I've been interested in the Talus Trust issue since last year when I published "Why won't the government come clean on Talus Trust' which is part of my Public Land is Our Land. This ongoing investigation raises questions about the NSW Government's and local councils' handling of public land in ways that favour special interests to the detriment of the general public.
The general issue is highlighted in the battle for Talus Reserve, 15,000 square metres of land on Talus Street on Sydney's inner North Shore. Since 1992, the founder of the Humpty Dumpty Foundation Paul Francis has operated one of Australia's most successful tennis businesses, Love 'N Deuce, out of Talus without paying one cent of rent to the public.
Talus was one of the major controversies that led to a Community Summit at Parliament House arranged by David Shoebridge (Greens MLC) and Mick Veitch (Shadow Crown Lands Minister) which I reported on in 'Community summit calls for parliamentary inquiry into Crown Lands.'.
Notwithstanding its obvious public significance, the mainstream media’s coverage of the systemic maladministration of public land across NSW has been very disappointing. So, I was pleased to see one of the Australia’s most fearless and responsible journalists and one I respect, Sydney Morning Herald's Michael West, take on Talus in recent articles. West has never been afraid to take on the big end of town or vested interests. I retweeted West's first story on Talus on October 5 and another, 'Humpty's not so charitable return' on December 5.
Late Monday December 14, some readers pointed out my link to West's second article ( on Humpty Dumpty) was broken: the story could not longer be viewed online. While hoping that it was just a broken link, I was nevertheless concerned because the people behind the Humpty Dumpty Foundation have many powerful corporate, media and political connections. I am also aware that rather than demanding corrections, clarifications or apologies, stories subject to complaint are increasingly being taken offline altogether. In other words, "disappeared". This morning in place of the story an apology has been published.
I now believe that my censorship concerns were justified. West's story of December 5 was taken down after Humpty’s Chairperson Paul Francis, Director Phil Kearns and Patron ex current affairs journalist Ray Martin wrote to Fairfax Board members and senior executives Greg Hywood and Darren Goodsir complaining about West’s article.
It is clear enough that West's story contained much fresh and accurate material the publication of which is demonstrably in the public interest. But I also consider that one aspect of the story was somewhat misleading and as such did require an editorial clarification and correction. So I have decided to republish West's story with a few comments of my own. And I might say there is no reporter that does not make occasional errors or a mis-reading of the facts, hence the need for major organisations like Fairfax to have strong correction policies. I am not suggesting there was no reason at all for complaint; I am suggesting that it has not been handled appropriately by Fairfax.
As a past employee and contributor and current reader, I have certainly benefited from Fairfax's support for its investigative journalists in times of pressure. This is especially important when the subjects of the journalism have powerful connections. For this reason, I'm disappointed in Fairfax's response to these complaints. I find it hard to explain why it did not simply publish a clarification about the pledges without pulling the whole story.
Michael West's story
What follows is my reworking of West’s article of December 5, 2015 showing my comments in italics where my understanding of the facts differs.
Humpty's not so charitable returns
It was revealed last month that the Shane Warne Foundation raised $1.8 million over three years but donated an average of only 16c in every dollar to sick children.
Is that on the low side? The Australian Charities and Not For Profits Commission (ACNC) released this week, for the first time, a report about the size of the charity sector. It is a $103 billion industry, of which $42 billion comes in government grants; massive. Last year, its 54,000 charities spent $95 billion.
Unfortunately, the ACNC figures do not break out the amount of funds raised which actually make it, after costs, to the designated beneficiaries of the charities. Nor was the ACNC willing to say yesterday what an average return or even a reasonable return might be, so it is hard to know, without peering into the financial statements of individual charities, what constitutes a reasonable return, or indeed if Warnie’s charity delivers a reasonable return. What is there to compare it with?
We looked at 14 years of accounts for the Humpty Dumpty Foundation, a charity which also helps sick children. Humpty is chaired by the man who runs Australia’s biggest tennis business, Paul Francis, and boasts a number of Sydney North Shore heavy hitters on its board.
From 1999 to 2012, Humpty looks to have raised $36.7 million. This includes “pledge purchases”, from people pledging donations, pledges which may never be honoured.
There is a story in this “pledging” which transcends Humpty and affects all charities. It is surely the case across the industry that people promise donations but never actually make them.
For the sake of illustration, this may be the bloke at the charity ball, showing off to his friends after a few drinks, who bids wildly for the Warnie thigh-pad from the Lords test but never stumps up the cash.
For, if you strip out pledge purchases in the Humpty accounts, gross fundraising income over 14 years comes to $27.4 million. From this, the surplus left after all expenses amounts to $9.2 million. Humpty’s available funds therefore to buy medical equipment for sick children is 33c in the dollar.
West is referring here to the sort of pledging at charity events in which people have a few drinks and pledge money that later doesn't arrive. But these "Pledge Purchases" for Humpty Dumpty do arrive; however they are surely different from normal fundraising and do need to be treated differently.
Humpty Dumpty has two different business models. The first is the normal sort of fundraising Charity events such as ""runs"" and balls.
