Ws 4wd Final Report 7 Nov 2010

Review of the 4WD
Adventure Show

On behalf of
Four Wheel Drive NSW & ACT
Inc.

7 NOVEMBER 2010

WAYNE SMITH & Co
P.O. Box 1590
Potts Point N.S.W. 1335
Phone 02 9332 1499, Fax 02 9332 1688
Email Wayne@waynesmith.com.au
Wayne Smith & CO Review of The 4WD adventure SHOW
CONTENTS
Review of The 4WD adventure SHOW on behalf of Four Wheel Drive NSW & ACT Inc. ..................................... 3
Background ....................................................................................................................................................... 3
Instructions ....................................................................................................................................................... 3
Review Process ................................................................................................................................................. 4
Governance and Probity ................................................................................................................................... 5
Minutes ........................................................................................................................................................ 6
Duty to exercise reasonable care and skill ................................................................................................... 8
Care and diligence – civil obligations ............................................................................................................ 9
Obligation to prevent insolvent trading ....................................................................................................... 9
Contracts with office holders ..................................................................................................................... 11
Conflict of interest ...................................................................................................................................... 11
Obligation to disclose conflict of interest to the Annual General Meeting (AGM) .................................... 12
Financial Results ............................................................................................................................................. 13
Report of the Auditors Review of the financial statement ........................................................................ 14
Continuing liabilities ................................................................................................................................... 15
Separation of functions – internal control................................................................................................. 15
What went wrong? ......................................................................................................................................... 16
Event History – Conceptualisation & Lead Time ........................................................................................ 16
Event History ‐ Lead Time in Relation to Sponsors: .................................................................................... 17
Event History – Lead Time in Relation to Exhibitors: .................................................................................. 18
Event History – Lead Time in Relation to Ticket Sales: ............................................................................... 18
Event History: Benchmarks and Assumptions. ........................................................................................... 19
Event History: Budget Oversight. ............................................................................................................... 20
Event History: Gate Receipts & Staffing Oversight. .................................................................................... 24
Considerations Regarding Future Events. ...................................................................................................... 24
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About the compilers of this report ................................................................................................................. 26

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REVIEW OF THE 4WD ADVENTURE SHOW – ON BEHALF OF FOUR WHEEL DRIVE
NSW & ACT INC.
BACKGROUND
Four Wheel Drive NSW & ACT Inc. (the Association) is the peak body representing 97 4WD
clubs in NSW and the ACT.
The Association held the The 4WD Adventure SHOW between Friday 27 August and
Sunday 29 August, 2010. The show incurred a financial loss of $246,934 and the executive
Committee have retained Wayne Smith and Co to conduct a review.
INSTRUCTIONS
Wayne Smith & Co was appointed to provide to the executive committee an audit review
and review of operational matters and report on the 4WD adventure show (‘show’) held at
the Sydney Dragway, Eastern Creek, NSW between 27 August until 29 August, 2010.
Our framework of reference:
Review Objectives:
1. Provide an audit review on the revenue and expenditure statement of the
Association relating to the show.
2. Provide an opinion of the probity relating to the engagement of contractors and
service providers to the show.
3. Report on the relationship between the budget and financial results achieved.
4. Report on any other matters revealed during the review which may offer assistance
to the running of future shows.
Review Scope:
To achieve these objectives the following are the main components to this review.
 Conduct a financial audit review of the revenue and expenditure relating to the
show.
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 Examination of the Association in relation to the Associations Incorporation Act
1991 (ACT) and in particular the provisions relating to entering into contracts on
behalf of the Association, accounting and management.

 Examination of the probity in relation to the awarding of contracts and engagement
of service providers within the context of the Associations obligations of the
legislative framework of the Associations Incorporation Act 1991 (ACT) and best
practice.

 Examination of the budgetary process adopted by the Association and the
relationship between this process and the project management of the show.

 Provide a report of our findings including an analysis of the budgeted revenue
shortfalls together with recommendations for improvement in future events
organised by the Association.
The scope of the review did not include an audit of the Association’s assets and liabilities,
accordingly, we do not express an audit opinion on them. We are not the appointed
auditors of the Association and our report is a special purpose report and is not a report of
the type required by Section 72 of the Associations Incorporation Act 1991 (ACT)
This report does not constitute, and is not, legal advice. Comments made are by way of
observation. It is recommended that Counsel be retained in respect to some of the issues
identified.
We disclaim any assumption of responsibility for any reliance on this review to any person
other than Four Wheel Drive NSW & ACT Inc.
REVIEW PROCESS
The process has involved reviewing various reports prepared by the show manager,
relevant legislation, interviews with the Executive, Show Manager and selected Show
Committee members, financial records including selected invoices and receipt statements
and other documents relating to the show.
The scope of the review did not include an audit of the Association’s assets and liabilities.
The revenue and expenditure statement has been examined in relation to the applicable
accounting framework.
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We acknowledge the assistance and co‐operation provided by the executive, show
committee members and the show manager.
The propriety of decisions made and the integrity of the members of the committee and
show sub‐committee are not disputed. There is no evidence of any untoward behaviour by
the committee members, and they are to be commended for the honesty and
straightforward answers they gave to all questions which were asked of them during the
course of this review.

