For several years, one of Australia’s crusading senators, covered closely by one of the country’s most dogged television reporters, put pressure on the Church of Scientology to face more regulation with the creation of a national charities commission.
That effort paid off yesterday in a big way when Scientology’s internal financial reports were revealed for the first time by the Australian press, providing a rare look at how the organization is faring in that country.
We have those reports for you to go through, as well as some help understanding them from former Scientology spokesman (and native Australian) Mike Rinder.
But first, we want to remind people how we got here, and why Australia, at least, is regulating Scientology in a way that certainly isn’t happening in the United States.
Over a period from 2007 that lasted more than four years, television journalist Bryan Seymour pounded Scientology with investigative coverage which showed how lax Australian tax regulations were being used by the church to get around stricter regulations in places like the UK and elsewhere.
A conversation with independent Senator Nick Xenophon led to the Adelaide lawmaker going public with his concerns about Scientology, and his support for a charities commission that would regulate non-profits like Scientology to make sure that they were providing some kind of public benefit.
On May 10, 2011, the Australian government announced that it would be funding a charities commission, and Seymour and Xenophon celebrated in a Today/Tonight episode…
Less than two weeks later, on May 23, 2011, Scientology in Australia reorganized itself. It became a non-profit type known as a “company limited by guarantee.” By law, that meant that Scientology would have to open up its books, but to the Australian Securities and Investments Commission (ASIC), and not to the newly formed charities commission.
Scientology’s annual financial reports for 2011 and 2012 were submitted to ASIC, and those were made public yesterday by the Australian press. We have both reports for you.
We asked Seymour why he thought Scientology had changed its corporate structure, forcing it to divulge its financial health.
“If the charities commission had not been set up, Scientology would not have re-incorporated and handed over their accounts,” Seymour says. “I’ve asked the charities commission to review the article published today and if they will launch an investigation into the unexplained losses and where Scientology’s money is going. Either way — Scientology will, for the first time in Australia, be scrutinised for what it really is: A business, operated as a cult, masquerading as a religion.”
The Herald Sun and 9News.com each reported that despite only 2,163 Scientologists in the country according to the most recent census, the organization took in $33.1 million in revenue over the two years, 2011 and 2012, but still managed to lose money each year — $136,375 in 2011, and $169,156 in 2012.
Some of that revenue over two years was in the form of interest on Scientology’s investments, but $4.3 million was in donations, and $3.4 million in book sales. (Scientologists are under intense pressure to spend freely on both books and other materials, and to make large donations.)
The Herald Sun points out that the opening of a new “Ideal Org” in Melbourne in 2011 appears to have resulted in a significant increase in “minor” course completions that year, but the next year that subsided. Mike Rinder noticed other interesting trends in the detailed reports. But he was also concerned by what he didn’t find in them.
“This is really hard to sort out because they spun off Melbourne, according to their 2012 report, as of 1 October 2012,” Rinder explained to us in an email. “So, do these two years compare? I have no idea.”
He was also concerned that some detailed breakdowns of revenue present in the 2011 report were missing in 2012.
“The 2012 report doesn’t include the most interesting figures in the 2011 report, which are on page 12 — The total receipts for auditing and training, for book sales and straight donations. The total contributions from parishioners went down from $16.2 million in 2011 to $13.1 million in 2012 even though the fundraising for the ‘Sydney Ideal Org’ (which opened in 2014) was going ‘full blast,’ and the Melbourne Ideal Org was supposedly expanding out the roof,” he says.
“But it is definitely true that these figures are for all churches in Australia, including the Advanced Org and the CLO. The other figures of interest are on page two of the 2012 report. Despite the new Ideal Org in Melbourne ‘parishioners completing major courses’ declined by 9 percent. After that drop, they only increased 5 percent in 2012 — in other words, they did not even recover to the level of 2010,” he adds.
Seymour pointed out that Scientology did make an annual information report to the charities commission, and in it the organization claims that it has zero employees, but 500 volunteers.
Scientology, in other words, is calling “volunteers” its org staff members, as well as its incredibly dedicated “Sea Org” workers, who sign billion-year contracts, work around the clock for pennies an hour, and may be separated from family for years at a time without a single day off a year.
“The total volunteer allowances and volunteer welfare expenses for 2011 and 2012 for what Bryan says are ‘500 volunteers’ are $4,354,198 for 2011 and $3,827,144 for 2012,” Rinder points out. “Presumably this means there were fewer volunteers in 2012 than in 2011. But just calculating a ballpark figure, this means that the pay for all staff and living expenses for all Sea Org workers comes to $73,000 per week. If this is for 500 people, that’s $147 per person per week for pay, food, living, healthcare, uniforms etc. And some of those are not Sea Org, so the outlay is not covering their living expenses. So, at best, if there are no Sea Org, the average wage of all staff in Australia is $147/week. And if they are all Sea Org then they are spending $147/week for full time, 7 day a week labor that are obviously not receiving medical care and are living in squalor and eating rice and beans. The truth lies somewhere between the two.”
The Herald Sun reported that Scientology Australia’s spokeswoman, Virginia Stewart, tried to make the stagnated numbers look like the result of massive expansion: “Operating losses can happen, especially during periods when the church is expanding its outreach activities, increasing its service facilities and community programs,” she said. “We have planning in progress for other locations of our churches in Australia and Asia.”
If you haven’t read our story about Virginia Stewart and disconnection, please do.
Our commenting community includes some top-notch experts on Scientology’s finances, including former financial executives who worked in the Sea Org, and we look forward to what you can glean from these reports.
