Someone get the door...

• FY2016, Pacifica‘s third biggest loss in history: "slightly more than $2m"
• Auditors turn Pacifica’s unaudited loss of $0.8m into more than $2m 
• Auditors say IRS are coming knocking to audit the pension fund(s)
• Auditors qualify the annual accounts (bad news for both CPB application & possible restructure of FJC loan)
• PNB directors personally liable for the $0.5m plus deficit of the endowment funds account

This was the news delivered last Monday night by Pacifica’s auditors to the Audit Committee. The pension accounts proved the main stumbling block: the accounting records are so incomplete and chaotic that the auditors couldn’t quantify the liability with the required degree of confidence. The lack of verifiable accounting data have finally caught up with Pacifica, smacking it in the face with a reality check. The auditors, by their judgment, were forced to qualify the accounts because the hole in the pension accounts was material. The material knock-on is that it compromises, probably fatally, both any grant applications, especially to the CPB, and any attempt to re-structure the FJC loan, which would have put off the day when Pacifica has to cough up the principal (which seems to be $3.7m, not $3.2m, according to WBAI LSB’s motion at last Thursday’s PNB
https://kpftx.org/archives/pnb/pnb180607/pnb180607_5350_agenda.pdf). Given what the auditors told the Audit Committee it’s almost certain that the FY2017 accounts will also be qualified. But that task won’t fall to Doug Regalia and his colleagues: after a year immersed in Pacifica’s record-keeping hell, they’re out of there. Self-preservation is a great motivator – it just seems to elude the PNB. 

So from the horse’s mouth, auditor Doug Regalia:
https://kpftx.org/archives/pnb/audit/180611/audit180611a.mp3

1) The need to qualify the financial statements (especially because of the pension accounts) and the IRS coming knocking:

4:01 "We felt that because of certain circumstances – the most I think important one being the pension plans not having completed audits or tax filings for at least a couple of years on one of them, and at least one year on another – is [sic] a scope restriction that prevents us from having an unmodified (or an unqualified) opinion […]"

And the size of the hole? 5:13 "[…] it's an unknown, and how significant of an unknown is it, we, we don't know, but we believe it's a very important matter. I believe the IRS feels it's very important. Generally, if you ask an auditor, if the IRS considers something to be important, and if the IRS is pursuing an investigation in an area, and it is just beginning, that's going to give any auditor a pause, and it's going to cause them to carefully, as best as they can, understand the circumstances and then determine what impact, if any, that situation might have on the audited financial statement."

6:24 "[...] the matters involved, which in this case probably would be an IRS audit investigation, and I'm aware of, of these kinds of activities, and you're probably looking at a 13-, 14-, 15-, 16-month process, and that's being optimist I think, and then upon the conclusion of that, oh boy, you're goin' to have a lot more information probably to better assess what impacts those results have in regards to the financial statements, and then at that time you might be able to issue an unqualified (or an unmodified) opinion [...]"

46:03 "[…] that's the problem with these uncertainties, we don't know, it, it could be larger, I mean, it could be there could be some serious issues involved with the conduct of, of these pension plans, you know, you've got – I, I can't even imagine the, the issues that the IRS might raise in an audit or audits with the pension plans, and I, I think that one is starting soon, and I, I, I've been through this often – "

Eileen Rosin (chair): "You think that you believe that the IRS will audit us directly?"

Doug: "[...] What we're saying is that there are just too many unknowns [...] it's an estimate, and, and accounting rules do provide for estimates [...] and is that the right figure? Phwwwur, I, I have no idea, it could be a third of that, it could be twice that, I, honestly I don't know. But it's, it‘s in recognition of the fact that there is some unknown liability, and I think the important part here is that you're telling the reader [of the auditor's report] that we acknowledge there's an issue here, and we're just not certain [of the magnitude] [...] I think in about two years you'll have enough information to determine what the number should have been." Two years. Two years. The pension problem is not a minor detail.

In common parlance, the figure given (not stated) is a guess, not an estimate. Estimate-talk gives the illusion of precision, it’s ideological, a precision that dissolves when Doug says, "and is that the right figure? Phwwwur, I, I have no idea".

2) Pacifica posts its third biggest loss, "slightly more than $2m" (20:14). This comes as a bit of surprise because the draft income statement gave it as a loss of $803 489 (Tracy Rosenberg’s blog, 5 January 2018 
http://pacificainexile.org/archives/2531). So the Finance Office were out by a factor of 2½. As Doug would say, that’s a material difference.

Total income was down, c. 9%, $11.5m in fiscal 2015 to "10.5[m] almost" (the draft income statement had $10.6m). This was combined with rising expenses, c. 7%, $11.7m in fiscal 2015 to c. $12.5m (the draft had $11.4m, so out by c. 10%). Guess having a budget in sight can discipline the mind – maybe.

The loss of c. $2m is more than 2010’s $1.975m but less than 2009’s $2.701m and 2013’s $2.824m. But it’s more than twice the combined losses of the previous two years (2014’s $771k and 2015’s $168k). Looking forward, the draft income statement had the 2017 loss as $218k, so we’ll see. If it’s out by x2½ it’ll be $500k, but will anyone be surprised if it’s $1m?

3)  Doug was met with silence when he explained (48:27) that if Pacifica were to expire then the directors would, as of 30 September 2016, be personally liable for $639 212. This is because the permanently restricted endowment account has nominal assets of $1 116 055 but Pacifica only holds assets of $476 843 for that account; the difference is the deficit. When did this arise? The 2008 statements give no quantitative info; the 2009 statements are not on Pacifica’s website; and the 2010/2011 double report notes a deficit as of 30 September 2011 (p.17) but gives no further details, not even its size. The next year’s statements show that this figure was $800 598. So it seems the deficit may have arisen during 2011, so it’s a fixture (pardon the pun). And anyway, Pacifica would never be broken up, would it?

4) Auditor's note regarding going concern status: "that's an issue, that's been an issue for a couple of years now" (9:38). Doug didn’t say what opinion was given in the auditor’s report, so I think we can assume it wasn’t negative – but we’ll see.

5) Conclusions:

a) the 2017 audit will almost certainly also have a qualifying opinion because the pension liability will remain unquantifiable. With two years’ statements being qualified it is highly likely that a CPB grant application would fail;

b) likewise, the same fate for any loan application permitting the restructuring of the FJC loan, which currently requires the principal, which seems to be $3.7m (WBAI LSB), to be paid c. 31 March 2021; 

c) although it seems Pacifica is trying to hire a book-keeping firm, there is no evidence that the repeated annual loses will end any time soon; so . . .

d) with annual income stagnating, if not falling (c. $11.5m 2013 thru 2015, c. $10.5m 2016), and any programming battles yet to start, reinforced by organisational inertia and political myopia, all of this means that there’s only one place where cash can come from: Pacifica’s members will have to vote to agree to a WBAI signal swap so that at least $5m, if not $7m, will be available to pay FJC and fund the recurring annual deficits through to 2025 or whenever.   —Jara Handala 

Here again is the open session Audit Meeting. on Someone get the door...

And here are snippets from the same meeting collected by Indigo.