Subject: The intensifying Pacifica crisis; & the financials archive at pacifica.org
Dear Mr Vernile,
You arrive at a momentous time for Pacifica. The majority of the directors has chosen to reject rationality, in this case, to reject technique. It has chosen to halt the initiative that was underway to create the multi-dimensional necessary & sufficient conditions that can arrest Pacifica’s decline, thereby bringing stability, this as preparation for allowing the network to improve & grow. This initiative was designed, monitored, & managed by Executive Director Maxie Jackson.
Not surprisingly, a public discussion of Pacifica’s irrationality is underway. For example, Ken Mills, a well-known radio professional, published three posts in the space of eight days. One of these posts was visited over 3 000 times within four days. This is public news amongst radio professionals. This is not Pacifica gossip. (For your convenience, one of the posts, that even refers to you, with photo: http://acrnewsfeed.blogspot.com/2019/07/what-its-like-to-work-for-grace-aaron.html.)
When you are better acquainted with the evidence, I’m sure you’ll agree that it was a serious mistake to oust Executive Director Maxie Jackson. And, unfortunately, not least for your own tenure, the consequences are not going away any time soon.
This is the situation you have become part of, & irretrievably so. But mitigation can be made.
You are currently touring the stations, gathering information, hopefully knowledge. When you have devised your own evidence-based initiative, stated as your plan, the one to be implemented during your six-month tenure, I would very much appreciate you sending me a copy. As you know, being transparent helps make it possible for decision-makers, such as yourself, to be judged in an informed way by Pacifica members, staff, listeners, & others. It also helps generate confidence in your tenure.
The Pacifica Foundation has, bafflingly, chosen not to explain why Executive Director Maxie Jackson is no longer at his post. No-one believes he simply resigned, that he simply gave up. The air needs to be cleared. Honesty needs to be nailed to the Pacifica mission statement, in furtherance of its “educational purposes”. Confidence in your tenure, at this crucial early stage, will be raised if you are able to bring openness here. Pacifica members, staff, & listeners deserve to know the truth. I beseech you to do your best endeavours, if only for your own sake, making your job easier, earning respect through your action.
Finally, I want to raise a National Office matter. I do so with you because an email page or address for ‘National Office’ isn’t at pacifica.org, & you are the principal administrator of the Foundation.
I’m glad that, at last, the financials webpages of pacifica.org are being improved. However, there are a number of deficiencies, currently displayed, that may inadvertently be left there: they include the absence of auditor’s reports; & a crucial page missing from another of these reports, the auditor’s narrative. The deficiencies are listed in a post at PacificaWatch: https://pacificaradiowatch.home.blog/2019/07/18/pacifica-annual-auditor-s-reports/.
All users of these webpages will look forward to the completion of this improvement. Not an immediate priority, but a review should be made of the utility of all Pacifica websites. And wider still, an evaluation of Pacifica’s attempt to communicate using the internet. Yes, the Pacifica radio network needs an evidence-based communications strategy.
These are the auditor’s reports of the period from 1Oct2004, so from fiscal 2005 (FY2005). The run is 13 years, through FY2017.
Prefatorily, I just want to draw attention to how important it is that basic knowledge is widely accessible. Knowledge of this series is necessary for the possibility of informed, rational discussion of Pacifica, not least because the institutional memory of the organisation is largely not lodged in archives but in people’s heads, those who have been involved in Pacifica, some for many, many decades. An important effect, biasing how discussion proceeds, is that knowledge is not shared, not readily available to all, but instead it’s privileged, possessed by the few.
That’s why, for example, Grace Aaron, more often than most attendees of a meeting, will mention a policy, which no-one else may know exists, she can even call it up on the screen, & say she’s quoting from it. And she can’t be challenged, even as to whether it’s still current. Crucially, Pacifica cttees lack induction for new members, & the cttees lack a rudimentary archive, including one that’s publicly available. As another example, she can claim that problems x, y, & z started in 2012, when in fact the record shows, say, that the tardiness in the production of auditor’s reports started in Oct2009, & annual losses started in FY2007. Knowledge claims & accountability require checking against easily accessible primary sources.
The politico-epistemic condition of Pacifica is oligopolistic, of the few. So no surprise that Pacifica’s form of ruling is the oligarchy, a clique within, & outside, the Pacifica National Board. Knowledge is integral to ruling because politics is inherently about control, here control of access to something important for action. (This is one case of the general nature of control, control over the quality of relations, both between people, & between people & what’s important.) Hence the centrality, & vehement defence, of Pacifica’s secrecy culture for those trying to keep the organisation as it is. So, yes, there’s a politics of the (boring) archive. And conceptually it’s not reducible to Francis Bacon’s claim that knowledge is power.
