6 November 2020

Should the RACGP be using JobKeeper to pay for its failures?

Government RACGP TheHill

In this year’s RACGP annual report we find the college keeps making more and more money, some of it directly from government COVID handouts, which it is storing away for a rainy day.

That’s a pattern that has repeated itself in the past few years.

What do we do with all this money? Maybe create a “reserve fund”, “for a rainy day”.

The big question is, what constitutes a rainy day, and what happened to GPs getting paid more? Do you think we could start using some of the extra money for that, perhaps?

Annual reports for public companies are reasonably important because they are going to be scrutinised carefully by a lot of the shareholders and professional investors, some of them likely very savvy, both commercially and financially. These people literally are invested in the company. You should expect no stone unturned.

Annual reports for not-for-profit member associations like the college don’t have quite the same degree of urgency or scrutiny.

Sure, they are meant for transparency of some sort, and are an important part of good governance. Members, if they want, get to look at the commentary and numbers, much like an investor. But unless there is something seriously awry in the numbers, who is going to bother wading through the pages and pages of a chairperson’s high level observations, directors’ performance commentaries about their particular divisional successes, cut the hard numbers against the key performance objectives of the organisation and bring that organisation to task like a professional public company board member or financial analyst might in the real world?

A subscription paying member of college? Someone who has invested at least $1500 per year in the group?

The Medical Board of Australia?

The Australian Charities and Not for Profits Commission?

Not very likely. Not unless there is something terrible afoot to do with fiduciary duties or governance, and for all you might say about the RACGP, from the outside looking in on governance and financial prudence, there is rarely much to see.

In fact, from a financial perspective, the RACGP is excellent shape. Better than some much larger and more complex member organisations, like the Certified Practising Accountants (CPAs), and better than their closest medical college in terms of membership numbers, the RACP.

But if you look even a little closely at the financials you will see some awkward hints at what might be wrong from a broader perspective with the RACGP.

The most awkward might be what happened with JobKeeper, which earned the college just over $3.7m in revenue since March (some of it in FY 2020-21). This wage subsidy was the major factor revenue for the college dipping just 0.6 of 1% in the year from from $83.1m to $82.6m.

As a result the college was able to produce a surplus of $1.9m, which it duly tucked into its “reserve” fund. Do we look at that as the college using JobKeeper to top up its “rainy day” fund? Thanks Scomo.

There’s a few other ways to look at it.

Firstly, the college suggests that it lost $5.9m in revenue as a result of COVID-19 causing it to delay its exams.

But what really happens to the $5.9m in revenue, given that the exams were only delayed?

The first thing is that with a delay in the exams the revenue for the exams could be moved out of the early months of the year. And this presumably is how the college succeeded in getting JobKeeper from the government. In March and/or April the revenue for the exams was shifted forward so that in those months, the college was showing turnover down year on year by more than 15%, which was the threshold for not-for-profit organisations to qualify for JobKeeper.

From those two months, the college was to receive government assistance all the way through to September. The college ended up down 5% on revenue if you exclude JobKeeper.

There is nothing particular sinister about this, as many companies and non-profits showed drops in revenue in the same months of March and April, and went on to recover their revenues for whatever reason. Some of those companies are likely one day to be found out to have been a tad shifty in managing to show a drop in profit in those months. That the college did was due to a postponement of exams, which was in the circumstances of COVID probably wholly justified.

The thing is, that $5.9m of revenue it lost on exams it didn’t actually lose.

Technically, the revenue from those exams never left the college. It was merely shifted into the new financial year, when the exams were actually held.

What happens then?

Well, technically, that would be a big bonus for the college that no one would see initially and might not even pick up, though it would become obvious in the next annual report of financial year 2021.

In effect, this makes JobKeeper a straight-up bonus to the college of $3.7m.

If you adjust for the exam postponement, revenues weren’t really affected. Even if they were, the college had a ton of breathing space anyway with which it could have tightened its belt a little to get through.

COVID never caused it any real financial issues. It was highly profitable from the year before.

Now things get more interesting because of the technical and other failures of the KFP and AKT. As a result of these failures, the college has promised to refund all the students who were affected and not charge them for the exams. At a guess, at least $4.5m is going to be refunded to the PFK and AKT students now, which will disappear from revenue in next year’s annual report, and there won’t appear to be any big bonus from a doubling up of exam revenue in the 2021 year for the college.

You could say that the federal government, in a one-off grant to the college via JobKeeper, paid for the exam failure – the college is refunding the students in a honourable gesture to reduce their stress, but paying for it with the revenue it gained through JobKeeper.

