Eyebrows raised over Chartered Accountants ANZ’s $90m payroll bill

I’m proud to call myself a Chartered Accountant, a CA.

I earned the right to attach those two little letters to my email signature.

For the uninitiated, it involved three years of study, assignments and exams. All of that on top of a full-time job, juggling my new career in bean-counting. It was a grind. My peers would agree.

Of course, there was an easier way out.

I mean, CPA was an option…kind of.

It was less favoured by my old employers – typical Big 4 partner types.

Their strong preference was that you pursue CA. Not only because CA exams are much harder (I’ve heard CPA exams are still multiple choice, btw), but because all the partners were and still are CAs.

As Seth Godin says, “People like us do things like this”. There is no more powerful tribal marketing connection than this.

Honestly, my clients probably don’t understand what ‘CA’ actually means, nor do I think they care.

But it matters in professional circles. When I’m being sized up in a Boardroom. When I’m raising capital from investors and banks. When I’m working with advisors on a deal.

Being a CA is a signal, a brand. It tells strangers who have not met me or seen my work that I am somewhat ‘legit’; that they can trust me.

I make the same assumption of other CAs: You’re one of us.

I’ve been a member of CA ANZ – the member body that governs Chartered Accountants in Australia and New Zealand – since 2014.

Overall, I believe my ~$700 annual membership fee (plus the $100 late charge) is worth it. But I’ve recently become skeptical. Slightly jaded.

You see, I’m not only a CA, but I also own and operate an accounting firm. And I incur an additional $~1,500 of annual fees to call my business a Chartered Accounting firm.

My accounting firm is one of the 64,000 Australian registered tax practitioners experiencing all of the heat and challenges that come with being the Australian Government’s outsourced tax collection agency.

A chronic skill shortage, with the number of new accountants entering the industry on a significant decline. Burn-out. Mental health issues.

Part of the ‘value’ of being part of a member body is to get representation and support. But to be honest, I haven’t seen much.

There were multiple instances when CA ANZ could have stepped up to the plate and delivered something useful to their members. They could have assisted us to navigate the COVID stimulus measures in 2021, or the changes to Section 100A, which impacts pretty much every small family business in our country.

But instead, I see, frankly, nothing.

Actually, that’s not quite true.

I’ve seen CA ANZ in the news recently – but not for good reasons.

There was their lacklustre response to the KPMG cheating scandal, when over 1,100 KPMG partners and staff “were involved in improper answer sharing when taking training tests”.

Or their laggard response to the PwC tax leaks scandal, which made global headlines.

In fact, the only correspondence I get from CA is a reminder that my annual membership fee is yet again overdue. (My bad.)

Oh, and the odd sales emails trying to flog me discounted online CPD courses, which they make even more money out of.

Which got me thinking – where does the money go? What’s it being spent on?

The 2023 annual report was released a few weeks ago, and the AGM is scheduled for this week.

What a perfect opportunity to do a financial and strategic teardown of CA ANZ.

But before we do that, it’s important to explain what CA ANZ is, and why it’s in our best interest to have a sticky beak into their corporate affairs.

What is CA ANZ?

CA ANZ represents over 130,000 members in Australia, New Zealand and overseas.

The institute was formed to focus on the education and lifelong learning of members, and engage in advocacy and thought leadership in areas of public interest that impact policy.

Importantly, CA ANZ is a professional member body – an organisation designed to maintain oversight of the knowledge, skills, conduct and practice of the accounting profession.

A council is elected and appointed by members regionally. The council is responsible for appointing the Board and assisting management in ensuring decisions are made in the best interest of members. The council also advises the Board and management on member and strategic issues.

Every year, the Board releases an annual report which summarises the results of the organisation, and how it has performed against the strategy objectives.

Members play a critical role in keeping the Board and management accountable to their best interests.

The financial teardown

Membership organisations are wonderful business models. Here’s why:

• Recurring revenue
• Capital light (selling IP and brand)
• It’s essential (to call yourself a CA, you have to pay your dues)
• Pricing power (to keep your membership, you’re at the mercy of annual fees)

Honestly, I expected CA ANZ to be printing cash – or at least breaking even.

But in the FY23 financial statements, CA ANZ lost $13M on $147M of revenue.

So how were members’ funds spent?

The table below shows the summarised P&L for the last five years.

Revenue breakdown

CA ANZ has three primary revenue streams.

• Membership fees comprise the majority of income at ~61% in FY23. This is the membership fee that I, and the other 136k members, pay every year.
• CA Programs revenue comes from the fees for enrolments in the CA Program professional program, which is about 25% of annual revenue in FY23.
• Other member services revenue includes the fees generated from CPD courses, Acuity magazine and conferences.

