• Benchmark auditors found ‘unreconcilable’ $337k discrepancy
• Top executive blames accounting platform switch for opinion
• But asserts impact ‘not material’ against $16m-plus equity
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A BISX-listed company’s top executive yesterday pledged that accounting woes which led to auditors issuing a “qualified” opinion on its 2021 full-year results will be “cleared up” in time for this year’s report.
Julian Brown, Benchmark (Bahamas) president and chief executive, blamed the switch to a new reporting platform for PKF Bahamas’ revealing there was an “unreconcilable” $337,369 discrepancy in the $18.439m sum owed to the financial services provider’s clients.
The accounting firm and its lead audit partner, Renee Lockhart, in the opinion attached to Benchmark’s full-year financial statements that were signed-off by its directors on July 31, 2022, declined to provide a clean bill of health due to the absence of sufficient supporting records on that matter.
“The group is carrying a balance due to its customers’ account amounting to $18.44m in the consolidated statement of financial position at December 31, 2021,” PKF informed all Benchmark shareholders and other interested parties. “We were unable obtain sufficient appropriate audit evidence to reconcile this amount to the underlying accounting records, specifically the subsidiary ledger.
“The unreconciled difference between the consolidated statement of financial position and the subsidiary ledger amounted to $337,369. Consequently, we were unable to determine the adjustment that is necessary to be posted to the said account.”
A “qualified” report is issued whenever auditors find discrepancies or anomalies with particular aspects of a company’s financial reporting and accounts that warrant attention and questions being raised. The 2021 financial statements gave no further explanation for the anomaly, and PKF said its inspection of Benchmark (Bahamas) financial statements proved satisfactory in all other respects.
However, the notes attached to the accounts added: “Included in the balance of $18.44m (2020: $2.519m) due to customers is an amount of $785,180, which relates to funds received on behalf of customers who are not identified or have not claimed the deposits as at the date of the consolidated financial statements.”
Mr Brown, when contacted by Tribune Business, said the concern identified by PKF Bahamas was “not a material effect” when set against net shareholder equity of $16.04m. Explaining what led to the auditors’ qualification, he said: “We converted our system over to a new accounting platform and reporting platform so that we could keep clients more up-to-date with the activity they were doing with us. That created some delays with the audit.”
BISX-listed companies are supposed to publish their annual financials within 120 days of year-end, and Mr Brown confirmed that Benchmark (Bahamas) requested and obtained an extension for the publication of its year-end accounts.
“There was this small amount of funds that was not reconcilable,” he told this newspaper. “It’s not to do with any client funds. It’s to do with the transfer over and conversion into a new accounting platform that created some level of issues with that audit and created the opinion. We expect that to be cleaned up in this year’s audit.
“It’s a small amount of money relative to the size of our balance sheet. It’s not a material effect. The assets in our principal trading company, Benchmark Advisors, is over $8m. That’s all base money. There’s no issue related to that [qualified audit opinion] other than there were some matters that did not transfer over the way they should have been, and that caused questions around the $337,369 and the audit opinion.
“It doesn’t concern us at all. We think we have the answers to it, and that it will be resolved with this year’s audit.” However, qualified audit opinions are rare, especially for publicly-traded and BISX-listed companies. Several capital markets sources, speaking on condition of anonymity, said the qualified Benchmark audit was “definitely not a minor issue”.
They argued that this was especially so given that Benchmark (Bahamas), and its Alliance Investment Management subsidiary, are broker/dealers who hold client assets on trust in a fiduciary capacity. And they said PKF’s statement indicated that while the company’s balance sheet showed one collective amount as owing to clients, the underlying accounting documents produced another amount when all figures were added together.
“It’s a little bit of an indictment of a company to say their accounting records are wrong, that there’s an error in the accounts,” one said. “For a financial services company, that’s not a good look. For a financial services company where you have capital and capital adequacy rules, it’s a big issue.” They added that the PKF Bahamas findings would likely prompt close regulatory scrutiny by the Securities Commission of The Bahamas.
The auditors also again flagged the guarantee Benchmark (Bahamas), as the group’s parent, has made on behalf of its Alliance Investment Management subsidiary as nurses itself back to financial health. “The financial statements of Alliance have been prepared on the basis that it will continue as a going concern. Its statement of changes in equity shows an accumulated deficit as at December 31, 2021, resulting from losses accumulated in prior years,” the financial said.
“Although Alliance has had a history of profitable operations in recent years, the company has provided a guarantee to Alliance to make sufficient funds available to enable it to meet its present and future obligations for a period including, but not limited to, 12 months from the date its financial statements were approved by the Board of Directors.”
The qualified audit opinion took some of the shine off the positive $4.366m bottom line swing produced by Benchmark (Bahamas) during the 12 months to end-December 2021, when it turned the prior year’s $986,448 loss into a $3.38m profit driven by increased client trading activity as the markets re-opened following the COVID-19 pandemic.
The improvement was driven by trading-related commissions, which soared from $177,283 in a lockdown-hit 2020 to $5.663m last year, sparking a near five-fold increase in revenues to $6.8m compared to $1.387m in the previous 12 months.