Image for Forestry Tasmania’s cover-up

Sue Neales was on the right track with her story titled $22m in forest funds sit idle (HERE)

The story regarding unspent funds received by Forestry Tasmania as part of the Tasmanian Community Forest Agreement TCFA was immediately rebutted by FT’s Hans Drielsma (HERE) who denied any hoarding of funds saying a prudent plan was in place to spend the remaining $22 million, a figure from internal FT spreadsheets obtained under RTI and referred to by Sue Neales.

But the truth is much worse, if one chooses to believe Mike Blake, the Auditor General. The TCFA future commitments far exceed the available cash on hand. There is an eerie resemblance between FT’s use of TCFA funds to operate and Mr Aird’s use of the SPA account to fund current Government programs.

Let’s start at the beginning.

The TCFA was signed in May 2005 between the State and Federal Governments to supplement the provisions of the existing Regional Forest Agreement RFA.

Under the TCFA the Commonwealth agreed to contribute $131.2 million of funding for specific activities including the establishment of new hardwood plantations and research and development activities. The State agreed to contribute $90 million.

Not all funds were to be handed to FT. The Feds felt it necessary to draw a line in the sand and administer some of the money themselves, $42 million for the hardwood timber industry (68 grants given), support for country sawmillers ($4 million, 23 grants) and support for the softwood industry ($10 million, 17 grants).

The funds to be received by Forestry Tasmania were for the establishment of an additional 16,000 hectares of hardwood plantations ($96 million), thinning and pruning existing plantations ($19 million), support for special species and various other research related tasks such as alternatives to clearfelling.

FT has now received all funds as per the TCFA agreement, a total of $145 million. This is the amount recorded in the financials. RTI information suggest only $140 million was received.

TCFA funds were channelled through a Trust A/c run by Finance-General for the first year, thereafter by DPAC. The account is now closed. In total $173.7 million passed through the account, most of it going to FT. The balance ended up back with the State presumably for roads ($20 million was to be spent by the State) and $13 million to cover implementation expenses.

From an accounting viewpoint when TCFA funds are received by FT they are recorded as ‘revenue in advance’ and not recognised as income until the expenses have been incurred in relation to the specific projects for which funds have been received. Any remaining funds are held in revenue in advance until expenditures have been incurred. (Note the word ‘incurred’).

Also included in ‘revenue in advance’ were amounts spent on capital (excluding plantations) as yet unamortised. As plant is amortised so too is ‘revenue in advance’ reduced. Hence ‘revenue in advance’ included unamortised capital amounts or more correctly, deferred income amounts, as well as unspent amounts (mainly earmarked for plantations).

Mike Blake, the AG, wrote a bit in his 2009 Report about TCFA funds. He determined there was an unamortised amount of $11 million (funds spent on Newood and roads etc, but yet to be written off) which reduced the TCFA ‘revenue in advance’ from $51 million to a figure of $40 million as the unspent TCFA funds at 30th June 2009. But there was only $37 million in the bank so AG logically concluded that FT had used $3 million of TCFA funds to meet day to day operating costs.

AG further commented “cash from operations remained tight with investing activities having been funded primarily through short term funding from the TCFA funds”. This has been AG’s theme over the past few years, drawing attention to FT’s excessive reliance on TCFA funds to survive.

To recap, at 30th June 2009 there was $40 million in unspent TCFA funds.

The next year 2009/10 saw another $22 million received in TCFA funds. Revenue in advance rose to $60 million of which $52 million was TCFA funds. There was a change in the treatment of deferred income amounts in 2010 so it appears as if the $52 million revenue in advance for TCFA funds could well be the total of unspent TCFA funds at 30th June 2010. With $40 million at the beginning of 2010 plus new funds of $22 million less funds spent on new plantations of $8 million less a little on operating expenses equals about $52 million at the end of the year.

It’s difficult to completely reconcile the TCFA funds since 2005. FT’s cash flow statements reveal $145 million as being received. Only $82.5 million has been included as revenue to date, there’s $52 million still in ‘revenue in advance’ and there’s approx $10 million (guess) spent on capital items but as yet not recognised as income. That adds up to about $145 million so it seems roughly right.