Individual auditor’s reports: go to the above link, then click on a report; download, or read online by hovering over it, clicking the three horizontal dots, & then ‘preview’. Note that two reports are buried in their PDF: FY2006 is from p. 40; & FY2010 from p. 34. FY2010 also has an important page missing (p. 1), the whole of the auditor’s narrative.
[UPDATE: this page was found elsewhere, & that auditor’s report has been added to the folder.]
I had just started writing this paragraph in a slightly different way, but Sa3Aug I went to the financials archive at the Foundation’s website, https://pacifica.org (tab at top), & saw that the archive has been changed significantly, either that day or the day before. I was going to put here, ‘This presentation is more complete & accessible than the audit archive at Pacifica’s site, which has these deficiencies: the FY2009 auditor’s report isn’t there; the FY2010 report lacks a crucial page, the auditor’s narrative (page 1); & the FY2006 & 2010 reports are buried inside the PDF, after the 990. I have sent “National Office” the URL of this PacificaWatch webpage.’ (This topic was appended to a Su4Aug open letter to iED John Vernile on two important matters: his written plan for Pacifica, & the need for Pacifica to explain why Maxie Jackson is no longer at his post.)
The pacifica.org archive index page is obviously being re-written, but on checking the deficiencies I listed, these remain: there is a link labelled ‘FY2009 Audit’ but, unfortunately, it’s to the FY2011 report; the link labelled ‘FY2010 Audit’ leads to “Not Found”; & there’s no link for FY2006, just “Temporarily Unavailable”. I haven’t checked the other links. (The Pacifica worker doing this, perhaps Director & Audit Cttee Chair Eileen Rosin, who’d spoken in Cttee on this topic, can find it at http://pacificana.org/public/files/National/Financials/Audits/PacificaAudit2009.pdf – it’s not at the California Registry of Charitable Trusts; incidently, that records Pacifica’s registry status as “Delinquent”, albeit not giving today’s date but 16Nov2018: pump ‘Pacifica Foundation’ into http://rct.doj.ca.gov/Verification/Web/Search.aspx?facility=Y.) [UPDATE: registry status became “Current” as of Th22Aug.]
Still, I’ve sent the email to the immaterial (in the two senses, regrettably), nominal National Office; hence it had to be addressed to the principal administrator, iED Vernile. He has better things to do, but that’s how it is with an organisational structure that is exemplarily flat, lean, mean.
The FY2018 audit: iCFO Tamra Swiderski had given August as the expected finish date, but her latest report, at the Th1Aug PNB, is that “I don’t know exactly, urgh, what deadline we’re working on now for the audit, um, but I know we’re working to get something to the auditors that’s as complete as it can be, um, as soon as we can. Um, it’s pretty much all that I’m working on right now” – 10:19, https://kpftx.org/archives/pnb/pnb190801/pnb190801a.mp3. Not her finest moment. The Chair of the PNB Audit Cttee is a Pacifica director, so heard all this. Ms Eileen Rosin did ask a question – on a topic Tamra didn’t address (a handbook). So Eileen pointedly refused to ask (1) why is there no current deadline?, & (2) why was the old deadline not met? The answers are obvious. The transaction & transfer records, & the supporting documentation, are still that incomplete & chaotic. So much so that it’s impossible to rationally decide a deadline. A PacificaWorld Deadline is just words – not so much an aspiration, as it is useful as a sop to a Cttee lacking expertise, lacking nous. (Ms Swiderski is a current, & longstanding, employee of NETA: no conflict of interest? https://www.netaonline.org/OurStaff, penultimate row of controllers. Ditto her predecessor, Larry Dankner, who never attended a recorded public Pacifica meeting, although listed on some draft agendas (‘Our Staff’, top row of controllers).
NOTES TO THE SERIES OF AUDITOR’S REPORTS
[These will be shortened, with the excised being included in a commentary on this 13-year run of auditor’s reports, & posted below.]
1. Restatements . . . Be aware that financial statements given in one auditor’s report have on occasion been restated by a subsequent auditor’s report. This happened five times, by the reports of FY2007, 2009, 2010, 2012, & 2015. The most striking was a ‘negative swing’ of $1.5m, restating FY2008’s net income of $1 068 901 as a loss of $433 161 (the FY2009 report; d’oh!). Restatement has been of both size of amounts & their categorisation. Reports detailing the restatements: FY2007 (Note 18, p. 15); FY2009 (Note 18, pp. 23-4); FY2010 (Note 19, p. 18); FY2012 (Note 14, p. 15); & FY2015 (Note 22, p. 20).
