The Tribune

• Benchmark auditors flag same issue 12 months on

• Top executive says ‘not causing financial problems’

• Adds impact ‘nor material’ and ‘good progress’ made

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A BISX-listed company’s top executive yesterday moved to reassure shareholders after auditors issued a “qualified opinion” on its annual financial results for the second consecutive year over the same issue.

Julian Brown, Benchmark (Bahamas) president and chief executive, told Tribune Business the impact is “not material” when set against the firm’s near-$16.222m total net assets “and is not going to cause us any financial problems”.

He pledged that “we have a plan to fix” the problem which led to PKF Bahamas “qualifying” the 2022 results - the second straight year it has made such a finding - in time for Benchmark (Bahamas) 2023 audit although such promises have been made twice before.

Mr Brown argued that the publicly-traded firm has made “good progress” in tackling the woes, with the sum at the centre of the auditors’ verdict having been reduced year-over-year from an initial $337,369 in 2021 to $91,549 in the latest accounts.

However, Renee Lockhart, PKF Bahamas’ lead audit partner on the Benchmark (Bahamas) financials, this year flagged up a further issue relating to almost $1m in combined accounts receivables, payables and “other receivables and pre-payments” that were not referred to in the 2021 audited financials. Auditors were unable to obtain sufficient evidence to either “reconcile” or “verify” the sums in question.

Explaining the basis for PKF Bahamas’ “qualified opinion”, the accounting firm informed Benchmark (Bahamas) shareholders: “The group is carrying a balance in its due from customers account amounting to $1.85m, which is presented net of provision in the consolidated statement of financial position at December 31, 2022.

“We were unable to obtain sufficient appropriate audit evidence to reconcile this amount to the underlying accounts, specifically the subsidiary ledger. The unreconciled difference between the consolidated statement of financial position and the subsidiary ledger amounted to $91.549.”

These findings match almost exactly those detailed in Benchmark (Bahamas) 2021 “qualified” audit opinion on the same topic, albeit the numbers are different. The “due from customers balance” referred to in the 2021 results was much higher at $18.44m, while the “unreconciled difference” was more than three times’ larger at $337,369.

Mr Brown yesterday pointed to the reductions as evidence that Benchmark (Bahamas) is making progress in reconciling its accounts, but the fact the same issue was flagged twice in successive annual results statements affirms that it has not been fully resolved a year later.

And PKF (Bahamas) also highlighted a new matter driving its “qualified opinion”, adding: “The group also has accounts receivable amounting to $346,242 and ‘other assets’ amounting to $309,028 included in its other receivables and pre-payments, and accounts payable amounting to $351,045 included in its accounts payable and accrued expenses in the consolidated statement of financial position.

“We were unable to obtain sufficient evidence to verify these balances. Consequently, we were unable to determine the adjustments that are necessary to be posted to the said accounts.” Auditors issue a “qualified” report whenever they find discrepancies or anomalies with particular aspects of a company’s financial reporting and accounts that warrant shareholder attention and questions being raised.

These can involve an absence of supporting documentation to verify the accuracy of particular transactions and/or figures presented by management to the auditors. However, the 2022 financial statements said that PKF’s inspection of Benchmark (Bahamas) financial statements proved satisfactory in all other respects.

Mr Brown, in response, told Tribune Business that all the issues that led to the “qualified” audit involved inter-group transactions between two Benchmark entities and difficulties in reconciling them following the switch to a new information technology (IT) platform in its 2021 financial year. He added that this was no reflection on how the group was being managed or “the soundness of the business”.

“It really is related to some reconciliations we were doing on an inter-company basis that created the hold-up,” the Benchmark chief said of the 2022 “qualified” audit opinion. “It’s a carry over from the [IT] migration we did last year. We hoped to have it all resolved but, as the auditors said in their note, it related to trades between the two companies.

“They are inter-group companies that trade between themselves for securities execution, Benchmark Advisors and Alliance Investment Management. Alliance is the client broker, Benchmark Advisors the executing broker. There was an issue with them the year before in which the trades couldn’t be reconciled to the penny.

“In the 2021 numbers it was $338,000, and this year we got it down to $92,000. We’ve made significant progress, but the auditors - doing their job - felt it should still be a zero balance and we’re going to get it to zero for the 2023 numbers for sure,” Mr Brown pledged.

“Because we were migrating last year [2021], and because the migration stalled the results last year, it’s a carry over from what was not cleaned up in 2021 and what we thought we cleaned up last year. There’s a few outstanding items and we thought we would get them resolved. We’ve made good progress but there’s still work to be done.”

Mr Brown predicted twice before that Benchmark (Bahamas) 2022 annual results would receive a clean bill of health from external auditors. The first occasion was in September 2022, after the 2021 financial statements and first “qualified” report were issued, and a similar pronouncement was made this May after the company received an extension to end-July 2023 for publication of its full-year 2022 results.

That extension, which was granted by the Bahamas International Securities Exchange (BISX), was intended to give Benchmark (Bahamas) more time to address any remaining deficiencies and escape a second “qualified” opinion. However, even this proved insufficient.

Mr Brown, though, said that because the issues flagged by PKF Bahamas were “non-material” when set against the size of the company’s near-$8.6m net current assets and $16.222m total net assets, the company decided not to seek any further extensions and met the end-July publication deadline.

Asked whether shareholders should be concerned about the financial results being qualified for a second successive year, the Benchmark chief replied: “I don’t think there’s any need for concern. It’s not hindered our ability to function. It’s us reconciling the balance between our companies.

“I don’t think there’s any concern in relation to the way the business is being managed and the soundness of the business. The auditors were quite clear. They did their work, and with the exception of this one item everything is in good order. I don’t see that there’s any need to be concerned in that regard.”

Asked about the inclusion of the accounts receivables and payables in the auditors’ qualified opinion, Mr Brown said this, too, was related to the inter-company reconciliation issue. “They could not, in the review of our accounts, on inspection find some of these balances and not identify them,” he added of PKF (Bahamas).

“They’re all related to inter-company balances. There’s no major concern, and we have to make them comfortable with the migration and we intend to do that because we have a full picture of what occurred in 2021 and came across in 2022, and we have a plan on how we’re going to fix that for the 2023 audit.”

Stating that he is “very” confident this will be achieved, Mr Brown added: “I don’t think for our shareholders we’re doing a bad job all things considered and, despite the opinion we got on the results for 2021 and 2022, they are not material and are not going to cause us any financial problems. They’re all debits, credits and reconciliations, but are not cause for anyone running up and down worrying whether the company has a solid footing. It has a very solid footing.”

However, several capital markets sources, speaking on condition of anonymity, said the situation should attract the attention of both BISX and the Securities Commission. “The regulator should have something to say about it,” one contact said.

“A qualified audit opinion means the auditors are not able to issue an opinion on the fairness and accuracy of some aspect of the financial statements. They’re saying, in essence, that we’re not satisfied you are accurate. You get it one year, you fix it, but it’s not supposed to be an annual event.”

Keith Davies, BISX’s chief executive, yesterday said the exchange does monitor the issuance of “qualified” audit opinions for its listed companies. He added that “the nature of the issue” identified, as well as its impact on the company’s operations and ability to meet the exchange’s requirements, would determine if any action is taken.

“To say that we are aware, yes,” Mr Davies said of Benchmark. “The extension addressed a number of issues. We review, analyse and investigate, if necessary, issues such as this to determine if additional steps are needed to ensure listings meet the suitability criteria.”