The Anderson Report
FINANCIAL ASPECTS OF SCIENTOLOGY IN VICTORIA
At the request of the Board Mr. John Herbert Joseph Campbell, an officer of the Victorian State Audit Office, made an examination of financial records kept by and the general financial administration of the Hubbard Association of Scientologists International and the Hubbard Communications Office at 157-159 Spring Street, Melbourne. It was made in the early half of 1964 and presented in evidence on the 4th May, 1964, and subsequent dates. It did not, therefore, include the period of operations subsequent to 31st December, 1963, except on a few incidental matters. The investigation was thorough and the evidence given by Mr. Campbell was not challenged by the scientology organization.
As the Melbourne organization has kept separate books and accounts in respect of the transactions of the Hubbard Association of Scientologists International and the Hubbard Communications Office and has employed different public accountants to prepare and audit the financial statements of each business undertaking, Mr. Campbell's evidence, as far as practicable, dealt with each undertaking separately.
Hubbard Association of Scientologists, International.
The system of accounting appears to be based on instructions issued by the Hubbard Communications Office World Wide under the direction of Hubbard. These instructions set out the accounting records which are to be kept and the procedures to be carried out and contain various directions as to financial policy. A very large measure of financial control is exercised by HCO.WW.
The accounting system is largely manual with few mechanical aids. The system is stated by the HASI to be designed for the duties of the Director of Accounts to be carried out by unskilled clerical labour. A method of invoicing is used to account for both income and expenditure. In respect of income, serially numbered invoices are placed in an invoicing machine for issue as receipts and debit and credit notes. A separate invoicing machine is in use for disbursements. An invoice is issued for each payment.
The Director of Accounts is responsible for the receipts and disbursement of all moneys. The duties of the position include the issuing of receipts for cash collections; the posting of debit and credit entries to debtors' accounts; the banking of cash collections; the allocation of fixed proportions of cash collections to the appropriate bank accounts; the preparation of salaries sheets and the payment of salaries; the preparation of cheques for signature; the preparation of an invoice for each payment; the recording of weekly summaries of receipts and payments, and the opening of inwards mail.
Each week's transactions are treated as a single accounting period and copies of receipts and payments invoices together with the summary for each week are filed separately from the records applicable to other weeks' transactions. An orthodox cash book in a continuous form is not kept. A firm of public accountants and auditors is employed to collate the total of each week's transactions; to reconcile the bank accounts; to prepare periodical financial statements, and to carry out the audit of the books and accounts of the organization.
The following matters indicate a weakness in internal control in relation to cash collections:-
(a) Contracts entered into by individuals in respect of processing or training are not serially numbered and a contract register is not kept.
(b) Although account cards are kept in respect of individual debtors, a sundry debtors control account is not in existence. It is, therefore, impracticable to reconcile the outstandings with a control figure and to verify that all of the individual debtors' cards are on hand.
(c) Cash collections are not always banked in the form received.
(d) It appears that the Director of Accounts usually opens the mail working alone. A remittance book to record remittances received in the mail is not kept.
Definitions of expressions used by the organization and adopted in this Chapter are :- "corrected gross income" is the weekly gross income less refunds or provision for refunds and incidental receipts such as international membership subscriptions, telephone recoups and proceeds from the sales of soft drinks; "proportionate amount" is the weekly corrected gross income less a 10 per cent. levy payable to HCO.WW.
The cash collections are required to be banked weekly.
Bank accounts are maintained at the Australia and New Zealand Bank Limited, Exhibition Street, Melbourne, in respect of the following accounts:-
(a) Hubbard Association of Scientologists International Main Account.
Apart from life membership subscriptions, cash collections are banked in this account in the first instance. After providing for refunds and remitting 10 per cent. of the corrected gross income to HCO.WW, the practice has been and is for all amounts standing to the credit of the account to be rebanked each week in other bank accounts.
The persons authorized to draw cheques on the account are either Lafayette Ronald Hubbard or Mary Sue Hubbard or any two of the following persons:- Peter Williams, Ronald Masters, Denzil Gogerly.
(b) Hubbard Association of Scientologists International Salary Account.
An amount equal to 55 per cent. of the "proportionate amount" is transferred to this account each week. The amount so credited is expended on staff salaries in respect of the Melbourne HASI and the Melbourne HCO. Prior to February, 1963, the weekly proportion so credited was 50 per cent. as the salaries of the HCO personnel were paid by that organization.
The persons authorized to draw cheques on the account are Lafayette Ronald Hubbard or Mary Sue Hubbard or any two of the following persons:- Peter Williams, Ronald Masters, Denzil Gogerly.
(c) Hubbard Association of Scientologists Building Account.
A sum equal to 15 per cent. of the "proportionate amount" is transferred to this account each week. The main purpose of the account is stated to be to provide funds for the purchase of buildings. However, expenditure incurred on the rental of premises and other expenditure at the discretion of Hubbard, including Christmas bonuses for the staff, have been defrayed from these funds.
It is of interest to note the only persons authorized to draw cheques on this account are either Lafayette Ronald Hubbard or Mary Sue Hubbard. Cheques are prepared in the Melbourne office, sent to Saint Hill Manor for signature, and subsequently returned to the Melbourne office for payment to the creditors concerned.
(d) Hubbard Association of Scientologists International Disbursement Account.
A sum equal to 30 per cent. of the "proportionate amount" plus the total of incidental receipts is credited to this account each week. The funds provided are used to defray expenditure not usually chargeable to any of the three previously mentioned accounts.
The persons authorized to draw cheques on the account are either Lafayette Ronald Hubbard or Mary Sue Hubbard, or any two of the following persons:- Peter Williams, Ronald Masters, Denzil Gogerly.
(e) Hubbard Association of Scientologists International Life Membership Account.
Life membership subscriptions of £31 5s. each were received during the financial years 1961-62 and 1962-63 for banking to this account. It appears that the intention was later to convert the subscriptions into shares in Hubbard Association of Scientologists International Limited. However, legal difficulties made this course impracticable and no such conversion has taken place.