Membership fees are up from last year, but there’s a systemic issue that is a threat to the sustainability of this revenue – and, perhaps, the broader profession.

It’s the decline in CA Programs Revenue.

The FY23 annual reports notes that a decrease of this revenue is due to “lower enrolments that correlate to reductions in undergraduate accounting degree completions in both Australia and New Zealand, as well as slower candidate progression through the new CA Program”.

In other words, there are less graduates doing the CA program.

I can tell you, as a practitioner, I’m definitely seeing this. New talent is increasingly difficult to come by.

What’s CA ANZ’s plan to solve that? More on that later.

Expense breakdown

Like most services businesses, payroll is the largest expense for CA ANZ. I expected it to be large, but I was surprised by the sheer quantum, with $90M – 60% of revenue – spent on wages in FY23.

Below is a snapshot of the gender breakdown of all staff, disclosed in the FY23 annual report.

What this also reveals is the number of people employed by CA ANZ – around 1,300!

From what I understand, a chunk of the casual workforce comprises sessional academics – working accountants in practice that contract to CA ANZ to assist with facilitating the new CA programs, tutoring and so on.

If you exclude those folks, the FTE staff employed by CA ANZ is 550.

I don’t know about you, but that’s a lot of people to administer a membership organisation –  especially when the only correspondence I get as a member are automated emails from a clunky Salesforce website that Deloitte was paid eight figures to build back in 2017, and costs $10M a year to maintain via ‘technology costs’.

It’s also worth noting CA ANZ employs 25 General Managers. This excludes the 12 folks in the Executive Team. If you include them, there are close to 40 head honchos in the organisation!

I can count on one hand the amount of GMs in a lot of businesses with comparable – or higher – turnover and complexity. Aren’t you curious what these folks spend their time ‘managing’?

If it’s to benefit members, I don’t see it.

Speaking of which, the funds spent on member support services appear to be on the decline. In FY19, around 19% of revenue was spent on this line item. In FY23, it was 14%.

Mind you, this includes the $2M a year spent on Acuity, CA ANZ’s ‘thought leadership’ magazine – providing ‘fresh’ ideas, insight and foresight on matters of economics, business and finance.

I particularly enjoyed the article on single use plastics, which discussed the “central role” accountants and other finance professionals have to play in reducing plastic waste. This article was featured in the latest edition of the magazine, which is delivered every month wrapped in… single use plastic.

Gag me with a spoon!

The bottom line is the organisation is bleeding cash. Spending is going up whilst new membership revenue is plateauing.

I understand that as a member body, making a profit – or ‘surplus’, in the incorporated association lingo – is not the purpose of CA ANZ.

But just because it’s a ‘not-for-profit’ doesn’t mean it should be a bloated ‘for-loss’ enterprise, either.

Of course, as an accountant, I’m well aware of the flaws of assessing a business solely on historical numbers.

The numbers lag behind a forward looking strategy – so let’s take a deep dive into that strategy.

The strategic teardown

CA ANZ’s 2023 report employs an integrated reporting framework, which shows not just the familiar P&L, cash flow statement and balance sheet, but also key strategies, the KPIs used to track the effectiveness of those strategies, and how they’re performing against them.

 The cynic would say this integrated reporting is being used to justify over-the-top executive pay. An analytical accountant, though, uses it to do a financial teardown.

The strategic document

In Australia, businesses have a company constitution, a trust deed, or articles of association, depending on the legal entity type. Romantically, CA ANZ has a Royal Charter – a document quite literally signed off by the King.

 The strategic plan summarises the charter as:

• Membership Body
• Advocacy
• Regulator
• Tertiary Provider

The Board lists their values, where ‘Accountability’ is itemised, giving us great confidence in publishing this teardown without fear of retribution.

And then we get to the strategic roles, key pillars and focus areas.

If you’re a small business owner, this is actually a great one-page template to copy – er, I mean, take inspiration from.

Yep, the strategy looks great. The problem is that CA ANZ’s customers don’t think they’re getting good service.

• At last year’s AGM, members voted against an increase to directors’ remuneration on the back of a public conversation about members’ dissatisfaction with what they get from CA ANZ. The conclusion – they aren’t delivering on their strategy.

• When posting about this teardown, a mere copy and paste of CA ANZ’s P&L earned 300k+ views on LinkedIn and got picked up by The Age and the Sydney Morning Herald – so there’s obviously a lot of interest in how they’re spending members’ money.

