The Pop Music Awards (hereafter the PMA) is a (fictional) annual event that celebrates contemporary British music.
Question:
The Pop Music Awards (hereafter the PMA) is a (fictional) annual event that celebrates contemporary British music. The accountant of the PMA resigned abruptly three months before this year's event. Soon after the accountant's resignation, the bank that handled the PMA Trust account received a notification that the account was overdrawn. This is shocking news to the PMA management team, as they were under the impression that the Trust was operating with a comfortable surplus in its bank account. An emergency meeting of the management team and trustees has been called to discuss the situation. The trustees have also asked you, the event manager, to inspect relevant transactions to assess whether these financial transactions are valid and relevant to the planning of this year's event. This case study outlines standard and event-specific financial processes that an event professional would need to understand in order to effectively oversee the successful financial management of their event.
Introduction
Preparations for the Pop Music Awards (hereafter the PMA) have just halted as the trustees learned that their accounts have no funds and they are heavily in debt; thus, there is no money to finance this year's event. In a bid to make sense of the situation, the bank has reviewed the financial statements of the Trust for the past four years and identified serious inconsistencies in some of the income and expenditure entries.
The Trust accountant resigned abruptly and seems to have disappeared. The chair of the PMA Trust has asked you to conduct an investigation into the accounts and to assess whether this year's event can take place while the local law enforcement authorities are conducting a formal investigation of criminal wrongdoing. The trustees are very confident that the organization has enough funds to cover the event costs for this year.
Background to the Event
This annual event has been produced by the Trust since its inception four years ago. The event is a useful way for the Trust to recognize and appreciate the work of the musicians it supports and to disseminate new ongoing projects and activities of the Trust to members of the public and supporters.
The majority of the event income is derived from two main sources: sponsorship income and ticket sales. The accountant negotiated a favourable six-year sponsorship contract with a leading music streaming service the sponsorship fees, which were GBP 2.5 million in the first year of the event, are to be increased by GBP 1 million every two years. The second main source of income is from event ticket sales. In the first two years, while the event was still establishing its profile, full capacity was not achieved. However, during the past two years, as the event has become more popular, ticket sales have been highly successful. When the event concept was initially approved by the trustees, there had been a debate on whether the event should include an income stream that would enable income generation through charging voting fees. As the event was still gaining popularity amongst the voting public, the trustees decided not to introduce voting fees in the first four years of the event and agreed to revisit this income generation stream in the sixth year of the event. Other sources of income are a grant from the National Arts Council, merchandise sales and broadcasting rights. The grant was doubled after the second year of the event as the arts council could see the potential of the event.
The Trust has always endeavoured to keep the event costs at a minimum. One of the strategies applied to achieve this is to negotiate with all event suppliers and contractors to only increase prices every two years, at which point the trustees will task the accountant to review supply contracts and source a minimum of three alternative quotes to ensure they are taking advantage of the most competitive pricing offers available. In the past two years, the Trust has adopted marketing communications strategies that are more relevant to the target audience for this event and thus has introduced new methods of engaging the public using social media influencers. This new strategy has helped to increase the popularity of the event, evidence of which is in the ticket sales.
As a result of the emergency meeting to review the current year's accounts, the trustees are able to confirm the following:
The Trust endeavours to maintain the annual event costs at a minimum. One of the strategies applied to achieve this is to negotiate with all event suppliers and contractors to increase prices every two years with the exception of marketing, public relations, social media and artist liaison costs. This has been managed successfully to date.
The event was sold out last year (Year 4 in Table 1) and the previous year (Year 3) all 20,000 tickets were sold at GBP 150.00 each. The sellouts are in contrast to the first two years during which about one-half of the tickets were sold.
The trustees have confirmed that the full sponsorship fees of GBP 3.5 million were received for Year 4, but this income has not been recorded in the accounts under Year 4 in Table 1.
Voting fees have not been charged in the past four years as the trustees were waiting for the event to increase in popularity.
Last year (Year 4 in Table 1) the artist liaison costs doubled following a last-minute cancellation by one of the headline acts, which resulted in the Trust having to pay an extra fee to charter a jet that could transport the replacement act.
An envelope has been found on the accountant's desk with a confirmation of payment for venue hire fees from the O2 venue for last year's event.
Two years ago the Trust decided to hire a team of five social media influencers, known as the SocialSquad, to promote the event and raise the profile of award winners during and after the event. The trustees instructed the event manager to keep the costs related to this activity consistent over two-year periods.
Discussion Questions
Inspect the income and expenditure figures for the event across the four years outlined in Table 1 and answer the following questions:
1. Can you identify fluctuations and trends in the way the event has performed financially during the past four years? Consider how the event generates revenue and spends money to produce the award show.
2. Identify the income and expenditure amounts that appear to be incorrectly recorded. Try to reallocate the amounts to the correct activities and identify how much money was stolen.
3. The trustees have also asked you to comment on the financial performance of the event during the past four years. Please comment on whether the awards show is still financially viable.
4. Provide five recommendations on how the trustees can improve the financial performance of the event
Auditing Assurance Services and Ethics in Australia an Integrated Approach
ISBN: 978-1442539365
9th edition
Authors: Alvin A Arens, Peter J. Best, Greg Shailer, Brenton Fiedler