The acceptance of life membership subscriptions has been discontinued as a result of an HCO Pol. Lr. of the 5th July, 1963. This letter states:- "Due to projected changes in the corporate status of Scientology organizations, no further sales of HASI Ltd. shares or lifetime memberships are permitted anywhere in the world, effective immediately".
Life membership entitles the holders thereof to receive discounts of 20 per cent. on the cost of processing, training courses, and the purchase of books.
The persons authorized to draw cheques on the account are Lafayette Ronald Hubbard or Mary Sue Hubbard.
Details of transactions within the account are given hereunder:-
Receipts £ s. d. Subscriptions (270 at £31 5s. each) 8,437 10 0 Disbursements £ s. d. Loan to HASI, Melbourne 300 0 0 Loan to HASI, Sydney 231 0 0 Loan to HASI Ltd. 1,480 2 11 Refund of membership 31 5 0 Bank Charges 1 7 6 2,043 15 5 Cash at bank, 30th June, 1962 6,393 14 7
Credits £ s. d. Balance forward from 1961-62 6,393 14 7 Subscriptions (46 at £31 5s. each) *1,437 10 0 7,831 4 7 Disbursements Transfers to main account re- Refunds 62 10 0 Registration of HASI, Adelaide 44 2 0 106 12 0 Cash at bank, 30th June,1963 7,724 12 7 Period ended 31st December, 1963: Credits Balance forward from 1962-63 7,724 12 7 Subscriptions Disbursements Transfers to Disbursement account re- Cost of Instructor Training, E. Williams (inc. air-fare) 717 17 3 Legal expenses 1,000 0 0 Transfer to main account re refund 1,550 0 0 Refund of membership 31 5 0 3,299 2 3 Cash at bank, 31st December,1963 4,425 10 4
* Does not include an amount of £93 15s., which represents three subscriptions for life membership banked in the Disbursement account.
The following financial statements are attached to this Report:-
(a) A consolidated statement showing the combined income and expenditure and the profit or loss of the Melbourne HASI and the Melbourne HCO for the period the 7th February to the 30th June, 1955, and for each completed financial year since then. (Appendix 7.)Details and comments in respect of various items contained in the financial statements referred to above are given hereunder:-
(b) A comparative statement of the Income and Expenditure of the Melbourne HASI for the financial years ended the 30th June, 1961, 30th June, 1962, and 30th June, 1963, together with Balance-sheets as at the close of those years set out in a comparative form (Appendices 8 and 9.)
(c) A statement of receipts and payments for the six months ended the 31st December, 1963. (Appendix 10.)
Income is derived mainly from fees received either for processing or for training courses conducted by the organization. Amounts shown in the financial statements under these headings represent cash collections only and do not include amounts due from debtors.
Very substantial amounts have been received from many individuals in respect of services rendered by the organization. Examples are:-
The above amounts do not include sums, if any, paid to HCO, Melbourne, for books, E-meters, advanced clinical courses, &c.
(a) £3,065 paid between 1957 and 1963 (b) £1,801 paid between 1960 and 1963 (c) (wife of (b)) £1,777 paid between 1960 and 1963 (d) £1,631 paid between 1957 and 1963 (e) £1,579 paid between 1961 and 1964 (f) £1,014 paid between Oct., '62, and March, '63 (g) (wife of (e)) £1,086 paid between Oct., '62, and March, '63 (h) £1,275 paid between 1958 and 1963
Mr. Campbell carried out an examination of various aspects of the procedures relating to cash receipts and a selective check was made of the transactions. These investigations revealed the following:-
(a) Agreements are entered into between the organization and individuals for the services to be rendered. Agreements are also entered into in certain cases in which no charge is to be made for processing or training.
(b) Persons may contract to pay for the services on either a cash or time payment basis. In some instances, payments are made in advance of the signing of agreements. Additional charges are payable in respect of contracts for certain services involving the payment of fees on a time payment basis, in the following instances:-Processing. - Under the scales of fees dated 15th and 16th November, 1960, the fee for 25 hours processing was £105 cash or £124 on terms of £40 deposit and the balance payable over a period of six months. The additional charges for terms represent a flat interest rate of approximately 45 per cent. per annum on the balance owing. However, the flat interest rate per annum would be approximately 12 per cent. in cases in which a rebate of £14 for prompt payment was applicable. Casual processing was available at various rates ranging from £4 14s. 6d. per hour downwards.(c) Upon entering into an agreement for either processing or training under which payment is to be made on terms, the individual is usually required to sign a promissory note or promissory notes post-dated to the due date of the final installment.
Hubbard Qualified Scientologist Course. - As from the 2nd January, 1964, the fee payable for this course was £40 cash or £44 on terms of £8 deposit and the balance payable over a period of ten weeks. The additional charges for terms represent a flat interest rate of approximately 58 per cent. per annum on the balance owing after payment of the deposit.
Hubbard Professional Auditor Course. - Under the scale of fees dated the 2nd January, 1964, the fee payable for this course was £140 cash or £160 on terms of £40 deposit and the balance payable over a period of six months. The additional charges for terms represent a flat interest rate of 33.3 per cent. on the balance owing after payment of the deposit. By November, 1964, the fees for training had changed; the following is the latest scale of which the Board has information:-
£ HQS - (Hubbard Qualified Scientologist) 75 HCA - (Hubbard Certified Auditor) 75 HPA - (Hubbard Professional Auditor) 75 HCS - (Hubbard Clearing Scientologist, a course not
being conducted but in contemplation)
(d) Instances have occurred in which blank cheque forms have been provided by the organization and used by individuals to pay accounts (approximately 40 blank cheque forms were issued between April, 1963, and January, 1964). It was said by the HASI staff that these forms were held by the organization for the convenience of people who did not have their cheque books with them at the time of signing contracts. The forms were also in effect used as promissory notes, because, although certain of the cheques were not banked, cash equal to the value of the respective cheques was brought to account on the dates shown on the cheque butts.
