3 Jun, 2008

PATA Faces Questions Over Financial Reporting

Imtiaz Muqbil

A media investigation into the financial affairs of the Pacific Asia Travel Association has raised questions about its compliance with the disclosure requirements of the US Internal Revenue Service and membership reporting requirements of its own by-laws.

In this dispatch:

1. PATA FACES QUESTIONS OVER FINANCIAL REPORTING

2. PATA CHAIRMAN JANICE ANTONSON COMMENTS

3. ENTIRE TRANSPORT SECTOR “KEY TO HELP SHAPE A FUTURE CLIMATE CHANGE DEAL”

4. U.S. AIR TRAVELERS AVOIDED 41 MILLION TRIPS IN PAST YEAR – ECONOMY TAKES $26.5 BILLION HIT

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1. PATA FACES QUESTIONS OVER FINANCIAL REPORTING

A media investigation into the financial affairs of the Pacific Asia Travel Association has raised questions about its compliance with the disclosure requirements of the US Internal Revenue Service and membership reporting requirements of its own by-laws. Moreover, the uncovering of “clerical lapses” in the information it has provided in past filings to the IRS also last week forced PATA to “update” these filings, at the risk of facing possible penalties and fines.

Although the association is headquartered in Bangkok, it has a registered office in California where it was previously based before moving to Thailand in 1998. It still retains its status there as a non-profit organisation (NPO) and thus has to file annual financial statements with the US IRS.

The investigation by the Bangkok-based travel trade publication TTR Weekly was intended to verify recent statements made by PATA executives and members of its executive committee that the association was in good financial health and would be able to ride out the lower than projected earnings from its recent CEO Challenge.

PATA’s finances have come under scrutiny because its three primary sources of income – the annual conference now reconstructed as the CEO Challenge, the annual travel mart and the dues paid by its roughly 1,000 members in the Asia-Pacific and beyond – are all under significant competitive pressure.

However, getting access to the financial statements of what is supposed to be a non-profit organisation itself proved to be a challenge. Eventually tracked down from the IRS, the statements showed that previous annual conferences enjoyed an income of US$509,319 in 2005 and US$516,804 in 2006.

Yet, in a recent interview, PATA’s executive committee member Alwin Zecha had said: “Let’s look back to how the CEO Challenge came into being. What it replaced. The PATA annual conference in fact was costing the association money each year, despite the sponsorships and the hosting of the destination……. For what? What’s the sense? It was not only stagnating but regressing and the attendance came no longer from the highest levels of many of these organisations. So it had deteriorated, and therefore it had to go. So where was the opportunity for PATA to recatapult itself into a higher and wider state of the industry? One of them was this (the CEO Challenge).”

In its most recent edition, posted on the website on 30 May, TTR Weekly noted that the difficulty of tracking down the financial statements had also led to the discovery of another potentially serious issue — that PATA is “in danger of defaulting on strict (public) disclosure rules set by the IRS to ensure US-registered non-profit organisations practice good governance.”

US law requires the association to have at its principal offices, copies of the three latest annual information returns (Form 990 Return of Organisation Exempt from Income Tax) that are filed with the IRS.

“TTR Weekly’s investigation revealed that until last week the association’s HQ (in Bangkok) was not in possession of the annual information returns for 2004, 2005 and 2006, leaving it open to criticism that it would not have been able to provide the documents if requested by the public or a PATA member.

“In various (IRS) website instructions on good governance, the management of NPOs is told that complying with the IRS instruction on disclosure tops the ‘must-do list’. Failure to comply with the disclosure rules could result in an association facing a daily fine of US$20 and a maximum fine of US$10,000, until the error is rectified,” TTR Weekly reported.

Asked to comment, PATA’s President and CEO Mr Peter de Jong “appear(ed) to disagree with that assessment,” said the report. “The information in public domain is fairly limited and there is no obligation to go beyond that,” he was quoted as saying.

Although Mr de Jong stated that “financial records that are required for our US reporting obligations are kept at our US-based finance office rather than our Bangkok head office,” TTR Weekly noted that the US office address is neither publicised in association literature, nor posted on its website www.pata.org.

Said the report, “Mr de Jong’s explanation is largely irrelevant, as the IRS disclosure rules state: ‘The organisation must make its annual information returns available for public inspection without charge at all of its principal, regional and district offices during regular working hours’.” Mr de Jong also assured the publication that the financial statements for 2007 would be available on request after being filed.

At the same time, US-registered NPOs are obliged to provide an annual report and financial statements to all members before they are approved at an AGM. But TTR Weekly said that PATA’s honorary treasurer and executive committee member, Mr Hiran Cooray, had first said that the annual financial statement for 2007, with an invitation letter to attend the last AGM in Colombo, Sri Lanka, had been sent to all members. “Shortly after making that statement, in an email to (TTR Weekly), he reported that he could no longer confirm that point,” Mr Ross reported.

