Financial management 101

19/03/2008 - 22:00

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The impending mutualisation of GESB, the Government Employees Superannuation Board, has allowed me to dig into a few areas that I haven’t touched before.

Financial management 101

The impending mutualisation of GESB, the Government Employees Superannuation Board, has allowed me to dig into a few areas that I haven’t touched before.

While only scratching at the surface, it’s interesting to see how far we’ve come in 20 years.

GESB was a government plaything in the WA Inc era, and a couple of its legacy funds played an important role in the nonsense of that time.

While some members of the Gold State Super scheme, which was closed off to new members a while ago, are concerned about how the funds may be divided up (see page 3), there is no doubt in my mind that GESB ought to be restructured.

There is simply no reason in this day and age for public servants’ superannuation to be treated differently, in terms of laws and access, to that of the rest of us.

In days gone by, superannuation was an attractive option offered by government to attract and keep staff.

These days, the special schemes developed for the public sector seem to be outperformed by private funds.

And no wonder, when you look at the past.

Superannuation funds inherited a number of the state’s dud investments back in the WA Inc era.

There was also a period there when the government failed to fund its liabilities.

The WA Inc Royal Commission examined much of this.

As recently as 2000, MLC Nick Griffiths raised issues with superannuation, accusing the then Liberal state government of “cooking the books” when it moved to have the superannuation board take on the $500 million unfunded liability of one of the biggest funds.

I found this upper house exchange between Mr Griffiths and the Liberal government’s Peter Foss rather illuminating.

Mr Griffiths: “We are dealing with Western Australia in 2000 and it is being incompetently and improperly governed.

The government requires the GESB to borrow the liability of the government.

Mr Foss: “Do you know what Brian Burke did with the money we put in?” As the government seeks to move itself permanently out of the superannuation game, I have to say that is a positive thing for the state.

Great big piles of assets are just too much of a risk when it comes to governments that always have worthy projects to fund.

But they do need to be completely transparent in the way they go about it.

No-one is suggesting any impropriety has occurred or is planned, but when there’s hundreds of millions of dollars being played with there is a risk that someone will believe they can make better use of the money.

When you have billions, a few hundred million can easily disappear – one of the great mysteries of accounting.

Speaking of poor financial management, I got my second chance in less than a month to revisit one of my old stomping grounds, tax-based wine investments.

I haven’t been to court for eons, but last week’s handing down of a judgement in the district court grabbed my attention.

Two names I knew well from a decade ago, Dean Scook and Carol Hardie, had been charged with offences relating to about $1 million that was paid by a company they had set up to promote and manage vineyard investments.

They were both acquitted on Friday, though Mr Scook is serving a sentence on another matter and was not freed by his win.

Given the finding of not guilty, you’d think there’s not much I could say about this pair; but reading the judgement told a different story.

They may have been acquitted of stealing, as Ms Hardie was, and aiding her, as Mr Scook was, but the pair and their cohorts certainly would not have won any plaudits for their financial management skills.

Southern Wine Corporation Ltd was the company behind the Preston Vale Vineyard project at Donnybrook, which, from recollection, was the most expensive vineyard-only tax-driven scheme, on a per hectare basis, ever conjured up.

Preston Vale was raising $41.4 million for a vineyard project that would have been worth about $14.1 million after five years, according to land valuations contained in the project’s own prospectus, which were based on “state-of-the-art” development costs.

While I am aware there were some expensive decisions made in relation to that particular vineyard, at $156,754/ha over three years, when other vineyard schemes were seeking as little as $65,000/ha, the promoters were in line for huge profit, driven by the greed of investors focused on avoiding taxes.

Knowing that in the background makes the judgement such good reading.

A consultant who appeared on the scene for barely a few months managed to touch up Southern Wine for $1 million, largely due to the timing of his claim, which threatened the whole scheme and, I expect, the additional millions that were to be made.

Instead, the $1 million was paid up, in a fashion that would surprise most of us.

Barely any records appear to have been created to show what the money was for.

It simply walked out the door.

Such cases give you a hitherto unseen view inside a corporate structure – and make you wonder how some people ever make it into business.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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