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Reported CPA governance issues

Reported CPA governance issues

June 13, 2017 4:12 PM | Print this page

There have been a number of media reports on various alleged governance issues at the CPA this week which may, according to the AFR lead to an ASIC investigation into CPA accounts and potentially to the de-registration of the organisation in NSW. According to AFR and ABC reports, if the organisation were to be deregistered members would no longer be able to access the professional indemnity scheme.

Reportedly CPA did not comply with Corporations act s202B disclosure request and breached its own pay rules
According to AFR reports this week the CPA may have not properly complied with a Corporations Act s202B request to disclose the remuneration paid to each director of the company and its subsidiaries by providing incomplete information. Pay details of directors of all of its subsidiaries was reportedly omitted from the remuneration report supplied to members.

In addition, according to the AFR, the remuneration report shows that two directors were paid more than Article 45 of the CPA Australia constitution allows. CPA member and financial adviser Andrew North is quoted by the AFR as stating in relation to the CPA report: 'CPA have sought to change the wording of the requirements to limit disclosures. For example it [the report provided by CPA] excludes the two wholly owned offshore subsidiaries [in Malaysia and Shanghai] with directors who have received remuneration…CPA are increasingly getting caught up in cumulative reporting and regulatory issues unbecoming of the peak industry body'. The article adds that Mr North wants:

  • the CPA to reissue the disclosure with all pay details included;
  • an independent auditor to review the work of Deloitte on the pay disclosure document; and
  • for ASIC to investigate any potential breach.

According to a separate AFR report, 'The corporate regulator has been alerted to potential breaches in the accounts of CPA Australia and its financial advice subsidiary and is making preliminary inquiries about whether to launch an investigation'.
At the time of writing, ASIC has not announced that any investigation is underway.

Late lodgement of accounts with ASIC reportedly due to misunderstanding of reporting requirements
The AFR reports that 'rebel' CPA members have raised concerns over the late lodgement of accounts 'almost three months after Deloitte signed off on them'. The CPA is quoted in the report as stating in relation to this: 'We were under the mistaken belief that Form 70 (Australian financial services licensee profit and loss statement and balance sheet) and Form 71 (Audit Report) – both of which were lodged on time – met ASIC's reporting requirements. We subsequently clarified with ASIC that the Form 388 (copy of financial statements and reports) was also required and promptly lodged the Form 388 with ASIC'.
A separate report in the AFR notes: 'CPA Australia has admitted…that an incorrect reference to its own pay rules was made in the audited accounts for CPA Australia Advice and that the late lodgement of the accounts was due to a misunderstanding about the reporting requirements'.

Independent directors reportedly resign over failure of board to agree to independent review
The AFR reports that the only independent directors on the CPA board Richard Alston and Kerry Ryan have resigned from the CPA Australia board out of 'frustration with the rest of the board' who have refused to allow a wide ranging review of CEO Mr Malley and the organisation.
In separate resignation letters, delivered at the same time, the AFR reports that they both 'complained that their fellow directors hadn't acted on their advice that an independent review was needed to respond to criticism of CPA members and experts'. The report adds that the resignations follow the resignation of president, Tyrone Carlin who stepped down last week.

The report states that both Mr Alston and Ms Kerry had 'urged the board' on several occasions to commission an 'independent and comprehensive review of CPA's operations and governance, CPA Australia Advice, and historical allegations of misconduct against Mr Malley when he was an accounting lecturer at Macquarie University' but the board had declined to initiative the review on the basis that it might make negative findings about Mr Malley and the organisation and that it would be 'better to wait' and let public criticism subside.

The report adds that Mr Malley has maintained for months, and as recently as last week that complaints about his leadership are limited to a tiny group of disgruntled members and that he is doing a good job (generated a surplus of $60m over the past six years) and growing membership in Australia and overseas. The AFR states that Mr Malley's assessment of his performance was 'undercut' by the decision of former Commonwealth Bank of Australia chief executive David Murray (a Fellow of the CPA and a member of the organisation for 40 years) to resign from the organisation because of the way the body is run. The report also suggests that the resignation of two directors also indicates that the remaining board members 'remain loyal' to Mr Malley.

CPA Australia Advice (CPA Australia subsidiary): a possible 'conflict of interest'
CPA Australia's decision to open a financial planning business providing financial services through representatives, including CPA members, puts it into competition with its own members the AFR reports. This can affect the body's ability to regulate and discipline its members 'because it has a conflict of interest, according to the government's lawyers' the report adds.

In addition, the AFR and the ABC have reported issues with the financial management of CPA Australia Advice. The AFR notes that 'Note only has it already lost CPA members $12 million…and not only has it signed up just 25 CPAs as agents'.

AFR and ABC report the NSW government may deregister CPA (ending access to professional liability for members) according to AFR
The AFR reports that the NSW government is 'threatening' to deregister the CPA based on legal advice from NSW Crown Solicitor that the Minister (NSW Fair Trading Minister Matt Kean) 'should not approve a new professional standards scheme for CPA Australia when the current one expires in October…There are serious question marks around the governance of this organisation which has left them in this position.'

More specifically, AFR report highlights concerns arising from 'the conflicts of interest' between CPA Australia and CPA Advice. 'The creation of the business, CPA Australia Advice, can affect the body's ability to regulate and discipline its members because it has a conflict of interest [providing services which compete with its own members], according to the government's lawyers' the report states.

The professional scheme gives CPA Australia the responsibility to regulate the industry and discipline members. The AFR report notes that the scheme limits the liability of accountants in public practice to $2 million, $10 million or $75 million, depending on the size of their business and that accounts have said 'without that protection, many CPAs would stop operating'. Under the national laws governing professional bodies, other states automatically grant coverage to CPA Australia based on the approval of the NSW government, 'If NSW pulls that approval, the other states will have to decide if they will continue to recognise CPA Australia's authority'. An ABC report takes a similar view to the view expressed in the AFR of the potential consequences for members should the organisation be deregistered. The ABC report adds that CEO Alex Malley has accused the [NSW] Minister of 'interfering in due process' and has demanded a public apology. Mr Malley is also quoted in the ABC report as stating: 'what is extraordinary is that there have been no conversations at all in any process thus far questioning our governance'.

[Source: The AFR 5/6/2017 The AFR 08/06/2017; The AFR 8/6/2011; The AFR 9/6/2017; ABC 16/05/2017; ABC 09/06/2017]

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