SUMMARY OF KEY INFORMATION FROM THE RECENT MEMBER SESSIONS

Dear Members,

We have been asked by many members who were unable to attend the recent member information sessions to provide a summary of our presentations and the questions raised at the recent information sessions.

The information session covered 4 areas.

Club Finances

Building Project Costs

The second fraud investigation

New Processes

Sensitive information relating to our former General Manager has not been included for legal reasons.  Lisa Galbraith and I are happy to talk over these matters privately and to discuss any financial matters with members should you have any questions.

FINANCIAL UPDATE:

The financial position of the Club at 31 May 2019 is:

  1. The Club is in a sound financial position.
  2. The Club has no debt. 
  3. The Club continues to pay all bills as they fall due.
  4. Our investment portfolio currently stands at approximately $1.5m
  5. The largest liability on the balance sheet is $656,000, which comprises funds received in advance for the 10 year pre-paid subscriptions.  Financial Year 19 is the fifth year of this subscription program and it should be noted those funds are not refundable. 

Since the end of May our financial position has strengthened.

Building Costs

The charts below detail the expenditure and the sources of funding for the Building project which was delivered without taking on any debt.

Expenditure

ITEM COST (Excl. GST)
Pre-build costs $346,000
Construction contract $6,064,000
Variations $916,000
Early works electrical $103,000
Water mains upgrade $153,000
Consultants $671,000
Total $8,253,000

Sources of funds:

10 year memberships $1,000,000
Donations $2,100,000
Club investments $4,600,000
Bequest $1,000,000
Total $8,600,000

The Club only entered into contractual arrangements which it was confident it could fund. For this reason, when the building contract was signed in December 2016, the new kitchen was an option as the available funds as at 30 June 2016 were $6.8m. 

A further $2.7m was received over the following 2 financial years from donations and the bequest. 

Second Fraud Investigation Status

A second forensic audit was commissioned by our insurance company in April 2019 immediately following discovery of the alleged second fraud. This is being conducted by PwC and is expected to be finalised in the next few weeks. 

At this stage we understand that second alleged fraud amounts to approximately $350,000.

The insurance company has indicated that they will respond to the policy and the Club can expect to receive payment of this amount once the claim is finalised.

Changes to Business Processes

The Board is currently reviewing all processes and structures and making changes which include:

  • Recruitment of a new General Manager with a brief to review all aspects of the operation of the Club;
  • Staff training regarding fraud detection and reporting, conducted by PwC;
  • Establishment of a whistle blower mechanism for staff to confidentially report concerns about management practices;
  • A supplier verification process implemented in February 2019;
  • A new verification process for change of creditor bank account details;
  • A new creditor management approach implemented in February 2019, including a monthly review of top creditors paid (reviewed by Finance Committee) and monthly reviews of top creditors YTD (reviewed by Finance Committee and the Board);
  • A new credit card management policy adopted in March 2019;
  • Implementation of a new manual purchase order process with monitoring and reporting of expenditure against agreed scope of works;
  • The engagement on a short-term contract of an experienced CPA to undertake several finance related projects, which include reviewing the existing financial internal control framework and recommending changes to further strengthen controls to the Finance Committee and the Board; and
  • The removal of cash transactions from the Club.

In addition, the board is reviewing the Board Charter and Subcommittee Charters, and the Club Policy Framework to ensure that Club policies meet our needs.

Questions from the Floor

The questions from Members at the meeting covered a range of issues which have been grouped together in this response across the 4 issues covered in the meeting:  Financial, Building and House, Fraud, and New Processes

Financial

Donations – How do I check that my donation was received?

There is a comprehensive register of member donations.  If any member has a concern in relation to their donation please email Sue Blake or Lisa Galbraith requesting confirmation.

Is the Club able to pay its bills?  Will the Club be around in 2 years?

The Club is in a sound financial position.

It has no debt.

It continues to pay all bills as they fall due. 

The Club has a share portfolio of approximately $1.5m and as of 31 July 2019, cash at the bank in excess of $500,000 and the 2019/20 budget does not require any drawdown of our current reserves as operations are expected to generate sufficient cash to cover costs.

Lisa Galbraith and Sue Blake are available to discuss the detailed FY20 cashflow and budget with members should they wish.

How are expenses managed?