GOVERNANCE AND PROBITY
The Four Wheel Drive NSW & ACT Inc. has been incorporated under the Associations
Incorporation Act (1991) of the Australian Capital Territory (‘the Act’) and it is subject to
the provisions of that Act.
DELEGATION BY COMMITTEE TO SHOW SUB‐COMMITTEE
Under the Act the committee of an incorporated Association has the management of the
Association (Part 4 s60).
The power to delegate to a sub‐committee is contained in Part 1.3 clause 21 of the
Associations Constitution. All acts or things done or suffered by the subcommittee in the
exercise of the delegation has the same force and effect as if done by the Executive
Committee.
The Committee established a sub‐committee with delegated powers to oversee the
running of the show. Notwithstanding this delegation the Constitution of the Association
provides that the Committee, retained the right to exercise any power delegated.
The show sub‐committee was established by the executive committee on 4 February, 2010.
The members of the sub‐committee were:
 Chairperson – Greg Redfern
 Event Manager – Greg Ebling
 Marketing and PR – Michelle Sahayan
 Finance Officer – Ron Owen
 Executive Committee Representative – Roger Sheath
At the meeting of the Executive held on 8th March, 2010 the following terms of reference
and functions were delegated to the Show Sub‐Committee:
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Objectives:
1. To promote 4WD activities and interests in Sydney & regional NSW.
2. Provide an opportunity for affiliated clubs to present the benefits of their club
membership and increase membership.
3. To fill a void in the Sydney market to promote 4WD interests.
4. To be the prime marketing opportunity for the Association as required by the
Management Plan to focus on events.
5. To provide a template for the future shows within NSW as required by the
Management Plan.
6. To make available an opportunity for the clubs to participate in the show and
provide source of fund raising by voluntary service.
7. To present the Association with a possibility of generating an income source to
provide programmes beneficial to members.
Duties:
1. To plan and present a quality show that meets the objectives of the Association.
2. To secure the resources to ensure the success of the show.
3. To provide monthly summaries as to the financial status of the show to the
Executive Committee.
4. To make recommendations to executive committee on long term commitments
required to achieve success of the show.
5. To provide detailed Income and Expenditure, Asset and Liability reports in
accordance with recognised accounting practices.
6. To provide regular updates on project progress to Association Members.
MINUTES
The Associations Incorporation Act (1991) is silent in respect to provisions on keeping
minutes. The Association’s constitution at section at Part 1.3 s17 (3) provides that the
secretary shall be responsible for keeping minutes of all committee and general meetings.
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Although not specifically mentioned minutes of sub‐committee meetings are also required
as a sub‐committee is subset or delegation of the management committee. In our opinion
the minutes of both the executive committee and sub‐committee provide insufficient
detail of discussions of considerations leading to key decisions especially in relation to the
decision to proceed with the show.
MINUTES OF THE SHOW SUB‐COMMITTEE
The show sub‐ committee met seven times between April 2010 and August 2010. In
addition to the sub‐committee members, attendance at these meetings often included
representatives from service and infrastructure providers.
The minutes of the sub‐committee evidence that the committee discussed and actioned a
wide range of directly related activities and logistic support required for the running of the
show. The minutes contain reference to the topics under discussion but are short and
provide little or no detail of any discussion on those topics.
The minutes reveal that financial reports were tabled or delivered to six of sub‐committee
meetings. However the minutes do not reveal what discussion took place or what decisions
were made in relation to those reports. The meeting held on 5 July is an exception with the
comment ‘we are on track’. None of the financial reports are attached to the minutes.
MINUTES OF THE EXECUTIVE COMMITTEE
The minutes of the executive committee are more detailed in relation to the discussions on
the show than are the sub‐committee minutes. However they have numerous references
to reports being discussed or tabled and in many instances there is no indication of either
the content of the report or any detail of the discussion on the reports. The reports have
not been attached to the minutes.
We have been informed that one of the reason that the minutes are lacking detail is
because they are made available to the members on the Associations website and that it is
not appropriate to make public the content of items which may be considered commercial‐
in‐confidence. We are of the opinion that the minutes required to be kept as a permanent
record of the Association should contain more detail and should not be censored in the
first instance. The copies of the minutes made publicly available could be redacted to
eliminate any liability which may potentially arise from publication of commercial‐in‐
confidence items.
Although it is often important for the minutes to be brief and concentrate on material
issues rather than being a verbatim report, the minute‐taker should have sufficient
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understanding of the subject matter to achieve the balance required of good secretarial
practice.
It is often common for adherents to the "less is more" approach to include certain facts: for
example, that financial reports were presented, or that a legal issue (such as a potential
conflict of interest) was discussed, or that a particular aspect of an issue was duly
considered, without presenting any detail of the discussion.
However, the minutes are important legal documents and are prima facie evidence of the
executive discharging their legal obligations and duties. Any failure to record the details of
the discussion at the meetings which lead to the decision being made or to keep a copy of
the reports attached to the official minutes reduces the evidential benefit available in
defence of decisions taken by the executive.
By way of example the minutes will assist committee members in showing that they have
met their obligations and duties as set out below.
LEGAL OBLIGATIONS THAT EXECUTIVE COMMITTEE MEMBERS SHOULD BE
AWARE OF
Committee of management members should be aware that while office holders may have
certain areas of responsibility or oversight, all committee of management members have a
general duty to be aware of the affairs of the Association. For example, just because an
incorporated Association has a Treasurer, does not mean that all other committee of
management members do not have to be aware of the financial position of the
organisation.
DUTY TO EXERCISE REASONABLE CARE AND SKILL
A member of the Committee of Management is required to act with the skill and careful
attention that a reasonable person in a similar position would bring to the role.
In relying on information or advice from a manager or contractor of the Association the
member should make sure they are satisfied that it is reasonable to rely on the information
or advice. If the member is not satisfied with information provided they should make
further investigations.
This obligation to understand and assess information by the member (rather than just rely
on the advice of the treasurer or manager for example) applies to financial reports as well
as more general information about the Association’s activities.
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CARE AND DILIGENCE – CIVIL OBLIGATIONS
An executive member must exercise their powers and discharge their duties with
reasonable care and diligence.
If an executive member or other officer makes a business judgement, they will be deemed
to have met the above requirements in respect of the judgement if they:
 make the judgement in good faith and for a proper purpose;
 do not have a material personal interest in the subject matter of the judgment;
 inform themselves about the subject matter of the judgement to the extent they
believe is reasonable; and
 believe the judgement is in the best interests of the Association.
OBLIGATION TO PREVENT INSOLVENT TRADING
Given the present financial position of the Association it is prudent for the members of the
executive committee to be aware of matters relating to insolvent trading.
As part of the duty to exercise reasonable care and skill, it is generally accepted that the
Executive Committee members have an obligation to prevent the incorporated association
from trading while insolvent. A Committee member may be in breach of their legal duties
if they let an incorporated association continue to operate while insolvent.
An incorporated association should not incur any new debts if it is unable to meet its
existing debts. If the committee suspect, or have reasonable grounds to suspect, that the
Association cannot pay its debts when they fall due, professional advice should
immediately be obtained.
The test is the Association will be 'insolvent' if it cannot pay its debts as and when they fall
due.
If an incorporated association continues to operate while insolvent, the committee
members could be personally liable, even though the organisation is incorporated and
generally has limited liability.
For many incorporated associations, ‘insolvency’ may occur due to it being ‘technically’
without the capacity to pay its debts for a short period of time prior to receiving an
injection of capital in the form of a loan of grant from an associated organisation, for
example.
In Sandell v Porter [1966] 115 CLR 666, the Court held that insolvency is determined by
considering all of the circumstances of the debtors’ financial position. It is the financial
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position in its entirety that must be considered and insolvency should not be drawn simply
from evidence of a temporary lack of liquidity.1
The Court confirmed this position in Lewis v Doran when referring to the enactment of s
95A of the Corporations Act. The Court said:2
‘… s 95A is unequivocally and emphatically clear that insolvency is, first and last, a
question of fact ‘to be ascertained from a consideration of the company’s financial
position taken as a whole. In considering the company’s financial position as a
whole, the Court must have regard to commercial realities. Commercial realities will
be relevant in considering what resources are available to the company to meet its
liabilities as they fall due, whether resources other than cash are realisable by sale
or borrowing upon security, and when such realisations are achievable.’ Southern
Cross Interiors Pty Ltd (in liquidation) v DCT (2001) 53NSWLR 213 at 224.3
It goes too far to say that insolvency exists merely because there is an insufficiency of funds
at a particular point in time. This circumstance may exist merely due to a temporary lack of
liquidity, whereas insolvency is confirmed if the insufficiency represents an ‘endemic
shortage of working capital’.
Moneys that can be secured by a pledge within a reasonably short period of time will also
discharge an incorporated association’s liabilities in order to show solvency.4
If an incorporated association is able to show that it has capital coming into it which can be
regarded as ‘immediately realisable or obtainable’5 and not in the indeterminate future,
then, coupled with a consideration of the nature of its assets and the nature of its business,
it is likely that a conclusion of insolvency will be prevented.6

