Forced to open its books, one overseas Scientology rehab shows that business is grim

 
One of the tough things about reporting on the Church of Scientology is that its tax-exempt status allows it to hide much of its financial information from the public. In some countries, however, Scientology and its front groups have to open their books. Among them is the Netherlands, where once again we’re getting a look at the annual financial report from the Narconon drug rehab center there. And just like last year, we’ve asked our resident money man, John P. Capitalist, to go over the numbers…

I’ve taken a preliminary look at the 2016 Narconon Netherlands (NN NL) financial statements just filed with the Dutch government. I welcome additional perspective from the several Dutch activists who keep an eye on such things, including TrevAnon and scamofscientology.

Revenue & Expenses

2016 was an unmitigated disaster. Program-related revenue (i.e., delivering actual Narconon quackery) was €19,117 versus €78,725 in 2015. I’m guessing this is a drop from four patients in 2015 to one in 2016. Total revenue dropped as well. In 2016, they relied on donations of €65,107, about double the donations of €31,292 in 2015 but still saw overall revenue down by 23 percent versus the prior year.

The big jump in donations allowed them to show a net loss of only €5,482 versus a net loss of €10,714 in 2015. They managed expenses to revenues reasonably well, which is just the sort of thing that any business should do when revenue drops by 23 percent — you have to cut expenses by at least that much.

A narrowing net loss sounds like a good thing, but when the only thing saving NN NL from financial collapse was a big increase in donations to keep revenue somewhere vaguely close to expenses. That sure sounds like someone was pulling in some big donations and “managing” the profit number – that’s a big no-no in accounting in the US.

There was a comment in the notes to the financial statement that claims that there were a lot of small donations powering the donation line, but I think this could well be misdirection – the financials don’t appear to be audited or even prepared by an external CPA firm; they appear to be an internal summary and I wouldn’t place any major trust in the numbers. So they can basically say whatever they want without fear of prosecution. I suspect that in the Netherlands, as in the US, as long as the revenue line is accurate and all taxes such as payroll taxes are paid, the government is not going to take a fine-toothed comb to the financials of a charity unless there’s specific evidence of wrongdoing.

When we look at expenses, there are a couple things that jump out. NN NL spent €6,664 on vitamins, which is actually up versus the €6,139 they spent on vitamins for 4 patients last year. There’s a line item for “food and consumables” of €27,856 versus €32,754 for “feeding” in 2015. So they’re paying about the same total for vitamins and food for their one patient than they paid for 4 people in 2015. That sounds rather odd. Especially when they spent €33,995 (food + vitamins) on variable costs for a customer who paid only €19,117.

Also, there’s no “Housing” expense for 2016 versus the €52,858 for housing last year. Commenter scamofscientology, who is on the ground in the Netherlands, said in last year’s article that this item was likely due to legally mandated medical detox for the early stages of rehab that they had to pay for. I’m not sure why they were able to dodge this cost in 2016, unless the one patient that NN NL had was there for marijuana, which doesn’t have a detox cycle as far as I know. Cutting out this significant line item went a long way to helping the organization keep the net loss for 2016 low enough that it can limp through another year without being liquidated.

There are minimal wages paid of €8,068. If I remember correctly, they did have several paid staff in the 2014 report. It’s a sign of desperation that they had all the staff suddenly decide to volunteer in 2015 and 2016. I’m suspecting that this small payment went to one or more former students being kept on to be recruited into the cult. I would guess that the seasoned management all went without salaries. It also seems just a little too tidy that payroll expenses went from €10,135 in 2015 to €8,068 in 2016, a percentage drop of 20.4 percent, very close to the 23 percent drop in revenue. Most large companies have trouble controlling labor costs that well, and it seems very unlikely to me that an organization this small, with so few employees, can be that surgical in matching payroll to revenue.

Finally, the “Operating cost” line item in 2015 for €45,019, simply disappeared from the income statement in 2016. It’s not a case of reshuffling it into different sections of the income statement, but this was just gone altogether. I’m going to guess that these “operating costs” were amounts that were kicked back to the Mothership when times were relatively better last year, but they simply weren’t able to do it this year – they had to stiff David Miscavige for a year in order just to stay in business. Wonder what “condition formula” this puts them in. Liability? Doubt? Extreme Ineptitude?

Balance Sheet

Consistent with what we’ve seen at most Scientology operations worldwide, there’s almost no cash on the balance sheet ever; there’s only €172 in the bank, hardly enough for the Dutch government to seize, though it’s also not really good for a company to have so little cash on hand.

