Terrible mismanagement at Radio NZ

Radio NZ reports:

RNZ has revealed a near $12 million budget blowout after a litany of financial blunders, setting the stage for sweeping job cuts.

In its just-published annual report, the public broadcaster set out plans to axe the equivalent of 58 full-time jobs – about one in six staff – by the end of March and cutting running costs by at least 5 percent.

My sympathy to the Radio NZ staff. Losing your job is always hard, but even harder when it is because of incompetence by management.

The $11.8m loss is more than 25 times the $470,000 RNZ had expected to lose over the year to June.

This is incredible as Radio NZ is not a commercial entity. It has guaranteed revenue from the taxpayer. It is not like a commercial broadcaster who has to suddenly cope with a drop in advertising revenue. It has none.

Among the errors, RNZ wrongly counted $2m from land sales as income in its budget.

That is an Accounting 101 type error. Only the surplus above book value should be counted. Did no one on the board ask about the unexpected $2 million in revenue? Or did no one on the board understand that selling an asset isn’t revenue – it is swapping one asset for another?

RNZ chair Brent Impey – who assumed the role in July – told Checkpoint the board would commission an independent review into what went wrong.

“It’s incomprehensible to have got to this position,” he said.

Incomprehensible is the right word for it. The review must include the board and especially the audit and risk committee. It sounds like the CFO was out of her depth, but this is why you have governance.

Good governance isn’t just accepting what is put in front of you. I recall my Institute of Directors course where Don Trow told us how you should never believe the P&L or the Balance Sheet as they can lie. You can classify an expense as an asset. You can classify a liability as income. He said always read the cashflow, as that is the only document that can’t lie. Did any board member scrutinise the cashflow? Did they get a reconciliation of the P&L to the cashflow and examine that? Did they notice the steep decline in cash balances?

Impey also defended keeping chief executive Paul Thompson in the job until his planned departure on 31 December, saying he had accepted responsibility for the result and still had work to do.

I like Paul Thompson and think he did many fine things at Radio NZ. But my God this is sackable offence territory. The problem may have been with the finance director, but the CEO is responsible. And he hired her!

Asked why those in charge still had their jobs, Impey replied: “Well, someone’s got to run the place, don’t they? What do you suggest?”

Yes but just as a board member became acting CFO, one could also have arguably become Acting CEO.

The broadcaster ended June with $8.5 million in cash, down from $18.8 million a year earlier.

Did anyone on the board notice the declining cash position? Again always read the cashflow.

EY, which audited the accounts for the Auditor-General, also flagged a breach of the Crown Entities Act over a $5m overdraft RNZ set up without the required approval from ministers.

Not breaking the law is the first duty of senior management and the board.