We have been informed that related Associations have or are in the process of providing a
pledge to make up the Association’s financial shortfall. It is our recommendation that in the
absence of imminent receipt of these funds a written pledge should be obtained. Should

1
Sandell v Porter [1966] 115 CLR 666, 670 per Barwick CJ.
2
Lewis v Doran (2004) 208 ALR 385, 408.
3
Hymix Concrete Pty Ltd v Garrity (1977) 2 ACLR 559.
4
Lane Rowin Pty Ltd v Perovich [2007] FMCA 1429.
5
Hymix Concrete Pty Ltd v Garrity (1977) 2 ACLR 559.
6
Rees v Bank of New South Wales (1964) 111 CLR 210, 229.
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either the funds or the pledge not be obtained within a reasonable time we recommend
that legal advice be sought in relation to solvency of the Association.
CONTRACTS WITH OFFICE HOLDERS
We note that the minutes of the Executive committee dated 18 January 2010 record that
Roger Sheath was ‘appointed to assist Greg Ebeling’ as ‘an administrative assistant… and a
job description is to be drawn up.’ The minutes imply that this was an employed position.
Shortly afterwards a draft contract was presented however this was never executed.
Our interviews with Roger, Greg Ebeling and emails from Greg Redfern we have perused
support that Roger was engaged as an independent contractor as the Project Manager of
the show and was required to provide the project services and tasks as set out in the draft
unexecuted contract.
CONFLICT OF INTEREST

The appointment of Roger while a continuing member of the Executive and the Show sub‐
committee placed him in a conflict of interest. We might add that Greg Ebeling was also in
a conflict of interest by virtue of the contract he held as Show Manager and his
appointment to the show sub‐committee.

