 The magazine of the Melbourne PC User Group President's Annual Report Lloyd Borrett |
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This report has been written in close consultation with George Skarbek and Giuseppe De Simone, and thus represents the views of all three independent members of the interim committee. This report has been written under unusual circumstances and documents some serious allegations which have been made against some members of Melb PC. We believe it is about time these allegations were brought out into the open for all members to see. We feel that all members must know as much of what has been happening as is possible in order to be in the best position to make the decisions required at the 1992 Annual General Meeting.
In The Beginning
If you're unaware of, or have merely forgotten, how the interim committee came into being then we ask you to please read the President's Column, PC Update, June 1992. For an up-to-date description of what the procedures will be at the August 1992 AGM we ask you to read the President's Column, PC Update, August 1992.
The creation of the interim committee was announced at the 6th May 1992 general meeting, and the meeting moved and unanimously passed a motion endorsing the establishment of the interim committee.
The interim committee started out with Lloyd Borrett (president), George Skarbek (secretary) and Giuseppe De Simone (treasurer) as three independent executive committee members, and Spen Ingamells and Charles Wright as interim committee members representing the interests of those on the previous committee. Charles Wright subsequently resigned from the interim committee (see President's Column, PC Update, July 1992) and no-one was co-opted to fill his position.
Allegations Against Spen Ingamells
During the three days leading up to the appointment of the interim committee all three of us were made aware of a number of serious allegations which had been made against Spen Ingamells by members of the previous committee. At the Wednesday 6th May 1992 general meeting Spen requested the interim committee to investigate these allegations and he repeated this request at the committee meeting held on the following Monday night.
We will proceed to present these allegations for all members to see, and report the current status of the investigations into them.
The first allegation was that the majority of purchases made by the Melb PC Members' Buying Service (MBS) have been largely channelled through Allied Business Supplies Pty Ltd (ACN 004 920 414) which Australian Security Commission (ASC) records show was deregistered on the 30th May 1989 and reinstated on the 8th April 1992 (after these allegations were put to Spen by the previous committee). It was also alleged that Spen Ingamells was a director of Allied at the time of deregistration and may still have an involvement with Allied.
Certainly the majority of orders placed by the MBS were to Allied (approximately $278,000). The ASC records show that Allied was deregistered and subsequently reinstated as described above, and that Spen is a past director of Allied. Spen claims that he sold Allied in 1985, ceased to be a director at that time, and has since had no pecuniary benefit from Allied other than as an occasional consultant to the company. Spen also claims that Allied has made no profit from the MBS and while he has said that be would provide documentation to prove this, no such documentation has been made available to us.
At the time of writing this report we are still not sure of the nature of Spen's relationship with Allied. Allieds 1986 and 1989 annual returns show the directors of Allied as being Janet McFarlane and Judith Willmore and that the majority of Allied's shares are held by Minexon Pty Ltd (ACN 006 060 260) and the rest held by Millcroft Pty Ltd (ACN 006 060 279). ASC records show that both Minexon and Millcroft are deregistered companies. Further they show that Spen Ingamells was a director of Minexon and that Janet McFarlane was a director of Millcroft at the time these companies were deregistered.
The more recent 1990 and 1991 annual returns from Allied (filed in April 1992) are not publicly available at this time as the ASC has sent out requests for more information in order to clear up a number of anomalies.
Another allegation was that the house in which Spen resides is registered in the name of Allied. We have been unable to check this allegation, although Spen has stated that he shares this house with Janet McFarlane whom we believe to still be a director of Allied.
It was also alleged that the MBS placed orders with Castellan Pty Ltd (ACN 006 040 571) and Minexon Pty Ltd, that these companies are both deregistered, and that Spen is listed as being one of the directors of both companies when they were deregistered. ASC records confirm this. Spen claims he also sold these companies in 1985.
Other allegations were that Spen has as recently as this year been distributing business cards describing himself as "Chairman of Directors" of various companies, including Allied, that Allied's phone number is connected to his house, and that Allied' s address is either his house or a shop in Chirnside Park run by Janet McFarlane. Time did not allow us to attempt to investigate these allegations.