A third issue that emerged in the course of the investigation was that PATA, in its IRS filings for both 2005 and 2006, had ticked “No” to two very specific questions asking if it maintained an office outside of the US, and whether it has an interest in or signature over a financial account in a foreign country. The statements for 2007 have still to be filed.

The 2005 forms were signed by PATA’s US-based Director of Finance Tes Yabut and a representative of its CPA while those for 2006 were additionally signed by Mr de Jong. The forms clearly make the signatories responsible for the accuracy of all the information provided or risk facing “penalties of perjury.”

After being alerted to the “clerical lapse,” the association scrambled to fix it. TTR Weekly editor Don Ross reported being told by Mr de Jong that “the earlier filing… (was) inadvertently not updated in some of the particulars.” Mr de Jong attached a PDF of the revised form covering the financial year 2006 which now states that PATA has overseas offices in Thailand and Australia and bank accounts in these countries as well as Germany.

Mr de Jong clarified: “It is a supplemental filing, it updates, but does not replace the earlier filing. Yes, we became aware that the (form) 990 prepared by the accountants was out of date on some points and we chose to amend it.” IRS rules allow an association to “file amended returns at any time to change or add to the information reported on a previously filed return for the same period,” TTR Weekly reported.

Questions about PATA’s internal governance and management procedures were dispatched late last week to PATA chairperson Janice Antonson, who is based in the Bahamas. A reply was awaited at the time of writing.

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2. PATA CHAIRMAN JANICE ANTONSON COMMENTS

PATA chairman Janice Antonson was emailed a number of questions by Travel Impact Newswire to establish exactly how the system works and its reporting structures and procedures. Her replies are below. Note: Ms Antonson’s primary job is Vice President of Marketing and Communications, Nassau Airport Development Company, Lynden Pindling International Airport.

Q. What is the exact role of the association chairman? What value does this position bring to the organisation? And does its role including exercising oversight over management?

A. The PATA Chairman serves a voluntary one year term between two consecutive AGM’s as an officer of the Association. She/he serves as Chairman of the Board and the Executive Committee. PATA exercises its management oversight through the Executive Committee, which in turn reports to the Board of Directors.

Q. PATA by-laws make it mandatory for the financial statements to be approved by the membership at the AGM. Was this done at the Colombo AGM?

A. As it is PATA’s custom and obligation, the audited statements for fiscal year 2006 were presented to and ratified by the AGM in Colombo, Sri Lanka. The 2007 Financials will be presented at the next AGM (Macau, April 2009).

Q. A full financial accounting of the CEO Challenge has yet to be made public. Former PATA chairman Brian Deeson had pledged that it would be done. Assuming that you agree, when can we expect to see the figures?

A. PATA shares its detailed financial data with its Board of Directors, Executive and Audit Committees. These groups will thus be informed during their September 2008 meetings in Hyderabad, whereas we will present the year’s overall financial results (into which the ‘Challenge’ figures will integrated) as part of our normal, annual financials at the next AGM.

I am happy to share with you, however, that it appears (from pre-audited accounting) that the first ever PATA CEO Challenge was a nearly break even event, on a direct revenue vs. direct cost basis. We had anticipated a modest loss, which we would have understood as the cost of launching an untried event. You can imagine, therefore, that we are extremely pleased with these preliminary financial results.

Q. Should the exec committee and the board members not be asking management some hard questions about why issues such as the faulty IRS filings are being brought into the public domain by the media? If they shy away from asking such questions, are they responsibly exercising their roles as representatives of the membership and custodians of public money?

A The Officers of the Association and the Executive Committee bear a management oversight role between Board meetings. Management informed us of a clerical error which was made on a particular IRS form. This administrative oversight has since been corrected. Our not-for-profit status in the US and relations with the IRS remain in good standing.

Q. We understand that Mr de Jong all but hand-picks the members of the executive committee. If that is correct, does it not impede the ability of the executive committee to do an objective analysis of management performance?

A. The Executive Committee is nominated by the Chairman and the President, CEO who take great care to ensure optimal regional and sectoral diversity. The slate is then presented to the Executive Committee and ultimately to the Board of Directors for their adoption.

Q. What precisely are the processes by which management performance is evaluated? What are the checks and balances in place to ensure that the evaluation process are not influenced by cronyism?

A. Management reports regularly to the Executive Committee, to the Audit Committee and to the Board of Directors. Over the years, we have found this to be a comprehensive and satisfying process.

Q. What changes do you see as being necessary to ensure more transparency, accountability and openness in the way PATA affairs are managed?