The other is a model in which Humpty Dumpty publishes a wish list of medical equipment needed by hospitals for the treatment of children. In this case, donors deposit the money with the Humpty Dumpty Foundation which deducts a fee for administration, delivery and donor plaques. In this case, the Foundation acts more like a 'middle man'. Over the past three years, these fees appear to have totalled more than $770,000.
I found the following passage from Humpty’s own website most helpful in explaining these fees and Humpty’s role in these transactions:
The cost of the medical equipment as published by Humpty Dumpty is an accurate estimate of the purchase price at the time of publication. It also includes an allowance for handling costs, delivery, handover costs and a plaque to acknowledge the donor. The actual cost of equipment may be different at the time of purchase. Any shortfall in the cost of the equipment will be paid by Humpty, any surplus will be treated as a donation to Humpty’s general account and will be used to financially support the Foundation.
*There is a legitimate question of public and legal interest to be asked here. If members of the public have purchased equipment and have been charged fees by Humpty for organising the purchase and delivery of the equipment, why should Humpty be allowed to show the equipment’s purchase price as part of its own fundraising income? Any moneys received by Humpty from the equipment donor before the purchase is completed would surely have to be held on trust for the donor/hospital. *
*It's also not clear why Humpty Dumpty uses the word 'pledges' to refer to funds paid into its accounts before being transferred to medical equipment companies.
While I am not an accountant, I would have thought the donor’s purchase moneys would have to be held in trust with a corresponding accounting entry for a liability. How are these funds part of Humpty’s general fundraising income and why should they be taken into account in determining the operational efficiency of Humpty’s fundraising operation? To be clear, I accept Humpty is entitled to show - as its own income - these “middleman fees” (my description). The issue here is the proper legal characterisation of the purchase moneys it is holding on behalf of equipment purchasers.
There are clearly questions to be asked about the way Humpty Dumpty's financial matters are reported - and to me this includes its corporate records as well as West's story.
Back to West's story
It’s a darn sight better than Warnie – and let it be said this writer applauds anything which helps sick children – although drilling down into the Humpty accounts it does seem the costs warrant scrutiny.
Humpty’s best year was 2012 when it recorded a surplus of 68.8c in the dollar and its worst was 2007 when there was no surplus. There is one constant through the years however - high costs.
Looking at the profit and loss statement for 2009, Humpty raised $3.9 million then deducted $1.16 million in pledges to book income of $2.77 million. There was a $222,559 charge for “audio/visual/set display themes”, $182,444 in catering, $64,421 spent on the Good Egg lunch – what a lunch - $31,723 on postage, $112,786 on stationery and $448,691 in costs for a trek up Mount Kilimanjaro in Africa.
After a plethora of other sundries, there was $1.67 million left from the $3.9 million raised. Those were the fundraising costs. Then came the overheads: $431,942 for staff, another $32,666 for stationery, rent of $28,710 (to the private tennis business of Humpty chairman, Love & Deuce) and a bunch of sundries which left a surplus of $766,066.
Stripping out non-operational items like bank interest and accumulated differences on pledges we get to $401,177 left over, or 14.5 per cent for the kids.
The figure of 14.5% appears to be the figure derived after excluding pledge purchases. The accuracy of this figure depends on resolution of the much bigger issue flagged above: why should Humpty then be allowed to show the equipment’s purchase price as part of its own fundraising income? In fairness to Humpty Dumpty, it should be noted that if the purchase of equipment is included as Humpty’s income (and not just Humpty’s intermediary fees on those purchases) we get a much higher percentage (perhaps over 50%) “for the kids” to use West’s expression.
The ratio inclusive of pledges is self-apparent from West’s own figures, you can just work backwards to derive the relevant ratio. Let us say for argument’s sake it is 50 - 70 %: as I say below, this is a distraction. Focusing on ratios causes all of us to be distracted from a detailed appreciation of the nature and amount of the charity’s (not only Humpty) expenses of operation.
And also to be fair to Humpty, its broking service (which is what I actually think it is providing in respect of this part of its business) is one that can be acknowledged as a worthy one. But that does not mean one should distort the true legal position and call the money that Humpty receives (as the broker) from an equipment purchaser as Humpty’s own income. It surely is not: these moneys are in truth (and in law) the donor’s purchase moneys that must be held by Humpty for passing on to the actual equipment supplier (after taking out its middleman fees). And if Humpty were in truth to be entitled to treat the whole of the purchase price as just ordinary fundraising income, why does Humpty state this on its website (note the last emphasised phrase:
"The actual cost of equipment may be different at the time of purchase. Any shortfall in the cost of the equipment will be paid by Humpty, any surplus will be treated as a donation to Humpty’s general account and will be used to financially support the Foundation."
I should also make it clear - like West - I am not suggesting here in any way that the donors and people involved in the Humpty Dumpty Foundation do not care about medical treatment for kids. Of course they do and they should be commended. But there must remain an overriding interest for the public - to whom the Foundation appeals - to know the true nature of the operations and to have access to and participate in a dispassionate discussion of the accounts. This should apply to all charities, not just Humpty. I wanted to assist with that but when I went to look on the website, the accounts were not published. Anyone who wants them will need to pay hundreds of dollars to ASIC for full set of accounts. Luckily, a friend who has been involved in trying to achieve public accountability on the Talus Trust was able to help out.
