Shalom House audits raise questions over charity’s revenue record-keeping

Shalom House founder Peter Lyndon-James. Picture: David Baylis.
Shalom House founder Peter Lyndon-James. Picture: David Baylis.

AN INDEPENDENT review of the financial records of high-profile drug rehabilitation centre Shalom House has raised questions about the recording of revenue the charity receives from cash donations.

The review of internal financial records by independent accountants has resulted in a qualified audit opinion for the West Australian Shalom Group Inc (WASG) for each of the past three financial years, according to the group’s annual financial reports.

The reports, filed with the Australian Charities and Not-for-profits Commission (ACNC), show that accountants Shreeve and Carslake in 2014-15 and 2015-16 – and ‘Big Four’ accounting firm Ernst & Young in 2016-17 – issued qualified audit opinions partly due to a cash donation issue.

Shalom House, which claims to be the strictest rehab centre of its kind in Australia, was established in 2012 by addict-turned-rehab-guru Peter Lyndon-James, and is known for its unorthodox treatment of patients enrolled in its programs.

Mr Lyndon-James, who himself has struggled with addiction for much of his life, spent time in jail, then studied theology and worked as a volunteer chaplain at Acacia Prison. He was named the 2018 Western Australia Local Hero in the Australian of the Year Awards.

He said WASG had voluntarily approached Ernst & Young to gain further insight into the charity’s accounting and bookkeeping practices, and the auditors’ findings had prompted a revision of bookkeeping and financial controls.

“Ernst and Young found no illegal dealings or dishonest practices,” he said.

“They simply found ways to strengthen and streamline our practices so that Shalom House is an above-board organisation in everything we do.”

The WASG financial report for 2016-17 filed with the ACNC shows that the group received nearly $760,000 in cash donations that financial year, up steeply from $281,117 in 2016 and $99,960 in 2015.

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The auditors found that overall, WASG had given a true and fair view of its financial position in its statements for each of those years.

However, in their audit report, Ernst and Young said they were unable to verify whether this was a “complete” accounting of donations received by the group in that financial year.

“(WASG) has not established controls over the collection of cash donations prior to entry in its financial records,” the auditors’ report said.

“Accordingly, as the evidence available to us regarding revenue from this source was limited, our audit procedures with respect to cash donations had to be restricted to the amounts recorded in the financial records.”

Mr Lyndon-James said that as the organisation had grown substantially in the past few years, a thorough financial examination was needed for the continuation of WASG.

“Our board saw the need for additional governance and oversight in our accounting practices and so we approached the most reputable and professional auditors in Australia,” he said.

“Our hope was that any issue in our financial handling or record keeping would be brought to light so that we can continue to operate in complete honesty, integrity and transparency.

“The issues that were brought to light were incredibly helpful and practical and we were able to implement new policies and procedures within our financial departments to make sure that every dollar is accounted for.”

Peter Lyndon-James.

The Ernst and Young 2016-17 audit also looked at the records for a WASG trust account that holds money belonging to program participants, many of whom are on Centrelink benefits.

At June 30, 2017, there was $20,203 in the residents’ trust account. That year there were as many as 85 men in the program.

A condition of enrolment in the rehabilitation program is that patients sign a power of attorney giving Mr Lyndon-James authority to have residents’ Centrelink benefits and wages paid into the trust account to cover their board and program costs.

“We have been unable to obtain sufficient appropriate audit evidence to verify whether receipts into this account and payments from this account represents [sic] valid resident related transactions,” Ernst and Young said in their audit report.

“We are therefore unable to express an opinion whether the residents trust bank account and associated liability are appropriately recorded.”

Mr Lyndon-James said WASG had edited its bookkeeping and accounting procedural manual, instituted new control systems and provided additional training for key staff to ensure all Ernst and Young’s suggestions were fully implemented.

“We have welcomed Ernst and Young auditors into our offices again over the past month where their team have been assessing the changes we have made and revising the controls put in play,” he said.

“They are also further going through every transaction to make sure we are 100 per cent above board.”

Mr Lyndon-James said the ACNC, WA Charitable Collections Advisory Committee and the WA Commissioner for Consumer Protection had not expressed any concern to WASG over its financial operations.