(e) The fees charged for processing and training were flexible though the prices paid for the services were generally in accordance with the scale of fees. Discounts were allowed to life members on processing and training, and to professional auditors, students and persons aged under 18 years in respect of processing. Staff were usually charged concession rates. In addition, a sliding scale of fees for processing, providing for a reduction in the hourly rate charged according to the number of hours processing contracted for, was operative from April, 1961, to October, 1963. Price reductions under the sliding scale were applicable not only in cases in which individuals contracted to undertake a large number of hours processing in the first instance, but also in instances in which they contracted to undertake additional processing at the time the previous contract expired.Refunds of Income.
(f) Managerial Fees received represent cash received for managing the financial affairs of the Melbourne College of Personal Efficiency, Hawthorn, and the HAS1 Sydney, for the period February to June, 1963.
(g) Miscellaneous Income includes amounts received in respect of sales of soft drinks, hire of E-meters and sales of testing materials. Compared with the financial years 1960-61 and 1961-62, there was an increase in income under this heading in 1962-63. This was attributable to the receipt of international membership subscriptions amounting to £673 which, in former years, would have been payable to HCO, Melbourne. However, the income for that year does not include all amounts chargeable to other Australian branches of the organization in respect of testing materials, magazines and bulletins, &c., supplied.
The policy in respect of refunds of fees is set out in HCO Pol. Lr. of the 12th October, 1961 and subsequent policy letters. (See Appendix 11.) The manner in which this refund policy was applied appears from correspondence set out in Chapter 15.
Refunds made in 1962-63 included sums of £254 12s., £200 and six Life Memberships totalling £187 10s.
Refunds made for the period 1st July to 31st December, 1963, included sums of £175 7s., £1,517 3s., £58 15s., £90.
By letter dated the 28th November, 1963, the HASI undertook to refund £397 16s. to one individual and this was done on the 4th March, 1964.
Details and comments in respect of certain of the items of expenditure are set out hereunder:-
The premises leased by the organization in Melbourne and the respective rentals payable were:-
157 Spring Street £130 per calendar month. 159 Spring Street £130 per calendar month. 2 Coates Lane £108 6s. 8d. per calendar month.
An employment contract is entered into by each member of the staff prior to taking up employment in the organization. Each employee is allotted a certain number of "units" based upon the position to be occupied. Generally speaking, the respective salaries vary from week to week according to the weekly income of the organization and to the number of units allotted to the respective officers or employees. Officers may be employed on a full-time or part-time basis.
As mentioned previously, 55 per cent. of the weekly gross income is transferred to the Salary Account each week. After the deduction of fixed rates, for example, cleaner's wages and allowances to officers undertaking courses at Saint Hill, the balance of the weekly proportion is divided by the total number of staff units. The unit value so ascertained is multiplied by the number of units held by the respective officers or employees and the resultant amounts represent the salaries payable for the week.
Christmas bonuses financed from funds in the Building Account were paid to the staffs of both the HASI and HCO in the financial years 1961-62 and 1962-63. No such bonuses were paid in respect of Christmas 1963. The sums so paid amounted to £388 4s. and £295 in the respective years.
A perusal of the lists of the weekly salaries paid to the staff of both the HASI and HCO discloses that the earnings were moderate and, in very many instances, were less than the Basic Wage.
For example, for the week ended the 17th May, 1962, where the unit appears to have been 5s. 6d., a person on 16 units received as little as £4 8s. for 40 hours' work. Other instances for that week were:-
The highest paid employee in the HASI in this week was the cleaner, who was paid at the rate of 10s. per hour. HCO staff fared a little better than the HASI, two of them getting £16 17s. 6d. and £16 respectively.
No. of Units Hours Worked Gross Salary £ s. d. 25 40 6 17 6 19 42½ 5 4 6 28 42½ 7 14 0 20 40 5 10 0 13 32½ 3 1 16 3 7½ 0 16 6 33 47 9 1 6
For the week ended the 26th September, 1963, where the unit was valued at 10s. 9d., the following are examples of the salaries paid:-
For the week ended the 23rd January, 1964, where the unit was valued at 7s. 3d. the following are examples of the salaries paid :-
No. of Units Hours Worked Gross Salary £ s. d. 21 40 11 5 9 18 40 9 13 6 20 40 10 15 0 36½ 40½ 19 1 9 29 40½ 15 11 9 18 40 9 13 6 23 40 12 7 3 13 32½ 6 19 9 14 35 7 10 6 32 40½ 17 4 0 41 40½ 22 0 9
No. of Units Hours Worked Gross Salary £ s. d. 18 40 6 10 0 16 40 5 16 0 26 40½ 9 8 6 23 40 8 6 9 29 40½ 10 10 3
Expenditure under this heading includes amounts expended on:-
(a) Renting of space for the display of posters in Melbourne trams for the period 4th December, 1961, to 3rd December, 1963.Travelling Expenses.
(b) Advertisements in suburban newspapers, magazines such as "Australasian Post" and "Pix", and sporting publications, e.g., the "Soccer Weekly".
(c) Advertisements in the "pink pages" of the Melbourne Telephone Directory.
(d) Screen advertising in picture theatres.
(e) Distribution of leaflets and brochures in certain Melbourne suburbs.
Apart from an amount of £52 included in 1961-62 in respect of travelling expenses incurred by Mr. P. Williams in U.S.A., the expenses were incurred by officers of the organization travelling within Australia. Overseas travelling expenses are included under the heading " Cost of Instructor Training " .
The expenditure is in respect of tape recordings supplied by HCO.WW. and the Washington Branch of the organization. All payments are made to HCO.WW.
Hire of Office Machines and Telex.