The General Manager is tasked with managing the Club to the budget prepared by the General Manager in consultation with the Club Managers and the Finance Committee, and approved by the Board.  It is a conservative and realistic budget and performance against budget is monitored monthly by the Finance Committee and the Board.

Please also see the General Manager’s Comments at the end of this communication about new processes as they relate to financial and other matters

Building and House questions

Why was Peter (Stratton, previous General Manager) appointed Project Manager?

Peter was appointed co-project manager with the architect from KTA.

This was a career enhancement opportunity for a long standing staff member who was keen to take on the challenge and his appointment saved the Club the expense of hiring a project manager. He completed a number of short courses in Project Management with the Australian Institute of Management.  At the time, there was every reason to believe that this was an appropriate decision.

What are the future plans for the use of the old dining-room?

The Reception area, staff offices, old kitchen and old dining-room will be repurposed when we enter our Stage 3 development at some time in the future.  This will only be undertaken after extensive consultation with members, and when funds permit, but it is not on the current Board agenda. 

The old dining room, while unattractive, has not been a Number One priority.

It is currently being used by Sketching Circle, Drawing Circle and Creative Textiles.  It is also used by Art Advisory and the Flower Roster as a workroom.

It is being safely utilised and will come to no harm while it is left in its present state. 

Will the lighting in the Club Room be improved and direct lighting of the paintings be undertaken?  The refurbishment of the Club Room has been underwhelming.

There are currently no plans to increase the lighting, but we would encourage members to contact Sue Blake or the House and Dining Room Liaison Board members – Sarndi Addison and Ileana Guizzo – with any concerns relating to decorating, housekeeping, etc.

Concerns re the stairs from level 2 to level 3:

The stairs are fully compliant with the Building Code of Australia and OH&S requirements. The rise and depth are determined by engineering requirements as they had to fit into a pre-existing space.  The new lift is available and should be used by all Members and guests who have difficulty with the stairs.

New Processes:

General Manager’s Comments

The Lyceum Club is now a sizeable business to be managed.  In Financial Year 20, the revenue target is $3.15 million, and the Club employs a staff of 19.9 FTE. 

The focus of the new General Manager’s first 6 months has been on meeting the members and understanding how the Club works, as well as getting the fundamental business processes in order: Finances & HR, working with the Board on governance matters and looking after the Clubhouse.

Key tasks have included:

  • Establishing structured reporting to the Board
  • Understanding the membership structure, refining the membership administrative processes and improving reporting to the Membership Committee.
  • Overseeing the substantial Flood rectification works after the major flood on Cup Day last year
  • Managing the completion of the Building project, driving defect rectification and checking final payments
  • Managing the impact of the unexpected Fraud discovery: the forensic audit, investigation, negotiation with insurers, and liaising with police.
  • Reviewing our employment arrangements and compliance requirements. 
  • Developing a budget model based on metrics.
  • Review of staffing requirements to ensuring closer matching of staff numbers when the Club is busy and a reduced dependence on agency staff. 
  • Implementation of new processes to measure what we do.    This, together with the new budget model will provide the framework to manage the Club, month by month.
  • Analysis of long term financial trends and the FY19 year as the first full year back in Ridgway Place to identify the goals for the FY20 budget and beyond.
  • The recent review of Financial internal controls has identified many areas where the controls can be strengthened.  We have examined tasks, responsibilities, access to Club IT systems, standardised documentation, processes, approvals, authority limits and delegations in the key functional areas of accounts receivable, sales, purchasing, accounts payable, payroll, cash/banking and reconciliations and the general ledger. 

We are now working through an implementation plan to strengthen controls through enhanced policy & procedures such as the new Credit card policy; tighter access control to our systems, improved segregation of duties – which is incredibly difficult with a small team, improved reconciliation processes, enhanced purchasing controls including standard use of purchase orders, payment on statements, creditor checks and formal verification of changes to creditor bank account details.  Clearer delegations will be developed and the use of registers to monitor such things as credit notes.

  • We have also been reviewing the fixed asset register in conjunction with the Finance Committee and have identified some issues for attention as part of the year-end financial adjustments. 
  • The General Manager has been assisting the Board to review the Board Charter & Sub Committees to improve clarity, responsibility and accountability.

Members can be very confident we are moving forward on all fronts.

Helen Moylan

President