If you walk into a room of accountants, just saying the words ‘Chartered Accountants’ will garner a complaint.

But this year’s annual report will tell you a completely different story.

The annual report

I’m a trained accountant. When I see a value creation map like the one on page 21 of CA ANZ’s annual report, my gut tells me this is a professional outfit.

This takes time. It’s expensive.

Strategic pillar 1 – World class member experience

Buried inside pages of apparent detail is the KPI that shows how members really feel. Member Engagement is down 4%, proving their disappointment.

I think the rigidity of CA ANZ’s strategic planning has caused them to respond slowly to the pulse of their membership.

Members, through representative state councils, have made it clear what they want.

It just doesn’t seem like CA ANZ and their small army of senior staff know how to implement any of the recommendations. Sound familiar, Australia?

Strategic pillar 2 – Our brand and reputation

You know PwC haven’t behaved well. What you might not know is that under their Royal Charter, it’s CA ANZ’s job as a regulator to make sure they do.

So, you’ll forgive me for completely ignoring everything after “CA ANZ upholds the profession’s reputation by…”

The CA brand is in trouble.

The financial system is reliant on the trust PwC and their big peers create by putting their logos on audit certificates and their quality tax advice. A conflict of interest, if ever I’ve heard one.

There is such an easy win here, and it isn’t going to come from expensive marketing execs and agency contracts.

CA, at its core, is a grassroots membership body. Go back to the grassroots.

Get rid of one of the many General Managers, and hire an account manager and community manager for nearly the same price. Start listening to the members, learning from their experience, and acting on their advice. Go back to the people and barely touch the budget.

Pillar 3: Sustainable profession and professional body

We can assess the performance of Pillar 3 simply by quoting CA ANZ’s 2024 outlook on page 63 of the annual report.

“Addressing declining student interest in accountancy as a career, and dwindling university student interest in accountancy and commerce programs, will remain a key challenge for CA ANZ.”

In other words – if we don’t change, we won’t have enough accountants. The number one problem every single accounting firm has right now is finding skilled staff.

They have strategies to change this, but over the last ten years, not much has worked. They fell short of their new member target.

I really hope CA ANZ can turn this around quickly.

 Pillar 4: Digital transformation and delivery

At over 100 years old, CA ANZ must invest in digitising their operations.

Members may not like the solution they’ve chosen thus far, but the business can’t run the way it did 15 years ago.

Digital operations implemented well can create enough efficiency that fewer headcount is needed. A great CRM can do the work of 10 marketing assistants, for instance. I can only hope this pillar delivers ROI through member services and reduced costs in the future.

Also this:

I’m glad the 8-figures spent on the digital transformation exercise made it ‘straight forward’ to renew my membership…

Pillar 5: A culture of difference makers

Having an inclusive and diverse workplace with equity of opportunity and reward for all are noble focuses, but CA ANZ is in the position to do much more. Done right, this pillar is their opportunity to right the ship.

 Empower staff to make a difference. Give them the support and tools required to implement advice from representative state councils.

Take a look at your member base and make sure you’re representing the entire base, and that the actions you’re taking are benefiting all members. The needs of microfirms are very different to those in big business.

It’s great that CA ANZ are transparent – now they need to make tough changes to build a strong and robust organisation.

Conclusion

It might seem unlikely, but CA ANZ actually have something in common with Louis Vuitton – they both sell status. They’re selling a brand.

Most CAs accept this. The whole system is built on this image.

The key difference is that there is at least some utility in a Louis Vuitton handbag. You use it to carry stuff.

There’s an opportunity for CA ANZ to provide useful, tangible benefits to its members. If they don’t, members will eventually move with their feet.

Of course, this article wouldn’t pass the APES110 sniff test without some form of constructive feedback, so here are some recommendations and questions to raise at the upcoming AGM:

• Conduct a cost benefit analysis and ROI measurement of projects. Is the spend or investment being made into these projects actually creating value?
• Is the executive team an echo chamber of people drinking their own Kool Aid and protecting their ‘senior’ positions, or do they actually serve a purpose? How does the Board keep the executive team accountable? A review is needed – perhaps it’s time to limit the terms of executive team members to, say, five years. Rotation of leadership helps to offer different perspectives and fresh thinking.
• Engage with the members. A good start would be with the 6000 accountants in the Small Business Accountants & Advisers Brain Trust Australia FB Page – a free, community moderated page made up of accountants in practice.

The 2023 CA ANZ AGM was held on Friday October 20. Keeping a member body accountable to the members is important – we all have a role to play in that.

This article was first published by SBO Financial.