The sum expended in 1961-62 includes an amount of £422 5s. payable to HCO, Melbourne as a recoup of part of the cost of operating telex equipment. Expenditure borne by the organization in respect of telex equipment amounted to £450 11s. 1d. in 1962-63.
Cost of Instructor Training.
Details of the expenditure in each of the years are as follows:-
Payable to HCO.WW. £ s. d. P. Williams - Special briefing course fees at Saint Hill 357 3 9 One E-meter 35 12 6 Special briefing from Hubbard at Johannesburg 312 10 0 Fares and expenses trip to Johannesburg 339 0 7 Two instructors - special briefing course at Saint Hill (March, 1961) 625 0 0 1,669 6 10 Payable to HASI, New Zealand- Messrs. Watters and Verity- Two HPA retreads* 375 0 0 Hotel expenses 187 16 3 Fares 263 8 9 826 5 0
£ s. d. P. Williams - Air fares (U.S.A. and London) 728 8 3 B. Pesco - Air fares (London) 284 3 0 HPA retread 75 0 0 359 3 0 D. Gogerly - Fares (Melb/London and return) 560 2 0 Travelers cheques 150 0 0 710 2 0 1,797 13 3 Less Credit for P. Williams account 1960-61 expenditure 5 12 6 1,792 0 9
D. Gogerly - Expenses 257 15 0 Course fees 358 12 3 616 7 3 B. Pesco - Fares 126 10 1 Course fees 358 12 3 485 2 4 R. Turnbull - Fares 428 6 9 Course fees 358 12 3 786 19 0 B. Painter - Fares 460 19 10 Course fees 358 12 3 819 12 1 I. Tampion - Fares 58 0 0 Course fees 358 12 3 416 12 3 A. Tampion - Fares 58 0 0 Course fees 358 12 3 416 12 3 E. Watson - Fares 330 0 0 Course fees 358 12 3 688 12 3 P. Williams - expenses 769 8 2 4,999 5 7
Six Months ended 31st December, 1963.
£ s. d. Saint Hill Course Fees - E. Williams 358 12 0 Fares - E. Williams 598 11 0 R. Turnbull and B. Painter 375 0 0 E. Watson 30 0 0 1,362 3 0
Details of the expenditure in each of the three years are as follows:-
An account from HCO.WW. dated 16th February, 1961, states:-
£ s. d. Organizational share of expenses incurred in researches for Routine 3D 500 0 0 Researches at WW Horticultural labs (1960-61) 250 0 0 750 0 0
(The amount of £750 Sterling converted to Australian £ at £100 Sterling = £125 Australian -- £937 10s.).
No expenditure is shown under this item for the year. However, after the audited financial statements had been completed, an account for £7,191 5s. 4d. was received from the HCO.WW. in respect of supplementary expenses incurred by that office on behalf of the Australian branches. This account sought to debit the Australian HASI with 30 per cent. of the cost of developing and research costs in respect of models IV and V of the E-meter, the cost of production of instructional and educational materials such as tapes, magazine costs and other items.
At the time of Mr. Campbell's investigation, an account for supplementary expenses had not been received from HCO.WW. in respect of 1962-63.
Managerial Expenses and Service Charges HCO.WW.
A sum representing 10 per cent. of the weekly gross income less refunds and incidental receipts is payable to HCO.WW. each week.
An amount representing 5 per cent. of the weekly "proportionate amount" was paid to HCO, Melbourne, each week during the years 1960-61, 1961-62, and in the period 1st July, 1962, to 7th February, 1963. HCO Pol. Lr. of the 1st February, 1963, directed that future payments be cancelled. The letter also directed that the percentage of the "proportionate amount" payable to the Salary Account was to be increased from 50 per cent. to 55 per cent. and that the salaries and certain other expenditure of each HCO Area Office were to be borne by the central organization.
Under the lease of the premises at 157 Spring-street, Melbourne, the organization was required to pay municipal rates and water rates in respect of the period 1St March, 1958, to 1St June, 1961. The total amount, £478 17s. Id., was shown as expenditure in the financial year 1961-62.
E-meters Unsaleable due to Obsolescence.
The amount of £417 15s., written off in 1961-62, represents the value of eighteen E-meters which were unsaleable out of a stock on hand of 26 E-meters.
Sundry Debtors. An amount of £56 12s. 6d. shown as outstanding as at the 30th June, 1963, was in respect of sales of E-meters. Substantial amounts outstanding in respect of processing and training fees, &c., were not included in the final accounts.
A list of debtors from the individual debtors accounts as at the 7th January, 1964, showed that the net amount outstanding at that date was £22,869, of which £3,347 was due from staff members.
The total of £22,869 included about £4,000 bad or doubtful debts.
Sundry Loan Accounts.
Details of the amounts outstanding in respect of loans made by the organization for the three years ended respectively the 30th June, 1961, 30th June, 1962 and 30th June, 1963, were £200, £238 8s. 8d. and £524 15s. 11d., granted in all but one instance to assist staff members while on training courses at Saint Hill.
Amounts owed by other Branches and Associated Companies.
HCO, Melbourne - Loan Account.
Details are as follows:-
HASI, Perth - Loan Account.
£ s. d. Net value of assets taken over from HASI, Melbourne 1,448 5 3 Payments on behalf of HCO re ACC course 106 14 0 Rebate due from Customs Dept. received by HCO 210 0 0 1,764 19 3 Less Remittances- 1960-61 106 14 0 1960-61 1,448 5 3 1961-62 36 0 0 1,590 19 3 Amount outstanding at 30th June, 1963 174 0 0
The outstandings are in respect of amounts due to S. Richards for the purchase of the business operated by him in Perth. The amounts were required to be paid by HASI Melbourne, and refunded by HASI, Perth.
HASI, Sydney - Current Account.
The amount outstanding includes the cost of materials supplied to that branch.