In 2010 AG introduced the concept of ‘acquittal’ by saying:

• “TCFA funding is acquitted by Forestry at a rate of $6,000 per hectare of plantation established. However only $3,500 is recognised as ‘earned’ within Forestry’s financial statements upon cultivation, with $2,500 remaining as Unearned revenue until pruning and fertilisation costs have been incurred”. (note the word incurred)

• “As such despite the large balance of unearned revenue, $59,966m, only part of this balance, $15,000m, is yet to be acquitted”.

‘Acquittal’ is not a common accounting term. It doesn’t mean ‘spent’ or ‘incurred’. It seems funds can be ‘acquitted’ but ‘unspent’. Only $15 million in TCFA funds were yet to be acquitted but the unspent amount could well be $52 million.

Mr Green the Responsible Minister used the term ‘acquittal’ when answering a question from Mr Booth at the recent Government Business Scrutiny hearings.

Mr BOOTH - I would like to return to operating cashflows in the future. You talked about maybe having to bring in various different income flows but what will you do about the revenue in advance that has been used to fund operational matters? I am referring to the $60 million I think that is still outstanding through the Community Forest Agreement.

Mr GREEN- That has been looked through in great detail and the final position with respect to the acquittal is around $15 million….

Mr BOOTH - So there is only $15 million of the CFA that is still outstanding?

Mr GREEN- Yes.

It is clear Mr Booth was asking about unspent cash. Mr Green inferred there was only $15 million unspent. Considering the unspent cash was possibly $52 million Mr Green was a little economical with the truth.

There was a time when misleading Parliament required a Minister to correct the record with a subsequent explanation. Maybe that convention no longer applies.

AG in his 2010 Report went on to say:

“In summary, the closing cash position for 2009-10 of $29.546m included TCFA funding yet to be acquitted, $15.000m ... (and)......... Note 27 ‘Expenditure commitments’ within Forestry’s financial statements recognises Forestry’s intent to invest $42.559m in plantation establishment”.

Note 27 of the 2010 financials confirm FT has committed to spend over $42 million in plantation establishment. So there might be about $10 million in non capital amounts yet to be spent for a total of $52 million.

Again FT has been caught dipping into TCFA funds to help stay afloat.

Finding cash is becoming increasingly hard for FT. The 2010 year saw FT sell all its motor vehicles for $5 million on a sale and leaseback basis. A short term cash fix maybe, but the benefits will vanish over time as the lease repayments are made from cash flow.

Now that the glory days of cash from TCFA have finished, too many more years of negative operating cash flows will lead to insolvency. A few solid positive years are required to ‘pay back’ TCFA funds used for day to day operations. As AG said in his 2010 report “It is not sustainable for Forestry to generate negative cash from its operating activities”. AG writes in a deadpan matter-of-fact style which doesn’t always allow readers to pick up nuances, so when he makes an unequivocal statement like that, it’s a pretty damning criticism. At Scrutiny hearings this year FT was unable to provide any meaningful details of a revival plan.

Must still be a work in progress?

The Commonwealth Auditor General has written a detailed report on the administration of TCFA funds for which the Commonwealth was directly responsible, the grants to industry participants, mainly to acquire new plant and equipment. Numerous shortcomings with the process were found. Some recipients are already out of business. It won’t be recorded in history as a prudent use of public funds.

To date FT’s performance in administering TCFA funds has yet to be fully scrutinised. FT has certainly been slower than anticipated. Dr Drielsma blames lack of land availability for FT’s tardiness. But FT has had 5 years to plan the establishment of 16,000 hectares. That’s not a big task for an organisation of 500.

It is difficult to escape the possibility that FT has structured the use of TCFA funds to ensure its own survival, a situation that must give the Feds a little unease as the State lines up for another handout. This gives credence to the view that the recent Statement of Principles is more a precondition for joining the begging queue in Canberra than a result of deeply held principles or sincere beliefs in the best way forward for the forest industry.

An FT forester recently claimed on TT that ENGOs employ spin doctors and wordsmiths to hijack “the language of forestry and conservation” adding words to “our lexicon” which may not have “any scientific basis whatsoever”. I suggested FT mimics that approach with some of its accounting assertions. This current example offers prima facie evidence.

Mr Green and Dr Drielsma appear happy to peddle half-truths. Using the word ‘acquittal’ when every reasonable person will interpret it to mean ‘spent’ is a dubious practice.