2. ‘Substantial doubt about continuing as a going concern’ . . . Five times auditors have given this Black Mark: FY2010, FY2011, FY2015, FY2016, & FY2017. That’s five in the last eight. Each time, given the financial statements & knowledge of post-year-end events, the auditors found it necessary to conclude that there is, to use the standard phrase, ‘a substantial doubt about the ability of the organisation to continue as a going concern’. The test here is being liquid without undergoing structural change; as the FY2010 auditor, Ross Wisdom, put it: “the Foundation’s ability to meet its obligations as they become due without substantial disposition of assets outside the ordinary course of operations, or restructuring of debt, or externally forced revisions of its operations or similar actions” (Note 20, p. 18).
3. Auditor’s modified opinion . . . If auditors aren’t ‘happy’ with financial statements they give, in the jargon, a modified opinion. There are three kinds: a qualified opinion (also termed a scope limitation); an adverse opinion; & a disclaimer of opinion. (Note that some PNB Audit Cttee members have, falsely, treated ‘modified’ & ‘qualified’ as synonyms; they also speak of a ‘clean audit’, presumably financial statements given an unmodified opinion by the auditor, that is, they are judged to be materially accurate.) Please see this well-written explication from the professional body of accountants & auditors: https://www.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/au-c-00705.pdf (AU-C = Auditing Clarification)
a) Qualified opinion: only once have auditors found it necessary to give this to the offered financial statements, FY2016. The auditors that year, Regalia & Associates, gave two reasons.
First, the FY2015 & 2016 pension audits hadn’t been done, so a materially accurate pensions liability amount hadn’t been provided to Pacifica &, therefore, to the general auditor, Regalia. Regalia concluded, “[w]e were thus unable to obtain sufficient appropriate audit evidence”. This formulation includes something they didn’t spell out: they, & indeed Pacifica, were also unable to reliably estimate the pensions liability, something permissible within accounting standards, which would have removed a reason for having to give a modified opinion on the statements. This inability could only have been because of the poor state of the transaction records & supporting documentation (FY2016 auditor’s report, pages 1a & 1b).
Second, a familiar refrain, the accounting records & supporting documentation weren’t in the best of health, to put it mildly. Regalia, again: “[a]dditionally, we encountered difficulties in obtaining sufficient supporting documentation from some of the locations. Certain of the stations do not use the same accounting software as the corporate office. Some of the data from these stations could not be fully verified because it was missing.” The next, & last sentence is the killer: “[c]onsequently, we were unable to determine whether any adjustments to the amounts recorded in the accounting records were necessary” (p. 1b, emphases added). Oh.
As mentioned, a qualified opinion is also known as a scope limitation, & the lack of adequate FY2016 accounting records & supporting documentation was limited enough to warrant a qualified opinion, rather than not giving an opinion at all about the material accuracy, & so the fairness, of the financial statements presented to the auditor by Pacifica. FY2017 proved a quite different matter.
b) Disclaimer of opinion: again, only given once, FY2017. This was given by the new auditors, Rogers & Company. Concerning the pensions liability, they replicated wording of the previous year’s auditor’s report, now adding that there were two more absent pensions audits (p. 1).
Moreover, the auditors declared a general deterioration in Pacifica’s record-keeping compared with the previous year: “[a]dditionally, we were unable to obtain audit evidence to support the amounts and disclosures in the financial statements due to difficulties in obtaining sufficient supporting documentation from some of the locations […] As a result, we were unable to determine whether any adjustments were necessary to make to the Foundation’s statement of financial position[,] and the elements making up the statements” (p. 2, emphases added).
The state of affairs required them to conclude that a scope limitation was unwarranted, & that they had no alternative but to offer no opinion on the financial statements provided by Pacifica: “we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion” (p. 2).
The auditors were unable to vouch for the material accuracy, the fairness, of the FY2017 financial statements presented to them by Pacifica.
The FY2018 financial statements are likely to be treated the same way, according to the auditor at the M19Aug Audit Cttee. Please see the next note.
4. The FY2017 financial statements, in not carrying an auditor’s opinion, cannot be relied upon by anyone, not least potential grantors & donors: their material accuracy, & so being a fair representation of Pacifica’s financial position, was NOT vouched for by the auditors.