HASI Ltd.-Loan Account. Details are as follows:-
£ s. d. Preliminary expenses paid on behalf of HASI Ltd 237 10 0 Advance to HASI Ltd., London 1,480 2 11 Balance outstanding at 30th June,1962 1,717 12 11
Balance forward from 1961-62 1,717 12 11 Postage re share certificates 4 3 2 Registration fees and costs Adelaide and Canberra branches 55 8 9 Balance outstanding at 30th June, 1963 1,777 4 10
Sundry Unsecured Loans.
The amount outstanding at the 30th June, 1963, represents the balance of sums loaned to the organization without security and not yet repaid.
The loans were given mainly during the financial year 1957-58, in which year amounts totalling £4,448 15s. were received. These loans came from some 25 scientologists and ranged from £30, £40, £50, £100, £255, to £410 and £620.
Amount Owed to S. Richards.
The amount outstanding at the 30th June, 1961, is in respect of the purchase of the American College, Perth, from S. Richards for the establishment of a branch of the organization in that city. The amounts paid to S. Richards have been shown in the accounts as a loan to HASI, Perth.
Amounts Owed to Other Branches-
Details are as follows:-
£ s. d. Managerial Expenses from date of commencing business in Melbourne to 30th June, 1959 4,021 3 1 Purchases of books to 30th June, 1959 3,404 9 7 A credit transferred to London (April, 1960) 41 5 7 Research Expenses, 1960-61 937 10 0 Cost of Instructor Training 1960-61 1,324 13 9 Additional Managerial Expenses 1960-61 625 0 0 Cost of Cables, 1961-62 27 2 2 *Supplementary Expenses 1961-62. 7,191 5 4 17,572 9 6 Less Remittances - April, 1960 400 0 0 March, 1961 14 17 11 May, 1961 200 0 0 June, 1961 1,448 5 3 February, 1962 388 14 9 April, 1963 52 14 3 2,504 12 2 Amount outstanding at 30th June, 1963 15,067 17 4
* See footnote under Profit and Loss Account
Of the amount outstanding at the 30th June, 1963, the sum of £52 2s. 4d. is owed in respect of hotel expenses for Mr. P. Williams.
HCO, Melbourne - Current Account.
The amount outstanding includes a proportion of charges for rental of telex equipment, costs of Communication Magazine, cables and freight.
HASI, New Zealand.
The sum outstanding at the 30th June, 1963, was arrived at as follows:-
Hubbard Communications Office.
£ s. d. Cost of Instructor Training - Watters and Verity (2 HPA retreads, air-fares and hotel expenses) 826 5 0 Debt incurred by J. Roberts in New Zealand 644 17 6 Test materials supplies 48 9 7 1,519 12 1 Less Remittance 87 12 0 1,432 0 1
In many respects the accounting system is similar to that of the HASI and is based also on instructions issued by HCO.WW. However, unlike the other Melbourne organization, cash books are kept to maintain a continuous record of the receipts and payments.
Financial policy is determined largely by HCO.WW. A return of income from all sources and a report on stocks of books and publications is required to be furnished each week to that body.
Although the organization is required to bank weekly, it was noted that in the financial year 1962-63 and in the six months ended 31st December, 1963, delays of up to one month had occurred in the banking of cash collections. The comparatively large sums of cash on hand at the 30th June, 1963, and the 31st December, 1963, reflect the position. Further, several instances of under- and over-bankings had occurred.
During the financial years 1960-61, 1961-62 and 1962-63, the following bank accounts in respect of the organization were maintained at the I.C.I. House Branch of the Bank of New South Wales:-
(a) Hubbard Communications Office Area Account.Generally, proceeds from sales of books, tapes and E-meters were banked in the Book Account, while cash collections in respect of franchises, congresses and membership subscriptions, &c., were deposited in the Area Account. Authorities held by the bank empowered either one of L. Ron Hubbard or Elizabeth Williams to draw cheques on the Accounts.
(b) Hubbard Communications Office Book Account.
These bank accounts were closed on the 1st November, 1963, and balances at that date were merged in a new account opened under the name of Hubbard Communications Office Continental Account. Persons authorized to draw cheques on this Account were any two jointly of L. Ron Hubbard, Elizabeth Williams, Catherine Layton, Betty Miles and Lindsay Norman Bromley.
Another account in the name of Hubbard Association of Scientologists International A.C.C. Account is maintained at the Australia and New Zealand Bank Limited, Exhibition-street, Melbourne, for the purpose of accounting for the cash receipts and payments in respect of advanced clinical courses held in Melbourne. The persons authorized to draw cheques on the account are either Lafayette Ronald Hubbard or Mary Sue Hubbard.
A comparative statement of the income and expenditure of the Hubbard Communications Office, Melbourne for the financial years ended 30th June, 1961, 30th June, 1962, and 30th June, 1963, together with Balance Sheets as at the close of those years set out in a comparative form are printed as Appendices 12 and 13.
The following details and comments in respect of various items contained in the financial statements are given under appropriate headings:-
Apart from income derived from the sale of books, tapes and E-meters, it was found that all income had been brought to account on a cash received basis.
Books, Tapes and E-meters.
Books, tapes and E-meters are purchased mainly from HCO.WW. for resale to persons and other branches of the organization within Australia. However, it was noted that 35 E-meters at a cost of £25 l0s. each were purchased from H. A. Wentworth Pty. Ltd., Melbourne, in August-September, 1961. Expenditure in respect of local purchases of books included a progress payment of £750 in December, 1963, to the Glenhuntly Printing Works Pty. Ltd. for the printing of 10,000 copies of the book, This is Life.
Excluding assembling and testing costs, the prices paid for a Mark IV and a Mark V E-meter were approximately £36 and £40 respectively. The selling prices after deducting discount were usually £56 8s. and £62 respectively. The current selling prices of books range from 1s. to £2 4s. per copy.
The holders of international membership of the HASI are allowed discounts on cash purchases of E-meters, tapes and books. Franchise holders (and district offices) have also been allowed discounts on such purchases.