Accounts payable (bills owed to creditors such as contractors, etc.) dropped from €108,779 in 2015 to €84,293, which sounds like good news until you realize that they’re basically continuing to pay bills on a 360-day calendar, instead of the 30-60 days that vendors would expect from high-quality customers. Hubbard’s financial advice of paying bills only when people threaten to cut you off continues in full effect.

NN NL still owes big money. The €409,000 loan from a Christian monastery remains on the books at the same amount. There’s a line item on the 2015 financials with a loan held by NN International of €77,338, but that doesn’t appear in the 2016 numbers. However, I think that the new “License” number of €103,042 reflects the old amount owed to NN International, plus what they owe for treating their one patient this year. A jump of €25,704 in royalties to NN International sounds pretty scary given that it is royalties for treating one patient, for which NN NL got paid €19,117. There should be an entry on the income statement where the change in this balance sheet item would appear as an expense, but I’m not sure where it would be. Very suspicious…

Notes to Financials

The comments to the financial statements try to paint a rosy picture, referencing the idea that lots of small donations mean that the lives of many people can continue to be saved. But they also make reference to a “going concern warning” remaining in effect – in other words, that NN NL is teetering on the brink of extinction.

The fact that this doesn’t have the name of an external auditor suggests it’s an internal report that has been filed with the government, with no auditing to assess related-party transactions (rent from a Scientologist, etc.).

My Take

The 2016 numbers appear to be thrown together by someone less skilled than the preparer of the 2015 numbers. A lot of stuff is being shuffled around without explanation in footnotes, which you’d hope to see on internal numbers, and you’d certainly expect to see on numbers filed with the government or otherwise published. That leaves me very suspicious about the quality of the financial information here.

The financials clearly reek of having the numbers managed. They can’t lie about program revenue or donations as that would bring the wrath of the government down on them. But they are being pretty blatant about doing whatever they can to manage costs in line with plummeting revenue, including padding donations and getting rid of all sorts of expenses – I don’t know whether they were able to cut the €45,019 by simply deferring paying for anything (we should have seen a big jump in accounts payable if this was the case), whether they’ve transferred those costs to another Scientology organization, or whether they’re simply lying and taking a calculated risk that they won’t get audited.

The bottom line: this is another disastrous year. NN NL, by narrowing the loss and by turning royalty expenses into debt to be paid later and by magically coming up with double the donations they took in last year, managed to remain financially viable for another year. However, they’re basically now down to gnawing off and eating their own fingers to stay alive.

 
— John P. Capitalist

 
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Kim Poff nears trial over retaliatory firing in Oklahoma

In 2014, we told you that an Oklahoma state inspector general, Kim Poff, was suing her former employer, the state mental health authority, because she said she had been fired when she complained that her bosses had buried her investigative report recommending that the Church of Scientology’s flagship drug rehab there be shut down. And then, because she had filed that lawsuit, she was fired by another state agency, the Department of Human Services, in retaliation. Poff filed a second lawsuit, against DHS, also in 2014.

That lawsuit against the state DHS has slowly been moving through court over the last three years, and is now nearing a November trial. But first, her claim has to get past motions for summary judgment filed by the state, and yesterday, Poff’s attorney, Rachel Bussett, filed responses to those motions.

We’re very interested to see whether Poff’s case can actually survive to trial in November, but we’re not sure why Channel 9 in Oklahoma City is reporting this as if Kim Poff has filed her lawsuit for the first time.

She hasn’t. This is a three-year old lawsuit that has some new filings in it, but not any major new developments.

As ever, what we’re really interested in with regards to Poff’s lawsuits is her original investigative report recommending that Narconon Arrowhead be shut down. It’s still under seal, and perhaps if this thing does get to trial, we’ll finally get our hands on it.

 
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Chris Shelton on the Bridge

Says Chris: “This week there’s been a lot of talk about the Grade Chart between Leah’s show and Tony’s article on OT VIII yesterday, but here is part 2 of the video I started last week breaking down the whole Bridge to Total Freedom step by step. I put some things in here about OT III whcih I don’t think too many people have seen anywhere before and try to break it down so it makes sense why Scientologists think these OT levels are so significant and important (and it’s not because of Xenu). Enjoy!”

 
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Bonus items from our tipsters

Bring your checkbook!

 
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Posted by Tony Ortega on September 7, 2017 at 07:00

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