UPDATE: We’re going to add John P’s interesting analysis of the 2011 report here…
By far, the most amazing number in the 2011 financial statement is the balance sheet entry showing a liability $29.2 million in deposits for undelivered services. Given that they delivered $10.5 million in “counseling & religious training,” per Note 2 on Page 12, that means they have three years’ revenue worth of deposits. That would be a catastrophic liability in any organization, and if those who have blown want their money back, the cult would instantly be bankrupt. They claim to have $26.7 million in cash on the balance sheet and a “net equity” (i.e., book value) of $25.4 million, both less than the liability to customers for deposits.
Edited to add: To hammer the point home in case you’re not financially inclined, this is why the cult is terrified of refund lawsuits and why they fight them tooth and nail. If the pattern shown here holds across all the geographies the cult serves, then this means that the bulk of cash assets are from deposits. So if there are successful class actions to get the deposits returned, the cult is close to bankrupt and their ability to withstand further erosion in revenue from a declining member base is nil.
Edited to add, continued:Note that I don’t think they’d have to have the reserves actually depleted by being refunded to bring about the end of the cult. Instead, I suspect it would be sufficient to obtain judgments to attach local funds. Essentially, they would be unable to move money back onshore to prop up failing operations, because it would be subject to seizure when it hits a local bank. And new revenue being deposited before being moved offshore would also be subject to seizure, making the local org unable to pay its bills or its people. We can only hope that a wave of class actions for deposit refunds appears in the near future; this could be a “domino” consequence of losing fraud lawsuits like the Garcia’s case now wending its way through the Florida courts.
If I had to guess where there’s something fishy going on, it’s that they have a strong cash balance of $27 million while being essentially break-even or a little less, with small operating losses in both 2011 and 2012. Allowing local organizations to retain cash seems antithetical to all we’ve heard from ex-members, including some who were Flag Banking Officers. If I were Senator Xenophon, I’d instruct those in the government auditing the financial statements to test whether the bank accounts carrying the cash were truly under control of the local organization. I would be willing to bet that this is how Miscavige covers looting the local org, by pretending that the Australians still have control over their cash balances. It would be difficult to catch such a setup but it could be done if the auditor knew what they were looking for.
Note 3 of the financials says they have $19.7 million of their $26.7 million cash balance in “interest bearing deposits.” I bet that’s the scam: they have “loaned” money to Miscavige and he’s paying them “interest” to the tune of $556,000 per year (per Note 2 of the financials). They’re claiming to get over 2% on their cash hoard. There aren’t a lot of corporate treasurers in the US who are getting 2% on treasury operations these days and I refuse to believe the cult’s treasury management is that good at generate interest. I suspect they’re far better at keeping cash out of the reach of seizure, which typically results in very low interest. I certainly don’t think they can get 2% on cash via straight bank interest.
I don’t see anything in the financial statements about money being sent “uplines” to Miscavige. The only thing that could explicitly cover this is “ecclesiastical services” of $1.03 million in the 2011 financials or “Licensing Fees & Memberships”. There are probably ways that some other money sent “uplines” is hidden in other line items like “religious training,” which is probably people being sent to Flag for Golden Age of Dreck II training, etc. That money ends up in Miscavige’s pocket, of course.
Another number worth considering is the “net realizable value” of inventories on hand. They’re saying that they have $7.35 million in inventory (mostly books but perhaps e-meters as well). They say in Note 5 of the financials that “current replacement cost” (what they would have to pay to get more copies of “Science of Survival” from California (translated into Ocker or Strine by the translations unit of Bridge Publications, of course) would be $7.4 million, but the “net realizable value” (what customers would actually be willing to pay for them) is only $140,000. In other words, they’ve been burdened with unsaleable crap from HQ. So that’s one facet of where the money has gone in the past. I bet it means that they have $6 million in copes of The Basics where that scam was pushed heavily a few years back. The fact that book sales in 2011 were roughly at breakeven, where costs were somewhat near revenue, suggests that the book scam as a source of real revenue, is basically done.
The “Film Lease” payments of $121,000 in 2011 also seems suspiciously low given what we’ve heard in the past about that being a source of income for Cult Central in California.
Purchases of books and “artefacts” from HQ of $1.68 million out of total revenue of $17.3 million sounds pretty reasonable. It’s only when you note on page 12 that book sales were $1.5 million, so they were getting fleeced on the books, so all of that is money going “uplines” for inflated books and e-meters wholesale prices.
On the revenue breakdown in Note 2, it would be interesting to see what “contributions from affiliated organizations” of $948,000 represented. Is it stuff from CCHR, Narconon and other front groups?
Bonus photos from our tipsters
A billboard for Scientology’s premier prep school, Delphian in Oregon…
Caption: “We are going to Lesotho, to go and train a brand new Drug Free World Volunteer team…”
Handing out the The Way to Happiness at the Children’s Pavilion of the World Book Fair in India, the second-biggest book fair in the world!
Scientologists are using social media more than ever. Drop us a line if you spot them posting images to Instagram or Facebook!
Posted by Tony Ortega on February 23, 2015 at 07:00
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Learn about Scientology with our numerous series with experts…
BLOGGING DIANETICS: We read Scientology’s founding text cover to cover with the help of LA attorney and former church member Vance Woodward
UP THE BRIDGE: Claire Headley and Bruce Hines train us as Scientologists
GETTING OUR ETHICS IN: Jefferson Hawkins explains Scientology’s system of justice
SCIENTOLOGY MYTHBUSTING: Historian Jon Atack discusses key Scientology concepts