In respect of the accounting for books, it would appear that there was a discrepancy in the value of the stock on hand as at the close of one or both of the financial years 1961-62 and 1962-63. However, as satisfactory records have not been kept to record stock movements, the reason for the apparent discrepancy cannot be readily ascertained. The following trading statement illustrates the position:-
1960-61 1961-62 1962-63 £ £ £ £ £ £ Sales 3,378 3,245 2,509 Stock on hand at beginning of each year 1,869 2,571 2,728 Purchases 3,262 1,419 2,138 5,131 3,990 4,866 Stock on hand at close of each year 2,571 2,560 2,728 1,262 2,036 2,830 Gross Profit 818 1,983 Gross Loss 321 Percentage of Gross Profit to Sales 24% 61%
The apparent discrepancy could have been due to a number of reasons of which the most likely appear to be:-
(a) Incorrect stocktaking.Franchise Receipts.
(b) Disposing of books at a price below cost.
(c) Gifts of books.
(d) Misappropriation either of books or of proceeds from the sale of books.
This item includes a contribution of 5 per cent. of the "Proportionate amount" of the gross income of HASI, Melbourne and varying percentages of income of the branches of the organization and other persons carrying on the practice of scientology in Australia. However, in accordance with a direction received from HCO.WW., the payment of franchise fees by HASI, Melbourne was discontinued as from the 7th February, 1963. The payment of franchise fees by other branches and persons to the HCO, Melbourne also ceased during the financial year 1962-63.
In HCO Pol. Lr. of the 14th June, 1962, a direction was given to franchise holders that "no Franchise or Field Auditor should charge less for services than the Central Organization for that Continent. They may, however, charge more . . ." (At least one franchise holder charged £10 10s. per hour.)
The following information has been collated from the financial records for 1961-62 to show the persons and organizations from whom franchise fees were receivable during that year together with the respective amounts shown to be received or receivable:-
£ s. d. HASI, Melbourne *2,069 6 10 ,, Perth 732 1 9 ,, Sydney 638 17 9 HCO, Perth 23 15 0 ,, Sydney 34 14 3 ,, Brisbane 86 17 8 Australian College of Personnel Efficiency, Geelong 177 2 10 American College of Personal Efficiency, Adelaide 1,683 16 10 Brisbane College of Personal Efficiency 156 13 6 Melbourne College of Personal Efficiency, Hawthorn 575 7 10 R. Garlick, Townsville, Q'land 45 7 6 K. Steele (Eaglemont, Vic.) 1 1 9 F. Van Der Linde (W.A.) 6 3 8 J. Blythe (Sydney, N.S.W.) 33 10 0 North Shore Scientology (N.S.W.) 85 0 0 I. and B. Scott (N.S.W.) 472 3 10 P. Walsh (N.S.W.) 14 1 0 Mrs. Holburn (N.S.W.) 5 0 0 B. Salmon (W.A.) 1 16 0 H. A. Wentworth Pty. Ltd. (Melbourne) 202 12 6 7,045 10 6
* Does not include an amount of £29 10s. 10d. stated to be in transit.
The fees comprise mainly annual international membership subscriptions (£5 5s. each) and associate membership subscriptions (5s. each).
Advanced Clinical Course Fees.
Advanced clinical courses conducted by HCO.WW. were held in Melbourne in 1959 and 1961. Fees were payable on either a cash or time payment basis.
Income from the courses has been accounted for on a cash basis.
Twenty-two undertook the 2nd Melbourne Clinical Course in April, 1961. The fees charged for this course varied; nine contracted to pay over £400 and three others over £300, with some discounts for prompt payment.
The receipts are mainly in respect of proceeds from the sales of admission tickets and dinner dance tickets at various congresses conducted by the organization.
Sums equal to 50 per cent. of the gross receipts were payable to HCO.WW. in respect of congresses held prior to the 16th March, 1963. However, HCO Pol. Lr. of 16th April, 1963, directed that in future, in lieu of the previous levy, a payment of 10 per cent. of the gross receipts was to be remitted. Personal congresses given by Hubbard are not included in this directive.
Amounts received under this heading are mainly in respect of tape replays.
The weekly salaries paid to officers and employees of this organization are stated to be calculated on the unit value determined for HASI, Melbourne.
The expenditure includes amounts paid to hotels for accommodation, &c., and printing, stationery and postage charges incurred in respect of scientology congresses.
The sum shown as expenditure in 1960-61, £814, is in respect of the cost of production of instructional films for scientology courses by HCO, Washington.
Expenditure of £195 14s. incurred in 1961-62 related to the purchase of books and stationery for use at an advanced clinical course.
Legal and Detective Agencies.
The expenditure in 1961-62 included an amount of £100 paid to a Mr. Huston on the 16th October, 1961.
Expenditure during the period 1St July to 31st December, 1963, included payments totalling £436 12s. 8d. to a W. D. Northcott, of Perth, for services rendered or to be rendered as a security consultant, and a payment of £59 14s. 10d. to Astoria Rent-a-Car on account of W. D. Northcott.
Managerial Expenses and Service Charges.