It is a conflict of interest if, a member of the Committee of Management has a private
financial (pecuniary) interest, directly or indirectly, in a contract that the organisation is
considering or enters into. This does not mean that the Association cannot have business
dealings with committee members.

It should be stressed that potential or real conflicts of interest can occur at any time, and
indeed are a normal part of a person’s existence within an organisation. Such conflicts are
not necessarily a commentary on the individual involved. It is however important that
individuals be given the opportunity to be sensitised to, and express, potential or real
conflicts of interest.

The presence of a conflict of interest does not necessarily imply any impropriety.
Section 65 of the The Associations Incorporation Act (1991) provides that if a member of
the committee of an incorporated Association has any direct or indirect pecuniary interest
in a contract or proposed contract to which the Association is or may be a party, the
committee member must disclose the nature and extent of the interest to the committee.
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It is inherent by the minutes of the executive that this conflict of interest was known to the
executive committee at the time of the engagement, hence constructive notice, if not
actual notice was given by Roger Sheath. The same applies to Greg Ebeling when he was
appointed a member of the show sub‐committee whilst contracted to the Association as
the show manager.
The member will be permitted to take part in discussions about the contract but must not
take part in any decision of the Committee with respect to that contract. It is not obvious in
the minutes of the Committee that Roger Sheath recused himself from the committee
when he was being appointed. However we have been informed that he left the meeting
and was not present during the discussions on his appointment.
OBLIGATION TO DISCLOSE CONFLICT OF INTEREST TO THE ANNUAL GENERAL
MEETING (AGM)
Where a committee member has a conflict of interest as set out above, there is also an
obligation to disclose the nature and extent of that conflict of interest in the statement
presented by the Association to its members at the next AGM (s65 (1) (a)). This provision
has penalties attached to it for noncompliance.
We stress the importance for the Association to make this declaration at the upcoming
AGM.
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FINANCIAL RESULTS
Four Wheel Drive NSW & ACT Inc
4WD Adventure Show
STATEMENT OF FINANCIAL PERFORMANCE
for the period 5 February 2010 to 11 October 2010
Income
Sales Exhibitors 220,527
Entrance sales 82,355
Other sales Income 5,089
Total Income 307,971
Less Expense
Venue and staging costs
Site costs Lease of site 68,069
Ground Layout 3,248
Security 10,236
Cleaning 5,966
Entertainment 5,141
Hire of Plant and Equipment 36,486
Club Labour Costs 5,000
Other staging costs Catering for Exhibitors/Staff 4,000
Ticketing costs 7,374
Miscellaneous Costs 104
Administration Expenses
Bank Fees 630
Accounting Fees 650
Show and Project Management Contractors 129,446
Postage and Stationary 3,667
Legal fees 1,238
Insurance 8,759
Telephone 4,008
Travel Costs 12,831
Meeting Costs 168
Test Track Construction 23,320
Test Track Materials 18,433
Marketing Costs
Advertising and Promotion 206,174
Total Expenses 554,945
Operating Profit/(Loss) ‐246,974
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Other Income
Interest Income 39
Net Profit / (Loss) ‐246,934

REPORT OF THE AUDITORS REVIEW OF THE FINANCIAL STATEMENT

The statement of financial performance spans the financial year ended 30 June 2010 and
the period 1 July 2010 to 11 October 2010. The report covers revenue and expenditure
applicable to the 4WD Adventure Show held between 27 August and 29 August, 2010.

Section 72 of the Associations Incorporation Act (1991 provides that the committee is
responsible for the preparation of the financial report. The Australian accounting standards
require that the financial report be prepared in accordance with the applicable financial
reporting framework, and for such internal control as it determines is necessary to enable
the preparation of the financial report that is free from material misstatement, whether
due to fraud or error.

Our procedures have included verification of reconciled balances, examination, on a test
basis, of evidence supporting the amounts and other disclosures in the financial report .
The results of our tests did not reveal any irregularities or material misstatement.

Our review is not a financial audit as this would by necessity require an examination by us
of the assets and liabilities of the Association. The Association has appointed auditors for
this purpose. Accordingly we do not express an audit opinion on the financial statement.

The expenditure includes an amount of $41,753 spent developing the track. Under
Australian accounting standards it would be possible to amortise this amount over the life
of the lease on the track. We have been informed that a lease has been negotiated and we
have sighted minutes of joint meetings held between Sydney Dragway and representatives
of the Association’s executive where intention to lease was discussed. However a lease
contract over land is required to be in writing and in the absence of a lease the expenditure
cannot be amortised.