Back to the final part of West's story.
They do it in style. The marketing material for the Humpty Kilimanjaro adventure trek, showing a cost of $50,000 a pop ($35,000 tax deductible) business class airfares with Qantas included. Then shadow treasurer Joe Hockey made the summit in 1999. .
The Humpty accounts differ from year to year. Sometimes superannuation is apparent, other times the pledges seem to be treated differently. And although we could not find financial statements for the past couple of years, efficiency is on the rise, as evinced by the 69 per cent surplus in 2012.
Better than Warnie, and better than the Whitten Foundation which was was in the press for the 6c in every dollar donated to the AFL Legends game actually reaching cancer research organisations.
As lawyers for Paul Francis said in a statement: “Humpty has a long and proud history as the largest supplier of medical equipment for use on children outside the NSW state government and for over 20 years has been one of the most successful charities in its field”.
In documents filed with the Supreme Court the new fee to be paid by Humpty Dumpty to Love & Deuce under a new licence is to reduce from the current fee of almost $30,000 to $1 a year. Love & Deuce operates on Crown land at Talus Reserve on the inner North Shore.
( Read more about this in West's earlier story about the Talus Trust.)
Back to West's story which deals with a court case involving Willoughby Council and Talus.
Willoughby Council is seeking the court’s approval of new arrangements to accommodate the continuing occupation of Talus by Love & Deuce and by Humpty.
The current arrangements are being challenged by residents who say public land should be open for the public and not be a source of private profit.
Under the terms of the original arrangements with the council, the Northern Suburbs Tennis Association was given a 30 per cent rent discount for allowing Humpty to stay at Talus for free. In recent years, residents have discovered Humpty has been paying rent for Talus to Love & Deuce since 1999.
End of West story
The Talus litigation alluded to here by West has many disturbing elements and I will provide an update on them in a separate blog. I know a group of residents is now preparing a new submission to ICAC: from what I have seen Talus and other Crown land examples of mismanagement ( by public authorities) are systemic and serious and certainly more serious than a traffic accident on Willoughby Road involving someone linked to Ms Cunneen. The Paddington Bowling Club saga that I have covered on my blog because it was ignored by mainstream media continues and I hope to return to it soon. My work on that story was subject to defamation threats without justification or inaccuracies so I ignored them.
The issue of the rent that Humpty Dumpty has paid to Love'N Deuce is of public interest.
For the period year January 1 1998 to December 31, 2015 - assuming the $30,000 annual rent ratified by Humpty’s members on 6 May 2013 is still in place - Humpty will have paid about $472,000 to Love ’N Deuce. According to advice from Willoughby Council’s General Manager at the time to councillors on July 14, 2014, this is for only some 20m2: that is $1,500 per square metre. By comparison, Willoughby Council has received only $260,000 for the whole 15,300 m2 of Talus since 1978, an average of only $7,000 per annum (an effective rate per square metre of about 45 cents). I should also remind readers that Love ’N Deuce also pays the actual lessee (NSTA) around $100,000 per annum under a “management agreement”. So everyone is making money from Talus except its owner, us (the public)!
And let me be clear: those who are referring Talus to ICAC and other bodies do not allege anyone occupying Talus is corrupt. They allege the corruption lies in local and State government: the occupiers of Talus - just like the rest of us - have no duty whatsoever to protect the public interest. But our local councils and the NSW Government do and that is what - I understand - will be pursued.
There are two big issues to emerge from West's article: the first is the need for the public to have a better appreciation of the extravagant nature of some expenses of some charities. More transparency is needed. People who give to charity should be applauded but we need to keep perspective: every dollar spent on a gala ball or an extra glass of champagne is a dollar that could be spent on children. I appreciate of course that some sections of the community open their wallets more readily in such lavish environments but I am likely to think that those who make tax deductible donations of medical equipment would still do so even if the trimmings for the ball were a bit less opulent.
Progressive and development charities are continually under scrutiny. While some of this scrutiny is politically motivated against what are perceived to be progressive tendencies, some of it is properly directed at improving accountability. I notice that Oxfam Australia now publishes its financial report. Perhaps it is time for more scrutiny of big charities like the Humpty Dumpty Foundation that practice their own version of political lobbying and networking.
The second issue relates peculiarly to Humpty Dumpty: do its accounts give a true and fair view of its operations now that we know (from Humpty’s letter to donors and Darren Goodsir’s apology, both of which I have read) that Humpty is booking as income not only its intermediary fees but also then the balance of the equipment cost.
In the meantime, I would love readers to consider this question and provide feedback: Why does the Federal Government allow members of the public to claim a 100% tax deduction when only a part of the money they donate actually finds its way to the desired charitable end?
Wouldn’t it make sense - and force charities to become more efficient - if we were only allowed to claim a percentage that reflected the percentage of the donation that made its way to an actual charitable end?
This would have the additional benefit of helping to stamp out excessive expenses and dubious related party transactions for all charities.
Read Humpty Dumpty's letter to its donors.