I’m not pointing this likely scenario out to say the college is doing anything wrong financially.

It fairly qualified for JobKeeper. And we’re pretty sure that one of the largest member organisations in Australia, the CPAs, also got JobKeeper – at least, when we asked them to confirm or deny it, they simply wouldn’t answer the question. That won’t come out until their annual report in about March next year. The college is a lot more transparent than that at least.

I’m pointing it out because, even in the most stressful year for most businesses and organisations in Australia from a financial perspective, the college has managed to make so much additional profit it can store it away for later.

It is swimming in money. It made a huge nominal profit last year, which it stored way in its reserve fund (about $6.5m), and having retained that revenue via JobKeeper, it actually made another whopping profit. That it only declared a surplus of $1.9m, and not another $6m or so, you can put down to it spending nearly 20% more on staff during the year ($36.6m on $43.9m), which, funnily enough, it doesn’t explain at all in the annual report, and didn’t explain when we asked direct questions about the report.

Some other things not really well explained in the financials was the $1.4m in CEO costs when the last salary of the outgoing CEO Zena Burgess was listed as $550,000, and we were led to believe she resigned. That $1.4m less $550,000 does not bring you back to Zena’s long service leave entitlements. There’s a pretty big gap, suggesting some sort of additional payout, which we can’t find in any notes.

The other increasingly awkward part of the money side of things for the college is its cash on hand, which this year hit a record $67m, up $10m from the previous year, and up more than $50m from 2015.

Again, any financial officer might argue that holding $67m in cash against current liabilities of nearly $80m is just good financial governance. It can be. But the college has one of the most protected and stable incomes of any organisation you will come across. It is mandated by the Medical Board of Australia that to become a GP you have to get trained and accredited through the college (or ACRRM, but 90% of GPs come through the RACGP), and to do that you have pay member fees, CPD fees, exam fees and so on. And the country wants more GPs. The ratio at which the college holds cash today is nearly 1:1 in terms of its current assets versus liabilities, but in 2015 it was half that at 1:2.

It is the most conservatively geared medical member organisation in the country. It has a tonne of good non-current assets in property, a reserve fund of $8.4m and accumulated surplus of over $16m.

Why?

As I do, I’m going to spitball here and suggest that it might be because no one in the organisation, especially those overseeing the financials, is ever going to get balled out for being fiscally conservative, and no one else in the organisation has the wherewithal to demand of the board that it account properly for what it spends , or doesn’t spend, and why.

There is no one who is challenging this board.

The organisation is a natural near-monopoly at the moment, generates masses of revenue, has a good finance manager who thinks, well, if no one is going  to ask me to take any risk at all I won’t, and, worst of all, there is no one actually going through the performance of the organisation and asking if they got good value in any one year, because there is so much money swishing around.

Now, imagine you’ve just been voted in as the new RACGP president, and before your first board meeting, you diligently review all your board papers, plus you drill into the last annual report, and a few more before that, as part of your homework.

What do you think you’d come up with as some points of discussion in that first meeting, where presumably you want to establish your credentials and provide some inkling to your fellow board members as to what they might expect from you?

You might think the first place to look is the numbers. Indeed they can usually tell you a lot, as I think they do obviously from above, especially if you’re able to decipher some of the accounting smoke and mirror work.

But no, the place to start is purpose and objectives. Why does the college exist, what is it trying to achieve for its members? Everything, including the numbers, need to be referenced back to this.

How effectively has your membership money been spent on what everyone has agreed to do here? And that question needs to be asked rigorously every single year.

Checking the 2020 annual report contents, what is immediately apparent is that there are no goals, purpose or vision outlined in the document, nor benchmarks that might be used as a measure for success.

Not ideal, but no drama either.

You can find them easily on the college website. In fact there are a few newly minted documents, one outlining the vision of the college HERE, a comprehensive position statement HERE, if you’re keen you can review a strategic plan HERE, and following is the college mission statement:

The RACGP’s mission is to improve the health and wellbeing of all people in Australia by supporting GPs, general practice registrars and medical students through its principal activities of education, training and research and by assessing doctors’ skills and knowledge, supplying ongoing professional development activities, developing resources and guidelines, helping GPs with issues that affect their practice, and developing standards that general practices use to ensure high quality healthcare.

Your job as the new president is to bring some focus and clarity to the meaningful measurement of progress in these objectives and goals being met. Your job is to question whether the money being spent is being directed towards these core objectives effectively.