The Corporations Law states that all of the assets of a deregistered company belong to the ASC and that it is illegal for such companies to trade. We therefore approached the ASC and they are currently carrying out enquiries into the affairs of Allied, Minexon, Castellan, Millcroft, Commercial Buying Services, and other associated companies.
During our own investigations we found that the majority of cheques made out to Allied by Melb PC (all of which have Spen's signature on them as a signatory to the Melb PC accounts) were presented to the bank with an endorsement on the reverse side which was signed by Spen on behalf of Allied transferring the cheques over to Minexon.
Spen's explanation of this is that he placed orders from Melb PC to Allied, and that on Allied's behalf he raised orders with Optima for computer systems. However Spen also says that Minexon paid Optima for these orders and thus it was Minexon who was actually out of pocket. Therefore when Melb PC paid Allied, Spen would sign these cheques over to Minexon. The interim committee's concern is that the whole process seems highly irregular and open to abuse. This process also suggests that Spen's relationship with Allied may be something more than that of an occasional consultant.
You might well ask why all of these allegations were made.
Those previous committee members who made these allegations tell us they were worried about the way the Members' Buying Service was run. They say they were concerned as to whether the MBS had inadvertently caused Melb PC to trade with companies in breach of the Corporations Law. They also say they were concerned about possible questions of conflict of interest or breach of fiduciary duty by Spen Ingamells as an officer of Melb PC and as a consultant to Allied.
Other previous committee members tell us they took the view that Spen was merely using a close relationship with a computer supplier to provide a service beneficial to members and that while control and reporting of the MBS activities could be improved, members were receiving a worthwhile service.
We have no evidence that Spen Ingamells has received any financial gain from his association with the MBS, or from any association he may have with companies with which the MBS traded. However, we also can't rule out any such possibility as at the time of writing we do not have all of the evidence necessary to do so, and Spen, Allied and Minexon have failed to reply to our written requests to them.
A worst case view of the situation is that Spen is guilty of having a conflict of interest and/or a breach of fiduciary duty. A best case view is that Spen has been foolish by failing to fully declare his association with MBS suppliers and/or running the MBS in such a way that his reputation could be compromised. We return an open verdict and recommend that the incoming committee finish this investigation, co-operate fully with the ASC enquiries, and report to the membership the results of the committee investigations and ASC enquiries.
The Members' Buying Service
In order to place the above into perspective it is important to look at the way the Members' Buying Service was operated.
From what we can gather, and Spen Ingamells confirms this, it was Spen who operated the MBS until Vince Thornton took over in March 1992. It seems that MBS orders were received, banked and then passed on to Spen. Spen would order the goods from the suppliers (mostly Allied), receive the goods from the suppliers, and see that the goods were sent to members. In the case of orders from Allied Spen would write up an invoice from Allied to Melb PC, and then co-sign a cheque from Melb PC to Allied.
We find that the records kept while all of this was happening were to say the least inadequate. Members' orders were not dated and filed adequately. Purchase orders from Melb PC to the suppliers were not raised, or approved by committee. No records exist of anyone signing for deliveries that were received, filing the delivery notes, or checking off the delivery notes against supplier invoices.
It was alleged that Spen Ingamells failed to maintain adequate security over MBS stock and that stock shrinkage had occurred. Bill Westhead conducted an audit of the MBS in March 1992 and concluded that because of the poor administration structure surrounding the MBS there may or may not have been a loss of stock, that he could not find any evidence of a stock loss, and that if any stock loss had occurred it would have to have been minimal.
Standing orders of Melb PC state that all purchases of more than $500 must be approved by the committee. Cheques ranging up to $40,547 were paid out on behalf of the MBS, co-signed by Spen, without committee approval. We even found uncrossed cheques.
Throughout all of this Spen claimed that the MBS made a significant profit for Melb PC. However we could not find any reports to the committee that give a proper financial record of the status of the MBS at any time.
The interim committee employed a clerk for two weeks to go through all of the available MBS records and perform a full desk check of the MBS. Everything looked at during this desk check has highlighted the lack of adequate business procedures and financial records that were kept on the MBS. We still have many member orders missing, and thus are unable to complete a check of member orders against money received and orders placed with suppliers.