As at 31 October 2010 trade creditors were $42,386. However as our review was restricted
to the accounting records of the show we are unaware of the funds held by the Association
to cover this. (see earlier section of this report on insolvency).

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CONTINUING LIABILITIES

We have been provided with a copy of an agreement between the Association and
Western Sydney International Dragway LTD ABN 38 588 445 216. This contract is a licence
agreement and provides for the use of the site. Under the agreement the Association is
required to pay $76,000.00 + GST in 2011 and $95,000.00 + GST in 2012.

We recommend that legal advice be obtained to determine if this liability is dependent
upon the show being held in these years or otherwise.
SEPARATION OF FUNCTIONS – INTERNAL CONTROL

The mechanisms in regard to budget oversight of the show appear to be badly designed
and in some cases not fully implemented.

Normally a clear distinction is made between those responsible for inputting receipts into
an accounting system and processing payments. This is required for proper segregation of
roles.

With regard to the approval of payments process it appears that the contracted Project
Manager approved payments to third party suppliers after they were verified by the show
manager. This is contrary to industry practice whereby the Client (In this case the
Association) approves payment upon verification by the Contractor(s). This requires that
from the client’s side someone is familiar with the budget and in a position to approve
payments and that that person have no vested interest in the project by way of
remuneration.

The Project Manager (a contracted position) worked with the Show Manager (a contracted
position) and made the payments including processing the accounting entries relating to
them. The Project Manager was able to make payments electronically without the need to
reference to a third party (for amounts under $5000).

Whilst this is efficient, and we recognise the problems of separation of functions in small
organisations, it is a weakness of internal control procedures.

The above comments are not meant to cast any doubt on the integrity and honesty of the
Show Manger or the Project Manager.

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WHAT WENT WRONG?

The aim of this part of our review is to explore the event history and it’s outcomes from an
event management perspective as distinct from a probity/governance perspective.
As such this report aims to explore those areas relating to the Associations business model
that may have contributed to the events financial loss as well as suggestions that may be
helpful in relation to the Associations endeavour’s with regard to future events.
EVENT HISTORY – CONCEPTUALISATION & LEAD TIME

It appears that the show was originally conceived early in 2009 however for various
reasons a feasibility study was not prepared until December 2009. This report was put to
the Associations Executive Committee and on 18 January 2010 approval was given to
commence preparations for holding the show subject to review to take part at the end of
March 2010. The executive contracted Greg Ebeling (who had prepared the feasibility
report) in the capacity of the show (event) manager. The contract was executed on 22
February 2010 on behalf of the Association by Roger Sheath (acting President) and Ron
Owen (Treasurer). The commencement date itemized in the contract was 16 January 2010.
The provisions in the contract for the services to be provided are extracted below:

‘The Event Manager will provide the following services:
1. Manage the 2010 Sydney 4WD Adventure Show to the requirements of the
organising committee.
2. Develop planning documents for the 2010 show as required.
3. Manage all aspects of the Sydney 4WD Adventure Show.
4. Manage the Exhibitors to the 2010 Sydney 4WD Adventure Show
(a) Seek out exhibitors and negotiate exhibitors contracts
(b) Complete initial registration and allocation of sites, finalise registrations
and site allocations, in consultation with the Exhibition manager and
Committee, and generally resolve problems that arise from time to time
(c) Seek out replacement Exhibitors following any withdrawals wherever
possible
(d) Finalise arrangements with Exhibitors and other site holders (as advised
by the Committee)
(e) Record details of Exhibitor preferences, including their power
requirements
(f) Provide details to the Treasurer to maintain the site allocation register.
Page 16 of 26

5. Develop venue layout plan and negotiate venue requirements with the
Sydney Speedway Committee.
6. Recommend and manage contractors as required to deliver the event and
within approved guidelines.
7. Negotiate all contract services and ensure all contracts and purchases are
completed to the acceptable level, signed off and paid.
8. Manage the development of show events including test tracks and other
programs approved by the organising committee.
9. Attend management Committee meetings, as required, and other meetings
as required by the Committee.
10. Work with the Marketing Manager in promoting the show and seeking
sponsorship opportunities.
11. Provide ongoing feedback to the Management Committee.
12. Act as main contact for the Sydney 4WD Adventure Show.
13. Undertake a post‐show exhibitor evaluation and provide a post‐show
debriefing report to the Committee & attend the post show debriefing
meeting.

The Event dates were established for the weekend commencing the 27th August 2010.

The lead time was therefore seven (7) months. We believe that this lead time from an
events industry perspective in relation to an inaugural event was too short and eventually
contributed in part to the eventual financial loss of the event. The short lead time would
have put undue pressure on the identified income streams.

EVENT HISTORY ‐ LEAD TIME IN RELATION TO SPONSORS:

In relation to Sponsorship the short time frame (allowing for full concept development,
graphic material elements, sponsor benefit analysis and eventual sponsorship prospectus)
would not have allowed enough time to secure major sponsors as they, in many cases,
would have allocated their promotional budgets for the upcoming financial year. This
would have also been compounded by the fact that this was an inaugural and therefore
untested event. The information feedback confirmed this to be the case.