Trying to cover up cash flow problems won’t prevent the truth from eventually emerging. If all is well with FT, spending some of the TCFA funds a little earlier when the entire industry was in turmoil might have helped more than the recently announced rescue/exit package for contractors.

At some stage a full review of what FT has achieved with the $145 million in TCFA funds will assist in future industry planning. To date 12,500 hectares of new plantations, a bit of pruning and thinning, a bit of Warra research doesn’t appear to be enough to induce the Feds to hand over more in a hurry.

Maybe AG’s long awaited report on the forest industry will answer a few questions.

Dr Drielsma assured us that FT has adopted a prudent approach. Perhaps, but fewer ambiguities from himself and Mr Green designed to exploit people’s inability to understand financial statements, would be more reassuring. Simply tell us in plain English what the Balance Sheet amount of TCFA ‘revenue in advance’ of $52 million represents and just what is the amount of $42.6 million in plantation expenditure noted in the financials as a future commitment.

Unspent TCFA funds perhaps?

Tasmanian Times writer John Lawrence has consistently questioned Forestry Tasmania’s financial management practices and lack of transparency. For these standout analyses: The John Lawrence analyses, HERE

• The Age: State-owned VicForests logging firm ‘non-viable’
Ben Butler
January 3, 2011

TAXPAYERS have been forced to fund a multimillion-dollar bailout of VicForests, with severe financial pressure putting the future of the government-owned company that logs state forests under a cloud.

VicForests’ operations are now being reviewed by the new Liberal-National coalition government, which says it will explore ‘‘all management options’’ for the Victorian native timber industry.

Set up by the former Labor government six years ago, VicForests bled out more than $16 million in cash over the the 2009-10 financial year.
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To cover the shortfall, VicForests needed an extra $16.6 million in the form of a low cost loan from the Victorian Treasury, according to the logging company’s latest accounts.

VicForests would not have been able to declare a profit of $3.6 million if not for a $10.8 million government grant to cover the costs of salvage logging after the Black Saturday bushfires, and made a complex change to the way it accounts for logged areas that are returned to the state.

A senior analyst with a major financial institution, who asked not to be named, said VicForests was ‘‘very much running out of cash’‘.

Armed with a critical Treasury report into VicForests - which is yet to be made public - the former Labor Party had promised to abolish the company and replace it with a new entity.

Under the ALP plan the new body would have retained a commercial focus, but in addition to logging timber it would have been responsible for allocating water and carbon rights.

Full story HERE

Meanwhile, Forestry stings beekeepers ...

Stalemate stings honey producers

BRUCE MOUNSTER   |  January 04, 2011 12.01am

GOLDEN Nectar Leatherwood Honey might be an official Tasmanian Heritage Icon, but it’s no financial pot of gold.

Its producers, Ian and Shirley Stephens at Mole Creek, said after protracted negotiations with Forestry Tasmania over access charges, there were no guarantees that Tasmania’s 10 commercial beekeepers could afford to keep sending in the bees.

Producers of the world-famous treat have been heavily dependant on Forestry Tasmania for access to forest understories, where the rare, white-flowered leatherwood trees grow.

The State Government-owned forest management company also administers the allocation of hives around the leatherwood hot spots.

In September, it suggested that beekeepers might take over the administration role if they believed they could do it cheaper.

The suggestion came after Forestry Tasmania proposed a dramatic increase in access fees from $2.20 a hive to $7, increasing the beekeepers’ contributions from about $30,000 to as much as $100,000.

It argued the extra fees would still only partially offset the administration, as well as extra road maintenance costs.

Tasmanian Beekeepers Association president Julian Wolfhagen said road maintenance costs were a furphy because beehive trucks caused negligible wear and tear.

Mr Wolfhagen said beekeepers themselves paid for maintenance of any roads that Forestry Tasmania no longer used.

The association has written twice to Forestry Tasmania demanding a breakdown of its costs, including an estimate of what it would charge, if the association took over administration.

Mr Wolfhagen said, after hearing nothing back, he had also written to resources Minister Bryan Green.

Forestry Tasmania corporate relations manager Ken Jeffreys said the company was preparing the report.

Full Mercury story HERE