Amounts payable to HCO.WW. in each of the years under review were calculated as follows:-
Income Amount due to HCO.WW. £ s. d. £ s. d. Franchise Receipts - 10 per cent. levies 2,644 15 2 -33.3 per cent. = 881 11 9 15 per cent. levies 1,747 4 1 - one-third of two-thirds (one third of £1,164 16s.) = 388 5 4 Book Sales - General 3,317 18 5 -10 per cent. = 331 15 10 Sales of tapes after 2.5.1961 -10 per cent. = . . . Sales of E-meters after 2.5.1961 (excl. Sales Tax) 66 15 5 -10 per cent. = 6 13 6 Administrative Expenses re Advanced Clinical Course 510 0 0 Typing and Paper 593 15 0 Total 2,712 1 5
Income Amount due to HCO.WW. £ s. d. £ s. d. Franchise Receipts - 10 per cent. levies 3,051 4 5 -33.3 per cent. = 1,017 1 6 15 per cent. levies 741 8 0 - one-third of two-thirds = 16 13 0 Book Sales 3,243 19 10 -10 per cent. = 324 8 0 Sales of certain E-meters (excl. Sales Tax) 1,251 7 6 - 10 per cent. = 125 2 6 Total 1,483 5 0
Income Amount due to HCO.WW. £ s. d. £ s. d. Franchise Receipts - 10 per cent. levies 1,001 5 10 - 33.3 per cent. = 333 15 3 Book Sales 2,403 5 5 - 10 per cent. = 240 6 6 Sales of E-meters (excl. Sales Tax) 2,829 7 6 - 10 per cent. = 282 18 9 Total 857 0 6
The expenditure in 1962-63 is in respect of the rental of premises for HCO, Adelaide.
Telex and Telephone Charges.
The expenditure includes the rental of a teleprinter and the costs Of printergrams and cables.
Apart from expenses incurred by Mr. and Mrs. P. Williams, G. Jensen and E. Cooper on travel within Australia, a sum of £451 payable to HCO, Washington, representing fare for one Halpin, was charged as expenditure in 1960-61.
The expenditure in 1961--62 and 1962-63 appears to be in respect of executive officers travelling within Australia.
Loans to Employees.
Advances to four employees amounting to £210 7s. 10d. were out-standing at the 30th June, 1963.
This item includes outstandings in respect of sales of E-meters, books, tapes and congress tickets.
Amounts due for advanced clinical courses were not included in the total outstandings, but a check of the individual debtors accounts disclosed that about £6,000 had not been collected at the 30th June, 1963.
Amounts owed by other Branches.
The balances represent the net amounts outstanding in respect of sums paid by the Melbourne organization on behalf of other branches together with amounts owed for materials, &c., supplied to the branches.
Amounts owed to other Branches.
The following are details of the amounts payable to HCO.WW. as at the close of each of the financial years from 1959-60 to 1962-63:-
£ s. d. General Account Balance owing at 1st July, 1959 197 12 7 Add Cash transfers from HASI 333 13 9 Royalties on E-meters (from B. Penberthy) 37 6 8 Books, tapes, &c., received during year 2,171 10 0 Percentage on books sales (10 per cent. on £2,846 8s. 6d.) 284 12 6 Managerial Expenses and Services Charges (33.3 per cent. on 10 per cent. Franchise receipts) 989 9 9 4,014 5 3 Less Cash remitted during year 3,207 18 5 Cost of Cables 17 4 4 3,225 2 9 789 2 6 Advanced Clinica1 Course Managerial Expenses and Administration Charges due to HCO WW 4,000 0 0 Cost of Cables 175 15 10 4,175 15 10 Less Cash remitted 2,000 0 0 2,175 15 10 Balance owing as at 30th June,1960 2,964 18 4
£ s. d. Balance owing at 1st July, 1960 2,964 18 4 Add - Administrative Expenses and Service Charges 1,608 6 5 Books and tapes supplied for year 1,697 0 0 E-meter Costs 187 0 0 Administrative Expenses (typing) 593 15 0 Postal (airmail) 281 5 0 Cables and Telex Expenses 246 15 0 Freight on books 128 5 0 Magazine Printing and Distribution (PAB Magazine) 307 0 0 Adjustment re 30th June, 1960, Credit (Previously treated as Australian currency instead of Sterling) Administrative Expenses 510 0 0 Cost of Cables 44 17 2 554 17 2 8,569 1 11 Less Cash remitted during year 2,945 1 6 Balance owing as at 30th June,1961 5,624 0 5
Balance owing at 1st July, 1961 5,624 0 5 Add Meters, Books, Tapes, &c., supplied for year 3,987 0 0 Managerial Expenses and Service Charges for year 1,483 0 0 Share of Congress Receipts 715 1 6 11,309 11 1 Less Cash remitted during year 4,515 7 3 Books transferred to HCO.WW 62 10 0 4,577 17 3 Balance owing at 30th June, 1962 7,231 4 8
£ s. d. £ s. d. £ s. d. Balance owing at 1st July, 1962 3,367 19 6 3,863 5 2 7,231 4 8 Add Meters, Books, Tapes &c. supplied for year 3,040 2 5 3,040 2 5 Managerial Expenses and Service Charges for year 857 0 6 . . 857 0 6 Share of Congress Receipts 423 2 2 423 2 2 4,648 2 2 6,903 7 7 11,551 9 9 Less Cash remitted during year 192 4 8 1,700 19 7 1,893 4 3 Balance owing at 30th June, 1963 4,455 17 6 5,202 8 0 9,658 5 6
The amount due and still unpaid as at 30th June, 1963, is in respect of
£ s d Fare re Halpin (1960-61) 451 0 0 Cost re Film (1960-61) 814 0 0 1,265 0 0 Expenses re Tapes (1961-62) 101 5 0 1,366 5 0
This item shown under receipts for the period 1st July, to 31st December, 1963,is in respect of sums received in December, 1963, to finance the printing of the book, This is Life. Sums ranging from £44, £50 to £350, £400 and totalling £1,494 were received from seven persons and the Australian College of Personnel Efficiency, Geelong.
Australian College of Personnel Efficiency at Geelong.
Mr. Campbell conducted in respect of the Australian College of Personnel Efficiency at Geelong a similar thorough investigation. The proprietors of this college are Eric Bruce Lake and his wife, June Margaret Lake, who earlier held a franchise to carry on the practice of scientology, and later had the status of a "district office".
It is unnecessary for the purposes of this report to give extensive details concerning this college.