Our discussions with committee members revealed that there was a shortage of manpower
available, or allocated, to concentrate on securing sponsorships. The contract executed
Page 17 of 26

with the Show Manager only provides for him to work with the marketing manager in
promoting the show and seeking sponsorship opportunities.
As sponsorship is so important to income a dedicated marketing person in this role should
be considered and no decision to proceed with any future show should be made until the
sponsor has been contracted.
EVENT HISTORY – LEAD TIME IN RELATION TO EXHIBITORS:

The lead time in relation to Exhibitors income stream, constrains outcomes in very much
the same way as it impacted on sponsors above. Why is time a factor? With regard to
exhibitors and other third party industry suppliers a push‐pull mechanism evolves over
time. That is to say that as more and more exhibitors sign up, their competitors and
auxiliary suppliers feel the need to participate and momentum builds up over time. It
appears anecdotally that the 124 exhibitors who did sign up achieved a positive
commercial outcome and that message will circulate throughout the industry.
EVENT HISTORY – LEAD TIME IN RELATION TO TICKET SALES:

The lead time In relation to ticket sales impacts through the available time to market the
event and the word of mouth that follows on as a consequence. We have found in our
experience that word of mouth advertising is by far the most powerful marketing tool for
event based products. It appears that a system for pre‐sales for the event was not put in
place.

We have been informed that Mike Whitney was engaged to appear on the Matty Johns
show on Channel 7. After his appearance the Associations web site received so many hits
that it caused the server to crash. The failure to have a ticket pre sales facility on the site
during this period of heightened activity was a lost opportunity.

Pre sales are the driving force behind word of mouth. At BBQ’s, Clubs and Pubs throughout
the land the word goes out “Hi Fred ‐ I’ve just bought an early bird discount family pack
ticket to the 4WD Adventure Show – are you going?”

There are a number of professional ticket outlets that can supply this service at an
affordable price. When compared to the amount of dollars that can be spent on advertising
pre‐sales and word of mouth are the most penetrating and cost effective form of
advertising bar none.

Page 18 of 26

There are many ways to achieve presales, including through your own website, by
arrangement with your affiliated Associations or by entering into an agreement with an
organisation such as Ticketek.
EVENT HISTORY: BENCHMARKS AND ASSUMPTIONS.

Of all the factors leading to the events financial loss the failure to correctly research and
benchmark the events prospects to the correct models resulted in a false set of
expectations that compounded the decision making process that followed.

Our perusal of the feasibility report reveals that the event was benchmarked to existing
events with particular emphasis on the Rosehill and Queanbeyan shows. This approach was
flawed as those events had been in place for a number of years and have established
themselves in the marketplace. The benchmarks chosen should have had an appropriate
discount applied to them to reflect that this was a new event to the Sydney market place or
benchmark the event to those other events inaugural outings.

As time moved forward and failures to achieve income targets became apparent, it appears
that the Association and its project management were still being misled by the original
assumptions and failed to re‐evaluate those assumptions. As an example, the budget as at
May 2010, entered into the MYOB accounting program used by the Association, provided
for $477,739 in Exhibitor income. The final Exhibitor income came in at $220,527. A
shortfall of $257,212.

However the expenses which would have been known fairly accurately at any given time
were sitting somewhere close to $683,900. (Or higher if cost cutting had not taken place)
This would indicate that at any given time, even if gate sale targets were achieved the
organization faced a loss.

At some point it must have become apparent that a revenue shortfall would occur well
before the event took place and yet the assumptions still held sway.

We have been supplied with several documents which have been titled ‘4WD Show
Budget’ which we summarise in the table below:

Page 19 of 26

Date Projected Projected total Budgeted Projected Profit

income from Income Expenses
exhibitors
17 January 2010 475,000 1,160,208 756,000 404,208
21 January 2010 # 1 1,362,600
22 April 2010 544,501 752,021 683900 68,121
May 2010 477,739 752,739 683.900 68,839
Actual 220,527 307,971 554,945 ‐246,075
# 1 Estimate supplied by Greg Ebeling

We have assumed that the budget prepared late April was one of the documents referred
to as being discussed at the executive meeting held on 3 May 2010. At this point the
perceived income as viewed through the approved budget would have been $752,021. We
are puzzled as to how these budgeted projections were justified in the light of the low
exhibitor sales which had been discussed 22 days earlier at the executive meeting held on
31st March, 2010.

We have sighted a revised budget/cash flow document dated 11 August 2010 which still
projected a profit. This budget contained an optimistic expectation that income from ticket
sales would be $250,000 which was the original assumptions made in the feasibility study
dated December 2010. Actual ticket sales were $82,355.

In discussions with members of the executive and the show sub‐committee we have been
informed that they were of the belief that the Channel 7 Sunrise program were going to
cover the show and provide lead up promotion prior to the event. The public relations
company known as Strut PR & Events were expected to facilitate this as part of their
engagement. The coverage by Sunrise did not eventuate.
EVENT HISTORY: BUDGET OVERSIGHT.

