are lower than initially estimated.
Although past obligations remain to be addressed, we are optimistic that the reduced burden presents a viable way forward, allowing us to draw on our reserves to both manage our liabilities and preserve PICAL’s vital services." Graeme Turner, President PICAL October 31 |
Did previous PICAL committees have the necessary skills to recognise and reverse the organisation's decline?
In a small community like Bass Coast, many of us are cajoled into joining boards and committees. While we might want to help, the truth is that most of us probably don't have the right skills and experience for the job. Boards are not there to rubber-stamp management. There are times when they have to ask the hard questions and act if they don't get the right answers.
The PICAL Committee of Management had originally scheduled a Special General Meeting for November 14 to wind up PICAL. It cancelled the meeting following confirmation that liabilities were lower than initially estimated. The meeting should have gone ahead so the committee could explain to the community exactly what happened.
And what of the future? It’s good to see that PICAL will continue. It must be under the stewardship of a small professionally based board that can ensure it remains solvent and responsible.
In a small community like Bass Coast, many of us are cajoled into joining boards and committees. While we might want to help, the truth is that most of us probably don't have the right skills and experience for the job. Boards are not there to rubber-stamp management. There are times when they have to ask the hard questions and act if they don't get the right answers.
The PICAL Committee of Management had originally scheduled a Special General Meeting for November 14 to wind up PICAL. It cancelled the meeting following confirmation that liabilities were lower than initially estimated. The meeting should have gone ahead so the committee could explain to the community exactly what happened.
And what of the future? It’s good to see that PICAL will continue. It must be under the stewardship of a small professionally based board that can ensure it remains solvent and responsible.