To do this you probably will need to summarise all those vision and purpose documents a little when you get to the board meeting. Like, what two things are we trying to do here everyone?

Reading all the above documents, here’s a shot:

  1. Educate, train and vocationally support GPs to the standard required to meet the vision of a high-quality, connected and sustainable Australian healthcare system.
  2. Reward GPs appropriately for their effort and role and have their role appropriately recognised by the government and the public.

I’m going to admit, this is quite a bit of editing of all of the above documents. There is a lot to understand in context around these two goals which the documents address, such as, it’s fairly obvious that GPs are the beating hub of a healthcare system that is moving rapidly to manage a chronic care tsunami, so that’s a pretty good reason to have them well trained, well paid, and well recognised. You really don’t want the major cog in our system to be underpaid, poorly trained, stressed, and deserting their profession. That’s not going to augur well for the whole system in time.

Now let’s take these two core goals and return to the annual report to see if we can glean much progress, hopefully against well established benchmarks for success.

The first thing you notice is that there is a lot of stuff going on, including a pretty disruptive year created by bushfires, COVID-19, the reasonably sudden departure of a long-term CEO, and the passing on of a strong president. In fairness to the college, it’s a bit of a year from hell as far as external and internal turmoil goes. Any progress against these two goals in such a year wouldn’t be a bad effort. And there is some progress:

  • Telehealth negotiations with the government
  • A new CPD regime
  • Work on the new training regime
  • Emergency support and communication work around COVID and the bushfires

are just some examples.

But there is a lot of fluff as well. Too much fluff.

And there is no setting of benchmarks, or measurement against investment.

All up, it’s really the same old pretty annual report with a lot of pictures of people winning awards and giving out grants, and lots of activity by expert committees being reported, but nothing being meaningfully discussed against those two core key goals above, particularly in terms of return on members funds invested.

For an organisation as vital as the RACGP, the annual report, and I’m guessing the AGM, are nearing ceremonial status.

The college does manage training, CPD, education and vocational support to a reasonable degree that everyone can see. But it does not measure, nor does not report any meaningful measurement of progress on those things.

The objective that the immediate past president put all his effort into – and probably why the college did have a big success in getting the government to fund telehealth for GPs – is reward, both financial and in terms of system recognition.

It’s the goal that there has been virtually no progress on in the last decade.

The immediate past president said it was the most important goal to focus on because without reward and recognition, everything else downstream – all the CPD, the education, morale of GOs , and eventually the entire healthcare system – will implode.

The president-elect of the RACGP Dr Karen Price campaigned on a three-point charter: rebranding, rebuilding and reward.

If you think about COVID, telehealth and reward, you can’t imagine a more difficult platform to try to deliver for GPs in the next few years than getting them more reward. Especially given the college track record in dealing with the government

The RACGP annual report doesn’t really even discuss the issue.

One simple suggestion, put by one of the presidential candidates, was that with all its money the college needed to bite the bullet and get professional in its lobbying effort in Canberra.

The suggestion was met with some derision by some other candidates who seemed to suggest that the college wouldn’t be stooping to the level of the Pharmacy Guild, or other major Canberra-based lobby groups for that matter. But it’s hard to see why not.

Certainly, the college is financially very powerful today. It has a lot of money to throw at the problem, and you don’t see any money being spent on it in any of the recent annual reports. And you don’t see anyone in the college freeing up more money to bring to bear on what is surely the principal objective of the college in the next few years, given the state of the economy, and the likely competition for federal funding that GPs are likely to run into as a result.

Sending a fresh energetic new president to Canberra for 18 months and hoping for the best certainly isn’t a good strategy, even when you’ve got some good ones going down there, as Dr Nespolon seemed to be, and Dr Price could be.

More is needed in terms of focus, professionalism, strategy, measurement, and … dedicated money.

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3 Comments on "Should the RACGP be using JobKeeper to pay for its failures?"

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Raymond Yeow
Member
Raymond Yeow
23 days 7 hours ago

Thank you again Jeremy …love these long form analysis articles

Tim Leeuwenburg
Guest
23 days 11 hours ago

Hard to disagree

max.kamien@uwa.edu.au
Guest
max.kamien@uwa.edu.au
23 days 14 hours ago

….and to think I never billed the College for the thousands of hours of work that I put in for them.
The RACGP hierarchy may not like Jeremy Knibbs shining light into dark places, but they should take note of what he says. Perhaps he could be made a ‘Scholar in Residence’.

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