The responsibility always remains with the Client with regard to the decision making
process in relation to proceed or not proceed, with a project, should it appear that a loss
may be incurred. This stipulation is put in place due to the Clients outcomes sometimes
being at variance to the Contractors outcomes. If a project is cancelled the client can avoid
a perceived loss whereas the Contractor will incur a loss of income. It is an industry
standard that precludes any conflicts of interest.

Page 20 of 26

At the executive meeting held on 18 January 2010 it was agreed that certain targets had to
be met by the end of March 2010 to allow the event to proceed. These targets included
media support and the take up of exhibitor sites accompanied by payments of deposits. At
the time it appears that this was understood by the executive, the contractor Show
Manager and the Project Manager. The contracts with the show manager and the project
manager contained provision which allowed for termination at any time by the giving of
two weeks’ notice.

The initial viability report from the Show Manager dated 31 December 2009 contained the
statement; ‘It is essential that the show expenses are covered prior to opening to the
general public. This will reduce the financial risk.’ Unfortunately the same report also was
over optimistic in projecting revenue between $1,014,220 and $1,298,440.

We have attempted to establish what review was undertaken by the executive in support
of the decision to proceed. Unfortunately the minutes of both the executive committee
and the show sub‐committee are lacking in this respect.

Extract from minutes of the executive meeting held on 18 January 2010:

‘The Committee agreed that the following targets have to be met by end of March,
2010 to allow the event to proceed. Media support confirmed. Take up of sites by
exhibitors and deposits paid. Commitment from Clubs for support.’

Extract from minutes of the executive meeting held on 8th February, 2010.

‘The Association Executive Committee are pleased to advise member clubs that a
decision has been made to move forward in the planning of the SYDNEY 4WD
ADVENTURE SHOW after the report presented to the committee confirmed the
potential viability of the project.’

The minutes of the executive meeting dated 31st March, 2010. Contain the following
references;

 Report from Greg Ebeling
‘A list of Companies contacted and results up to 30/03/2010. 350 contacted, 22
committed, 6 pending, 322 No reply, 7 No, 60 Confident of response. Exhibitors
current commitment is 13% & current potential being negotiated is 18% of
breakeven within 3 weeks of launch.
Page 21 of 26

Profit and Loss [Budget Analysis] to end of March 2010. The income is down but
Greg explained this was due to 2 weeks delay in getting website up and running.’

Review comment: The minutes reveal that at the end of March only 13% of the
target sales had been meet. The low sales being achieved should have set alarm
bells ringing. The end of March was the date that had been decided in January for a
review to occur to decide whether or not to proceed with the show.
 ‘David Rossiter then moved the following, seconded by Bruce Close, Carried.
At the January Exec meeting ‘The Committee agreed that the following targets have
to be met by end of March, 2010 to allow the event to proceed. Media support
confirmed. Take up of sites by exhibitors and deposits paid.’

Review comment: This resolution reveals that the executive committee were
reminding themselves of the previous resolution requiring certain targets to be
met. There is no detail in the minutes to indicate how the committee satisfied
themselves that the targets had been achieved. Thus it is not possible for us to
provide any analysis in relation to the projections. However we refer to the revised
budgeted projections dated 22 April (set out above). There was a disconnect
between the budget the committee appears to have been working from and the
sales experience to the date of this meeting.

The minutes of the same executive meeting (dated 31st March, 2010) contain the
following:

 ‘26 sites have been booked from companies ranging from small exhibitors to major
international companies, ARB being one example and another 66 prospective sites
being followed up by the Show team… Support for the show from Clubs has been
good with a large number of Clubs present at the recent Greater Sydney Region
information meeting. The Executive has surveyed Presidents and to date 15 Clubs
have responded indicating their support.

In the light of this the Executive has given their formal support for the show
subcommittee to move forward.’

Meetings held by the executive committee between 31 March 2010 and 17 June 2010
have only minimal reference to the show which we reproduce in full below.

Extract from Minutes of the Executive meeting 12th April, 2010
Page 22 of 26

‘2010 4WD Adventure Show: A cash flow statement was not tabled and Roger
Sheath will prepare it before week’s end.’

Extract from Minutes of the Executive meeting 3rd May, 2010.
‘2010 4WD Adventure Show: A revised cash flow statement was tabled by Roger
Sheath.”

There is no reference in the minutes for 12 April or 3 May of any discussion or
consideration being given to the viability or of the show and the decision to proceed
appears to have been locked in at the meeting of 31 March.

It also appears that a firm grasp of the position was not understood by the Executive
Committee. Certain information at hand at that time with regard to lack of sponsorship and
a large shortfall in exhibitor response should have gained their attention. We refer to the
executive minutes of 31 March reproduced above and the minutes reproduced below.

The executive minutes dated 17 June 2010 state:

‘… some exhibitors have been slow to pay for their sites. 37% of space has been
booked and invoices sent out. 33% of advertisers have confirmed attendance but
have not returned application forms. About $150,000 has been committed, by
exhibitors, which is about 40% of expected.

At a minimum it appears it is apparent that the executives requirement to not proceed if
revenue had not exceeded expenses had not been fulfilled.

