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VicForests’ Relies on Loans and Over-states Equity to Conceal Poor Performance


VicForests’ Relies on Loans and Over-states Equity to Conceal Poor Performance

VicForests, the state government’s native-forest logging agency, has incurred cash losses of $22.2 million since it commenced operating in 2004, says a new report, commissioned by volunteer group Healesville Environment Watch Inc. (HEWI). This equates to $1.50 for each cubic metre of wood (pulp and saw logs) it has sold. The report was conducted by the New Economics Advisory Service of the Australian Conservation Foundation. It involved examination of the company’s cash flows and balance sheets published in its Annual Financial Reports.

HEWI’s own analysis of the figures had previously revealed a large number of apparent discrepancies so it submitted its findings to the NEAS for a second opinion. The New Economics Advisory Service work not only confirmed HEWI’s original concerns but also identified additional issues with VicForests’ financial performance.

The report questions VicForests’ favourable methods for assigning values to its assets, including eucalypt seed, stored and standing timber and regenerating coupes and says they may not hold up to commercial due diligence. The result is over-statement of the equity of the company, which has accumulated interest-bearing debt of $26.8 million and appears to rely on low-interest government loans to fund operations. The report concludes there are significant questions about the viability of VicForests and the commercial sustainability of native forestry.

“We were disturbed that VicForests was not properly and accurately reporting its financial and environmental performance and had publicly raised concerns at the company’s failure to return dividends to Victorians who own these forests,” said HEWI chairman, Steve Meacher. “Now this new report shows that we were right to raise these questions and points to the inappropriate accounting methods VicForests has been using in an apparent attempt to conceal its poor performance.”

The NEAS recommends a thorough financial audit be undertaken by an independent agency that should also consider the significant environmental degradation caused by native forest logging.

The Victorian Auditor General’s Office is currently conducting an audit of the state’s timber industry, due to be tabled in Parliament in November. Last month the Legislative Council passed the government’s Sustainable Forests (Timber) Amendment Bill 2013. Bruce Atkinson (Lib) crossed the floor in support of a motion from John Lenders (Labor) that the bill be referred to committee so that advice could be obtained from the Auditor General. Mr Atkinson noted, “concerns about the fact that the legislation precedes the Auditor-General’s examination of VicForests”. With the vote tied at 18/18 the motion failed. The Bill passed in Council and is expected to progress to the Assembly next week. Passage of the Bill is likely to further erode government and public scrutiny of VicForests operations.

HEWI’s analysis has already been provided to VAGO and the new NEAS report will also be submitted.