Worryingly, half a dozen or so members of PNB cttees, speaking publicly, haven’t grasped this.
The FY2018 financial statements are likely to receive the same treatment, according to the auditor, speaking at the M19Aug Audit Cttee. Jorge Diaz, of Rogers & Co, in response to a question from KPFK staff-delegate Polina Vasiliev (18:19), said:
“I would imagine though, for the 2018, you’re still going to receive a disclaimer given that, that the [pensions] progress is really, ur, to my knowledge, is, um, only been complete, I guess, for 2015 & 2016 [not true: the most advanced audit is the 2015, & that’s only in draft], so, um, you know, really making sure we can see in, um, you know, once those reports are finalised I can kind of take a look as well, to see if there’s any way we can certainly lift that disclaimer, but I would anticipate right now you’re still probably going to be receiving a disclaimer in 2018, um, because, um, you know, those, those, those [pension] audits are still in progress”
(Mr Diaz made a serious error when also saying, “you’ve had, um, you know, you’ve had, urgh, disclaimers of opinion in the past – we issued a disclaimer last year for the 2016 audit, um – sorry, 2017 – &, um, um, you know, the previous auditor as well” (19:28, emphases added). No: as noted above, Regalia issued a qualified opinion for FY2016, not a disclaimer of opinion. Pacifica has only ever received a disclaimer once, that from Rogers & Co, for FY2017. Surprisingly sloppy.)
To repeat, a disclaimer has a damning consequence for Pacifica: the financial statements offered by Pacifica for that year’s financial performance cannot be relied upon by a possible grantor, such as the Corporation for Public Broadcasting (CPB), or any large donor. Pacifica will have to wait for Jan or Feb2020 at the earliest, when the FY2019 auditor’s report may be published. This reality hasn’t been recognised in any public meeting of the PNB & its cttees.
5. How does recent total income compare with the past? The latest financial statements to be accepted as materially accurate by the auditors are those for FY2016. (Those for FY2017 were, in effect, rejected, it proving impossible for the auditors to judge their worth.) The FY2016 total income is $10 467 112 (p. 3). But note this important qualification: listener support & donations is given as a net figure.
That accounting policy started with FY2013 (p. 4), & the cost here is premiums, jargon for goods & services used as an incentive, a bribe/sweetener, for donors to come up with the cash (Note 12, p. 16). But why is it reasonable to conceptualise, to treat, this fundraising cost alone not as an expense but a contra against income, as an anti-income, as it were? It’s also an odd policy as it lowers the amount immediately associated in people’s minds with the public’s support for Pacifica. And it’s not a small sum: at its peak, $1 245 590 in 2013, & $1 071 315 in 2014, in both years comparable to fundraising personnel costs (pp. 16 & 18, & pp. 15 & 17; Note 12 in each report).
In the period examined, FY2005 to present, the highest gross income was FY2006, $18 015 548 (p. 4). (Not surprisingly, that year was the highest net income, $1 662 532; not much competition, there’s only one other net income, FY2005.) There has been inflation since then, 19.1% for the decade, so in Sep2016 money that’s c. $21 448 000. FY2016 had premiums of $458 914, making gross income $10 926 026 (pp. 8 & 3); this is 50.9%. Thus, in real terms, Pacifica’s gross income almost halved in the decade starting late 2006. That is the scale of Pacifica’s absolute decline.
6. In similar vein, how has recent listener support & donations measured up? Has it effectively halved during the decade? Yes. It’s over 11 years, because the FY2005 amount is greater in real terms than the next year’s, although it’s c. $68k less (in money terms) – p. 4. So the highest in real terms is FY2005’s $13 705 687 (p. 6), which in Sep2016 money is c. $16 843 000, there having been inflation of 22.9%. FY2016 had a net figure of $8 246 789, plus premiums of $458 914, giving a gross of $8 705 703 (pp. 8 & 3); this is 51.7%. So again, in real terms, Pacifica’s gross listener support & donations almost halved in the 11 years starting late 2005. Even sadder is knowing that what’s diminished by much more than half, denuded, in fact, is Pacifica’s reputation.
7. When did Pacifica last have audited net assets at the balance sheet date? That was 30Sep2012, $495 924. It was wiped out by the FY2013 loss of $2 824 046.