We have established that many reports, including some financial reports, presented to the
committee were oral reports. Other reports mentioned in committee minutes have not
been attached to the minutes and we have not been able to sight them. Consequently it is
not apparent to us what information was available to the executive at any given time.

It is apparent from our phone interviews with committee members that around late July,
early August, they had become aware that there would be a shortfall and they believed the
shortfall would be approximately $50,0007. It was expressed to us that this would have
been acceptable given that about $42,000 had been spent on developing the track asset.

7
The amount and the exact date is uncertain as we have received conflicting reports from executive
members.
Page 23 of 26


About two weeks prior to the show the realization that the loss would be greater set in.
Unfortunately by this time it was too late to cancel as most costs had been firmly
contracted and were set.
EVENT HISTORY: GATE RECEIPTS & STAFFING OVERSIGHT.

It appears that entry points and ticket sales for the event were under the control of the
Dragway Venue Management team. It also appears anecdotally that actual attendance may
have exceeded gate sales. That is to say that an unknown number of attendees may have
gained free entrance. These mainly occurred in the area of the third car park.

As an industry standard, ticket collection and sales at the gate should not be relinquished
to a third party with no vested interests in the outcomes. Ticket sales should be managed
by the Promoters staff (In this case the Association) with senior staff member oversight.
We have been informed that the treasurer of the Association did attend the ticket sales
booths to obtain an oversight of the sales process and completed a reconciliation of the
cash proceeds against the body count as provided by Dragway in a computerized printout.

CONSIDERATIONS REGARDING FUTURE EVENTS.

Before any decision is made to proceed to holding the 4WD Adventure Show in 2011
careful consideration needs to be given to the financial position of the Association and in
particular if it has adequate access to funds in the event that a financial loss was incurred.

It is outside of our terms of appointment to provide an analysis of expenses incurred.
However we have identified approximately $70,000 of non‐recurring costs. Even if these
cost saving are achieved revenue would still have to increase by $176,000 to break even.

It is our recommendation that the Association should not proceed with the 2011 4WD
Adventure Show under the same arrangements as were put in place for the 2010 show.

The Association, being a voluntary organisation, does not have the required skills and
capitalisation and lacks the required dedicated staffing levels to achieve a successful
outcome. In addition to this the lead time as outlined above would not allow sufficient time
to deliver a successful outcome.

Page 24 of 26

However the Association has invested in and now owns a brand asset that has built up a
degree of goodwill amongst the public and exhibitors. To retain that asset value it is
important that the show should continue in 2011 otherwise the asset value will disappear.

One business model that the Association may consider would be to approach a
professional Events Organisation with a view towards negotiating a deal that would give
the Association a free carried interest in relation to future events. Over time, if the event
proved to be financially successful the Association could recoup its losses/investment. In
this situation there would be no risk of any further financial loss.
One of the parties that may be approachable is the event organizers of the South
Australian 4WD & Adventure Show who appear to have an alliance with the Perth event
organizers.

We set out below a number of synergies and advantages that should appeal to them which
could be used to your advantage in any negotiation.

1. They have a compatible brand name that they have established over time. By
obtaining rights to the Associations show brand they would gain continuity with
regard to their marketing strategies.
2. It would give their organisation immediate exposure to the NSW market through an
existing event. Their promotional material seems to indicate that they are looking
to achieve a national calendar.
3. They have sponsorship and exhibitor contacts in place that they could swing into
NSW. This would be in addition to the exhibitor goodwill that the Association could
provide from the 2010 show. This would help nullify the short lead times as
discussed in the sections above. The combination of these elements would offer
their organisation an income stream that could cover base costs and reduce their
financial risk profile.
4. Their organisation would gain the support of your membership with the added
possibility of volunteers at the event. In addition the Association can offer them
access to the Associations test track either as a part of the package or as a separate
financial arrangement.

With regard to this model it needs to be pointed out that the Associations asset value
decreases with every week that goes by. Your industry competitors are more than likely
waiting for an announcement that you will not proceed with the 2011 show and will move
to establish their own show in 2011 or 2012.

Page 25 of 26

Wayn
ne Smith & CO ure SHOW
O Review of The 44WD adventu
Otheer joint ventture or partnership arrrangementss to reduce ffinancial rissk should alsso be
considered. Posssibly discusssions with Dragways ccould be con
nsidered.

If com
mmercial ap pproaches tto outside eevent organ
nizers should not provee viable the
Association mayy consider aapproaches within the Association ns wider meembership aas to a
disbuursement of financial rrisk amongsst the 97 meember clubss who may ssee value in n a joint
enterprise based upon scalles of comm mitment as tto financial resources.
ABO
OUT THE CO
OMPILERSS OF THIS REPORT

Wayne Smith is a Certified Practising A Accountant, Chartered Secretary aand registered
Company Audito or under the Corporatiions Act.

Glen Woodward d has had 400 years’ expperience in events and conferencee managem ment.
Durin
ng this periood he has bbeen involveed in a nummber of majo
or Australia n outdoor e
events.

This report is daated the 7th day of Novvember 201 10.

Wayne Smith & & Co

Wayne Smith CPA
Regisstered Audiitor.
Pa
age 26 of 26

Ws 4wd Final Report 7 Nov 2010

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