Thus we are still coming to grips with the turnover of the MBS. It currently appears the MBS received payment from members of $279,849 and paid suppliers $286,202 for goods received. However other items are mixed in with the MBS purchases. Examples include approximately $20,000 of MBS purchases which were for Melb PC internal use for purposes such as membership drive prizes, BBS modems and cables, etc.
At the time of writing we can still not determine whether the MBS has made a profit or a loss. But now let us consider some of the other costs associated with running the MBS.
Firstly the MBS takes up at least one page per issue of PC Update magazine. It cost us approximately $150 per page for the magazine which implies that we spent approximately $1,500 on MBS advertising.
The MBS has accumulated dead stock worth approximately $7,000 at cost. While the intention was to only buy product to fill existing orders, in fact stock was kept for some items which subsequently became outdated.
Then there is the question of our tax status. The income of Melb PC is considered to be exempt by the Australian Taxation Office (ATO) as Melb PC is a non-profit association established for the encouragement of science. However we are required to advise the ATO about any changes in the objects, method of operation, constituent documents, name or address of Melb PC as a requirement for retaining our exempt status.
The trading activities of the MBS are likely to have put at risk this tax exemption. We can find no record of the ATO being advised of the establishment of the MBS or of the group asking for advice on its tax status when operating an MBS. If Melb PC has to pay tax then it is likely tax will be payable on any profits derived from the MBS and all other Melb PC activities. Even if the MBS made a loss we would still have to pay tax on other profits made. We have therefore asked the August 1992 Australian Tax Office for a ruling on the tax status of Melb PC were we to continue running the MBS, and what our tax status will be for the period in which the MBS has been running.
And what about the liabilities Melb PC has incurred? Under Federal and Victorian consumer legislation Melb PC is responsible for the goods it sells. Melb PC is not geared up to be able to handle these responsibilities and the letters of complaint from some members substantiate this. While it could be argued that Melb PC is as capable of handling such responsibilities as any shonky computer retailer, this is not the standard we expect Melb PC to promote.
Then we have the question as to whether Melb PC has acted in breach of the Victorian Associations' Incorporation Act under which it is incorporated. Most of the transactions of the MBS involved purchases by members, but given that the Act controls and restricts the possibility of such trading, and also given that Melb PC's own rules constrain it from making a profit, the group appears to be in a difficult position. We have asked the Registrar of Incorporated Associations to advise us of any guidelines or directions in relation to the legality or otherwise of the MBS.
Finally it appears that Spen Ingamells may have permitted Melb PC to trade in breach of the Copyright Act and/or OEM agreements. Most of the computer systems purchased by Melb PC from Optima (via Allied and Minexon), came with bundled software such as MS DOS and MS Windows. The OEM agreements which Optima has with software manufacturers such as Microsoft state that the software may only be sold with computer systems. Spen has often sold the computer systems to Melb PC members without the bundled software. The software was sold to other Melb PC members who thought they were buying fully licensed product, not OEM product which often can not be subsequently upgraded.
Thus Spen Ingamells may have caused Melb PC, a highly respected industry voice against software piracy, to trade in breach of the Copyright Act and/or suppliers' OEM agreements. Giuseppe De Simone has already apologised to Microsoft on behalf of Melb PC. Furthermore, Giuseppe has given an undertaking on the group's behalf that we have ceased such activities.
We must also hope that Melb PC members who purchased these computer systems and software packages will not insist that Melb PC honour its obligations. While we have a moral duty to do so, we do not have the financial resources such an action would require.
Allegations Against John Beck
It was alleged that John Beck as Secretary did not keep proper minutes of the monthly members' meeting although motions of various kinds are dealt with at these meetings. It was also alleged that the minutes of committee meetings kept by John Beck were unreliable. We have been shown minutes as kept by someone else at committee meetings for comparison against those kept by John. Certainly there are a lot resolutions that appear to have been left out of John's version but as none of the interim committee were present, or have access to tape recordings of the meetings involved, we can not confirm these allegations.
It was alleged that John Beck as returning officer failed to meet the PC Update bagging deadline with the notices for the 1991 AGM and thus they had to be mailed separately at a cost of over $3,000. Certainly this occurred and John Beck as the person responsible has to accept that the equivalent of at least 100 membership subscriptions were squandered because of his actions.