For the three years ended the 30th July, 1964, the following income was obtained
Year ended 30th June, 1961 -
£ s d Gross Income from- Processing 2,822 16 0 Training 987 4 0 3,810 0 0
Year ended 30th June, 1962 -
Processing 3,718 3 6 Training 792 12 0 4,510 15 6
Year ended 30th June, 1963 -
Processing 4,070 6 3 Training 825 17 0 4,896 3 3
A levy of 10 per cent. on these gross receipts was payable by the Lakes to HCO.WW. via the Melbourne HCO.
The fees charged by this college for processing varied, ranging generally from 3 guineas to 41 guineas per hour.
Very substantial sums were received from several persons for processing and training. Between July, 1960, and March, 1964, £1,442 was paid in respect of three members of one family. Other amounts over the same or shorter periods were £1131 (for two persons), £712, £706 (for two persons), £662 (for two persons), £634, £583, £473, £387.
This college advertised over the radio through 3GL, Geelong, and in the "Geelong Advertiser".
The Melbourne College of Personal Efficiency at Hawthorn.
The Melbourne College of Personal Efficiency at Hawthorn, conducted by Peter Francis Gillham and his wife, Yvonne Doreen Gillham, was also investigated by Mr. Campbell. The Gillhams earlier held a franchise to practise scientology, and later had the status of a "district office".
Income is derived mainly from processing, co-auditing and training courses conducted by the college. The following table shows a classification of fees received or receivable in each of the completed financial years in which the college has carried on business:-
1958-59 1959-60 1960-1 1961-62 1962-63 £ £ £ £ £ Processing 157 1,827 2,778 4,161 5,294 Training Courses 292 827 1,022 329 195 Co-Auditing . . . . 144 1,588 1,388 Conventions, Recordings, &c. . . 15 18 . . 26 449 2,669 3,962 6,078 6,853
A franchise fee of 10 per cent. on the gross monthly takings was payable to HCO.WW. via the Melbourne HCO.
The fees charged varied from no charge for the personal efficiency course up to £4 14s. 6d. per hour for processing. There were intermediate fees for co-auditing at from 15s. to £1 6s. 8d. per hour later standardized at £1 per hour, and fees of £5, £10 and £40 for the HAS courses zero, level 1 and level 2 respectively.
Where fees were not paid in cash, processing or training was usually on a time payment basis, terms being arranged with Conquest Investments (Australia) Pty. Ltd., a company the nominal capital of which was £5,000, of which £2 was paid up, and of which the directors and shareholders were Noel Stanley Barton and Peter Francis Gillham.
Very substantial amounts were received from or on behalf of several persons in respect of services rendered by the college. They include amounts of £1,179, £936, £784, £703, £593, £562, £468, £479. The person paying the sum of £593 also paid an aggregate of £551 to the Melbourne HASI and the Australian College of Personnel Efficiency at Geelong, making a grand total of £1,144.
This college advertised in city and suburban newspapers, Melbourne trams, the "pink pages" of the Melbourne Telephone Directory, on the radio and by a notice board at the Hawthorn railway station.
Though the system of accounts used by the Melbourne HASI and the Melbourne HCO left something to be desired from an accountancy point of view, the investigation by Mr. Campbell was thorough and there is no reason to believe that the material available to him does not completely cover the financial aspect of these organizations' activities. Likewise, there is no reason to suppose that the organizations received any other income than from the sources indicated, or that there were any other amounts remitted abroad than those indicated above.,
Certain significant figures emerge from the investigation by Mr. Campbell, the most important being the large income (well over a quarter of a million pounds) of the scientology organizations in Melbourne for the six years ended the 30th June, 1963.
The following figures show such income and the rate of growth:-
The Melbourne College of Personal Efficiency, conducted by Gillham and his wife at Hawthorn, had a gross income from fees alone of nearly £17,000 for the three years ended the 30th June, 1963.
Year ended £ 30th June,1958 12,150 30th June,1959 30,500 30th June,1960 47,075 30th June,1961 57,640 30th June,1962 71,977 30th June,1963 54,071 273,373
For the same three-year period, the Australian College of Personnel Efficiency, conducted at Geelong by Lake and his wife, had a gross income from fees alone of over £13,000.
Year ended £ 30th June,1961 3,962 30th June,1962 6,077 30th June,1963 6,852 16,991
The income of the Melbourne HASI for processing and training respectively for the three years ended the 30th June, 1963, amounted to nearly £130,000, being made up as follows:- Year ended 30th June, 1961- Processing ....26,837 Training .. ....14,284 Year ended 30th June, 1962- Processing ....29,023 Training .. ....l 7,267 Year ended 30th June, 1963- Processing ....32,610 Training .. ....9,342 129,363
Year ended £ 30th June,1961 3,809 30th June,1962 4,510 30th June,1963 4,895 13,214
The total income of the Melbourne HASI and the Hawthorn and Geelong organizations for the three years ended the 30lh June, 1963, was £213,753, as follows:-
Year ended £ 30th June,1961 65,411 30th June,1962 82,564 30th June,1963 65,778 213,753
The income of the three organizations from processing alone for the same period was £115,971 as follows:-
Year ended £ 30th June,1961 33,621 30th June,1962 38,818 30th June,1963 43,532 115,971
For the five-year period from the 1st July, 1958, to the 30th June, 1963, the total amount of money remitted to the HCO.WW. in England by the Melbourne HASI and the Melbourne HCO was £26,166, averaging £5,233 a year, or £101 a week. Included in this sum was £17,183 for managerial expenses and service charges, which in turn included most of the 10 per cent. on gross receipts.
The HCO.WW. claimed that a further £17,231 was owing to it as at the 30th June, 1963, in respect of managerial expenses, service charges and expenses said to be unpaid as at that date. This last mentioned item included an amount of £7,191 5s. 4d. in respect of a proportion of the cost of the development of research equipment abroad, the production costs of instructional and educational materials and some other items, the account for which was rendered by HCO.WW. after the Melbourne HASI's books for the financial year 1961-62 had been closed and a substantial profit for that year had been revealed. This aspect was an unresolved problem with the Federal taxation authorities at the time the Board heard evidence.