The zenith for net assets was $7 684 012 at 30Sep2006. (Note that the higher figure in the FY2008 auditor’s report was restated downwards in the following year’s report.) FY2006 was indeed Pacifica’s last annual net income. Correlatively, net assets have fallen each subsequent year, turning into net liabilities, a cumulative fall of over $12m. The last audited net liabilities were $4 525 638, at 30Sep2016. (The following year’s financial statements were, in effect, rejected by the auditors: they had to do this because they found insufficient evidence to allow them to offer an opinion on the statements’ material accuracy.)
8. When did Pacifica last have audited net current assets at the balance sheet date, also called working capital or liquidity? Current assets are the assets that are expected to be used up, consumed, in the next financial period, usually a year. Current liabilities are the liabilities due to be paid in that same period. The difference, the net, if it’s a positive amount, is termed working capital, or liquidity. There’s an important point here: don’t confuse working capital with cash in the bank. They’re not the same. Working capital isn’t a sum of money one has ‘to play with’, to pay bills & pay for projects to develop the organisation. No, working capital is a second-order sum, a particular difference, & it’s a measure of the condition of the organisation, the metric termed liquidity.
(I studiously don’t speak of solvency/insolvency in this section because it’s a legal concept, & its meaning varies between jurisdictions. I stick to the concepts used in accounting.)
The last time Pacifica had audited liquidity at the balance sheet date was 30Sep2009, $1 294 733. Yes, 2009.
The last audited figures were at 30Sep2016, & Pacifica was illiquid, having net current liabilities, totalling $6 719 281: current assets were $637 716, & current liabilities $7 356 997. That means $11.55-worth of creditors were chasing every $1 that Pacifica had to pay them. In all honesty, Pacifica doesn’t have a CFO, it has a JIC, a Juggler-in-Chief.
(Inexplicably, this fact didn’t appear in the FY2017 auditor’s report, dated 27June2019, as a post-balance sheet event (a ‘subsequent event’, in the jargon). Passed the PNB Audit Cttee by, & the PNB itself.)
Finally, a worrying development has been instigated by the new bookkeepers & accountants, NETA, the National Educational Telecommunications Association. They’ve chosen, no doubt with the agreement of the PNB Chair, to make the balance sheet less transparent: current liabilities are no longer disclosed (FY2017 auditor’s report, p. 4). It means that Pacifica’s high degree of illiquidity is concealed from view. A silly manoeuvre, not least because anyone wanting that figure will simply be prudent, with every chance of over-estimating the illiquidity. D’oh!
Not being prudent but crude, one can estimate the effects of both the DN! write-off & the ESRT/FJC debt adjustment, the latter giving a liquidity ‘bounce’ by stripping rent payable out of current liabilities, & dumping (temporarily) the FJC debt, due 2Apr2021, into non-current liabilities.
At 30Sep2018, taking rent arrears as $2m, makes current liabilities $5.4m, & the illiquidity quotient 8.1 (5.4 / ⅔). At 30Sep2019, & so including the DN! write-off, current liabilities become $3m, & illiquidity 4.5 (3 / ⅔ ). Looking better. But at 30Sep2020 it more than doubles, with the FJC loan becoming a current liability on 2Apr2020: 6.265 / ⅔ = 9.4, so $9.40-worth of creditors chasing every $1 that Pacifica has to pay them. Oh.
9. The $625 235 deficit of the aggregated permanently-restricted donor endowment fund. This consists in five separate funds created by donors who gave in good faith, with the correlate of Pacifica promising that the specified donor instructions would be respected at all times by Pacifica officers.
Pacifica has never stated orally or in writing (a) whether this deficit violates donor instructions, (b) why this deficit was allowed to arise, (c) who authorised the deficit, & its subsequent augmentation, (d) what the money was spent on,
& (e) what is the plan to eliminate the deficit, & by which
date. Successive sets of directors have been in office during this
period, with no evidence of fiduciary responsibility being exercised.
$625 235 is the balance of the account (corrected, as it had a typo), according to the latest audited financial statements, those for FY2016. (The FY2017 auditors offered no opinion on the material accuracy of the statements provided to them by NETA because, as discussed in note 3(b) above, “we were unable to obtain audit evidence to support the amounts and disclosures in the financial statements […] As a result, we were unable to determine whether any adjustments were necessary to make to the Foundation’s statement of financial position[,] and the elements making up the statements” (Auditor’s Report, p. 2, emphases added). So those statements are effectively worthless.)
At year-end, the FY2016 fund account was $1
116 055, but only had assets with a fair value of $490 820 (Auditor’s
Report, Note 11, p. 14, typo corrected). [this note will be completed this week (Tu10Sep)]