Melb PC moved from Cecil Street to St Kilda Road in September 1991. In April 1992 the office was still handing out membership forms bearing the Cecil Street address, and the Australia Post redirection order was no longer in place. It was alleged that this failure by John Beck has led to complaints from BBS applicants who have said that their membership forms and remittances have been returned. How many potential members may have been lost? The interim committee reinstated the redirection order with Australia Post.
There were other allegations about the role of John Beck as Public Officer of Melb PC. The Public Officer is required to lodge annual returns on behalf of Melb PC, and to lodge Notices of Special Resolutions altering the constitution. We found that John, and a succession of previous Melb PC public officers, had failed to lodge annual returns and changes to the constitution.
John Beck has admitted that he failed to perform fully the duties of the public officer, and to check as to what may or may not have been done by prior public officers.
It is this failure which made it possible in April and May 1992 for Spen Ingamells, Larry Gilmour and John Beck to claim that the December 1991 AGM results were invalid. There is no doubt that legal opinions could be found to say that this is a perfectly valid interpretation of the situation.
However it is also true that the members voted for the changes to the constitution at an earlier AGM, and that at the 1991 AGM the members elected 15 committee members in the belief that the constitutional changes had been lodged by John Beck. That John Beck together with Spen Ingamells and Larry Gilmour should in April and May 1992 use John's incompetence to claim control of Melb PC against the membership's expressed wishes hardly seems in the members' best interest.
Allegations Against Robert Pitts
A letter was written to the Registrar of Incorporated Associations on the 1st of May 1992 by Robert Pitts of Testart, Robinson & Pitts, in which most of the allegations revealed earlier in this report were detailed. Robert Pitts signed the letter on his own behalf as a member of the Committee, and as the Group's Legal Adviser.
It was alleged that Robert Pitts had no right to assert that he was the Group's Legal Adviser. Robert and others claim he came on to committee with the understanding that he would be the Group's Legal Adviser. We have not found any minute to the effect that Robert Pitts was ever appointed as the Group's Legal Adviser.
The Interim Committee has appointed Mr Tony Lang of Slater and Gordon as the Group's Legal Adviser. Mr Lang is not a member of Melb PC. We have also sent a letter to the Registrar of Incorporated Associations in which we seek advice on the same matters outlined in Robert Pitts' letter.
Allegations of Forgery by Peter Smith
It was alleged that the nomination forms received from Gary Taig and Ash Nallawalla for the 1991 AGM were not signed by the persons nominated. It was further alleged that Peter Smith forged the signatures that were on these forms. This is an offence against the Victorian Associations' Incorporation Act (conduct unbecoming or prejudicial).
Gary, Ash and Peter have all admitted to these allegations. We are told that it was common knowledge that this was done and that it was not until Gary, Ash and Peter fell out with other members of the committee that this was used against them. Certainly it was very unwise of Peter to do this. Forgery is a serious offence but there were no civil offences committed and the Police are not interested as there was no intention to defraud.
We believe this is yet another example of members of committee failing to fully carry out their responsibilities as committee members and upholding the Melb PC constitution. This example shows why it is essential that at all times, all committee members must take a "holier than thou" approach to their own actions as committee members, and the actions of other members.
Allegations Surrounding Review Software and Books
There is a considerable amount of software and books given to Melb PC for review in PC Update. It was alleged that some people have been offered such software and books as an inducement to support a particular view at the 1992 AGM.
We have been unable to confirm this allegation. However the interim committee has passed a motion that all material received by Melb PC for review be passed to the Chairman of the Editorial SIG. We have also requested that all such material be listed in the following edition of PC Update giving details of the product, the donor, and the reviewer it has been assigned to. We also requested that outstanding reviews be listed together with the name of the reviewer.
By doing this we believe the donor will receive even more publicity and thus have even more incentive to make product available for review. If products have not been assigned to a reviewer interested members will be able to contact the Editorial Chairman. The reviewer will be accountable to not only the Editorial Chairman, but also all members. Finally, all members will also be able to see who is getting which products, and which reviewers are not performing.
Chaos Everywhere
From the above we hope you can gain some idea of what the interim committee inherited from the previous committee(s).
