Thursday, September 18, 2008

The Economics of Spam

Not everyone was born an accountant. Not everyone necessarily understands the complexities of a $21 million turnover co-operative – which is what The Weave now is.

So maybe our Board should ask for help from people who do understand?

When, in the past, I have advised companies with a turnover similar in size to Weaver Street, it has been the normal practice of those companies to have a special committee of the Board called an Audit Committee.

This Committee is usually made up of Directors (those who are not directly employed by the company in question), and by an equal number of experts, with specific knowledge of the company’s specialty and/or corporate finance.

The primary job of the Audit Committee is to oversee the Annual Audit. As opposed to WSM, where the Audit is overseen by the General Manager.

Audit Committees can also meet all through the year, and advise the Board on complicated financial issues that are presented to the Board by management.

A case in point.

Earlier this year, management suggested to the Board that they do away with the Board Policy requiring that there be a 1% profit each year.

How was the Board to know that removing this Policy would ‘move’ our Dividend – which is paid out of profit? An Audit Committee of financial experts could have warned the Board of this.


I set out below a copy of the e-mail I sent to Jacob Myers, the Worker-Owner Director who has been Board Chair these past three years, asking questions of WSM's new Auditing firm.

These are the sort of questions your Board should have been asking over the last few years, and which an Audit Committee of experts probably would know to ask.

If they had been asked as we went along, we might not now find ourselves over-extended and over-indebted going into what promises to be a severe recession.

Look. I know this is not as much fun as Monty Python quips, or as interesting as the Wine Shows, but this is exactly the sort of dry, complicated, tedious crap you expect your Directors to be able to take care of competently, when we are a $21 million turnover co-op.

So that you can focus on the fun stuff, while tentatively hoping that your Board knows what it's doing, and is taking care of your business. Ok?:

"Dear Jacob,

The WSM Audit is underway. As I understand it, the Auditors will be presenting their report to the September Board meeting. As an owner, I would be grateful if the Auditors could address in writing the following. I think it follows that I would wish that copies of their report, and their response to my concerns, be available to owners attending the September Board meeting:

1) Is the Audit of just Weaver Street Market, Inc.? Or is it of the whole entity we know as 'Weaver Street Market' ('WSM'), including all of the associated companies, corporations, organizations, non-profits, et al ('associations')?

2) Could the Auditors please prepare and present a full organizational chart of all of the 'associations,' showing the full picture of assets and liabilities, and flow of monies between the 'associations' (if any), with specific and separate mention of all real estate holdings?

I understand there are certain LLC's which bear names such as 'Carrboro' and 'Hillsborough.' There is also Public Gallery of Carrboro, which I understand receives monies directly or indirectly from WSM.

3) Concerns may well be raised at the Annual Owners' Meeting as to whether or not the monies spent by WSM and its associations on Expansion and the Food House could have been better spent. Clearly, that is a matter on which the auditors should be able to give owners comfort.

Would the Auditors please make available any and all written comparative studies that were produced before Expansion began, which helped WSM managers and the WSM Board decide that the Expansion course chosen (including the Food House) was the most beneficial to owners, with respect to the risk to their financial investment?

Will the Auditors state that, in their opinion, WSM managers and the WSM Board undertook a sufficiently comprehensive comparative analysis of the alternatives before deciding up on the course chosen? That is, was Expansion and the Food House the best way of spending our money?

Will the Auditors state categorically whether or not, in their opinion, WSM and its associations are on target with their financial forecasts for the cost of Expansion and the Food House. If we are over budget, by how much?

4) Will the Auditors please state definitively what they regard as being the total current debt of WSM and its associations, and what they regard as being the debt to equity ratio of WSM and its associations?

Are the Auditors legally required to offer assurances in any Audit statement that the appropriate processes were followed by WSM and its associations in creating such a level of debt, against collateral (equity) which is the property of the owners, in respect particularly of obtaining the owners' permission beforehand to collateralize their property?

5) Will the Auditors please define what they understand by the expression 'equity,' and specifically explain how each category of 'equity' presented by WSM and its associations is 'equity' within the Auditors' definition?

Can something be 'equity' if we have to return interest upon it, or if it is recallable? Specifically, are loans arising from the Community Investment Initiative, and the like, equity or loans?

6) Will the Auditors please explain clearly what is their recommendation for the debt of WSM and its associations in 2009? Should it be reduced, be allowed to stay the same, or can more be borrowed - and with what qualifications?

Jacob, I would be grateful if the Auditors responses to these concerns could also be made available in writing at the Annual Owners' Meeting."

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