We had been allowed to take control of Melb PC for a three month period so that the group's funds could be properly conserved and managed, and investigations made in to the propriety of certain acts and/or omissions.
What we found, in one word, is a mess. Not only did we have serious allegations against previous committee members, the deeply entrenched positions of some thirty people, and threats of legal action against previous committee members and Melb PC itself, we also were faced with an administrative nightmare.
We were told by a number of committee members that the books had never been in better shape. What we found was almost non-existent record keeping which is entirely inappropriate for a trading organisation and barely adequate for a social club with totally inadequate financial management procedures. Unfortunately we have to say that there is no area of Melb PC activities that we have looked in to and found to be well managed. (That is not saying there aren't any well managed activities, we still haven't looked at some.)
We have seen position papers from many past committee members which highlight the problems we have found and suggest excellent ways to improve the situation. Most of these solutions were prepared by highly experienced, professional people. Unfortunately, for whatever reason, few of these improvements, if any, were implemented.
It is with regret that we report to you that we have been unable to achieve many of the goals we set ourselves when we took over. The problem was larger than we could handle in the time permitted with the resources available. We could use the excuse that as an interim committee we felt we had to fully maintain the status quo, but the fact is we totally underestimated the real mess the group's affairs were in and the time it would take the three of us to get on top of things.
On the down side, we have not even managed to fully complete the investigations, let alone tackle Melb PC's real financial and administrative problems. We still have Spen Ingamells threatening to bring legal action against some nine previous committee members and Melb PC itself while at the same time serving on the interim committee and seeking to be elected President. We still have people standing for committee on the basis that they want to bring down other previous committee members. We still have a chance of coming out of the 1992 AGM with a committee that can't implement the changes that need to be made.
The upside is that now you, the members of Melb PC, know what is going on. You now know that you have to make your committee more accountable, more responsive, and more professional in its outlook. The incoming committee know that you will be closely scrutinising their actions.
It is likely that this report will upset many people. It says things many people would prefer to cover up or ignore. Perhaps that may mean we'll lose some friends and none of us have so many that we can afford that, but we believe we had no other choice than to report the situation this way. Maybe none of the three of us will ever be trusted by any protagonists involved to take over in a crisis again, but we'd prefer to hope that such a crisis never occurs again.
We believe that we will leave Melb PC in slightly better shape than we found it in, and if that is so then we have achieved something. We would like to thank the active members who continued to do their bit and supported us through this troubled time.
Further Recommendations
Melb PC should not consider reactivating a Members' Buying Service until favourable rulings are received from the Registrar of Incorporated Associations and the Australian Tax Office. The MBS should only then be reactivated if the membership approves of the business plan for the MBS put before it at a general meeting.
All Melb PC committee members, staff, and active members must declare any interest they have with any company they encourage Melb PC to trade with. Committee members must abstain from voting on any matter for which they have declared such an interest, and no executive committee member should co-sign a cheque from Melb PC for payment to such a company.
The incoming committee should be required to present a business plan for the 1992/93 financial year to members for approval at the December 1992 general meeting.
The incoming committee should be required to demonstrate to members before April 1993 that they have proper financial and business controls in place, procedure manuals to back up those controls, and a maintenance plan for the procedure manuals. Because Melb PC uses volunteer resources that come and go it is essential that procedure manuals be used and maintained.
The incoming committee should ensure that the Melb PC training operation be organised in such a way that it could apply to be an accredited training organisation under the government training guarantee levy scheme. The training operation should also be encouraged to apply to become an authorised training centre under the schemes established by many software manufacturers.
The incoming committee should require the Editorial Sub-committee to put PC Update advertising sales on a sound professional footing, possibly by using an external contractor. The Editorial sub-committee should be set a goal of covering a percentage (e.g. 50%) of PC Update costs with advertising income.
Something to Think About
Membership in Microsoft Communique passed the 50,000 mark in May 1992, and is likely to be hitting 60,000 very soon. Communique is about three years old, and Melb PC is almost nine years old. Thus in one third the time Communique has grown to be ten times as big as Melb PC by offering far less beneficial services to those who join. It just goes to show what can be done if you do it using sound business practices.
Reprinted from the August 1992 issue of PC Update, the magazine of Melbourne PC User Group, Australia