A. The Board of Directors, Executive Committee, Audit Committee and the AGM remain satisfied with the systems that have been put in place. As an organization that has operated for more than half a century, these systems have evolved – and served PATA well – over many decades.

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3. ENTIRE TRANSPORT SECTOR KEY TO HELP SHAPE A FUTURE CLIMATE CHANGE DEAL

(Leipzig, 29 May 2008) – Speaking at the International Transport Forum in Leipzig, Germany UNFCCC Executive Secretary Yvo de Boer on Thursday called on key stakeholders in the transport sector to help shape the UN climate change deal that will be clinched in Copenhagen at the end of 2009.

The international community agreed to launch formal negotiations to come to a long-term international agreement at the UN Climate Change Conference in Bali in 2007, including a shared long-term vision and enhanced action on mitigation, adaptation, technology and finance. Negotiations got underway in Bangkok in March of this year.

“You have a choice,” he said. “The question is whether you as transport stakeholders are willing to proactively shape the Copenhagen deal or have your policies shaped by it. Data submitted to the UNFCCC shows that, in industrialized countries, greenhouse gas emissions from transport are expected to increase by 30.5% by 2010 against the baseline of 1990. This is the highest of all increases in sectoral emissions. According to the International Energy Agency, global emissions from transport are expected to increase by 80% by 2030 compared to current levels.

“All of the current trends in transport fly in the face of what science tells us is required,” said the UN’s top climate change official. “Developed countries now need to start thinking hard about what short and medium-term sectoral emission reductions they want to commit to in the transport sector, along with what interim targets they want to build in on the way”.

Last year, the UN’s Intergovernmental Panel on Climate Change, said that global greenhouse gas emissions need to peak over next 10 to 15 years and dramatically drop by at least 50% against 2000 levels by the middle of the century in order to stabilize global mean temperature increases around 2 to 2.4°C. For industrialized countries, this means that reductions by 2020 between 25 and 40% based on the 1990 levels would be required.

“Present political action in the transport sector is woefully inadequate,” said the UN’s top climate change official. “New technologies will certainly be part of the answer. But we simply cannot afford to wait for ‘silver bullet’ solutions which may only be commercially available in the future,” he said.

The UN’s top climate change official mentioned ambitious CO2 standards for cars, integrated transport strategies and emissions trading as potential ways to tackle the problem. He also called on transport officials meeting in Leipzig to consider the extent to which international transport could be included in an emissions trading system established as part of the Copenhagen agreement. Emissions from international transport to date do not fall under the UN’s Kyoto Protocol.

“Linking the transport sector to an existing emissions trading scheme would allow for cost-effective reductions of GHG emissions across sectoral borders,” said de Boer.

The UNFCCC Executive Secretary also spoke to the need to improve the quality of data on transport. There is presently no common set of internationally recognized indicators for measuring, reporting and verifying national and international action on mitigation of climate change in the transport sector.

“We cannot master what we cannot measure,” he said. “Developing a table of indicators for transport and climate change, as input to the UN climate change process, would be the task of the community of international transport experts.”

In addition, industrialized countries should support developing countries in their efforts to improve their data basis. The next round of UN-sponsored global climate change negotiations is set to begin in Bonn, Germany, on 2 June. Two more rounds of negotiations will taking place in Accra, Ghana (21 to 27 August) and in Poznan, Poland (1 to 12 December). A series of four major UNFCCC negotiating sessions are planned for 2009, culminating at the UN Climate Change Conference in Copenhagen in December.

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4. U.S. AIR TRAVELERS AVOIDED 41 MILLION TRIPS IN PAST YEAR – ECONOMY TAKES $26.5 BILLION HIT

Washington, DC — The Travel Industry Association (TIA) last month released a landmark survey revealing that deep frustration among air travelers caused them to avoid an estimated 41 million trips over the past 12 months at a cost of more than $26 billion to the U.S. economy. Conducted by the premier, bipartisan polling firms of Peter D. Hart Research Associates and The Winston Group, the research also demonstrated that air travelers express little optimism for positive change, with nearly 50 percent saying that the air travel system is not likely to improve in the near future.

“The air travel crisis has hit a tipping point – more than 100,000 travelers each day are voting with their wallets by choosing to avoid trips,” said Roger Dow, President and CEO of TIA. “This landmark research should be a wake up call to America’s policy leaders that the time for meaningful air system reform is now.”

Dow noted that the 41 million avoided trips during the last 12 months rippled outward across the entire travel community costing airlines more than $9 billion in revenue; hotels nearly $6 billion and restaurants more than $3 billion. In addition, federal, state and local governments lost more than $4 billion in tax revenue because of reduced spending by travelers.

“Many travelers believe their time is not respected and it is leading them to avoid a significant number of trips,” said Allan Rivlin, a partner at Peter D. Hart Research Associates. “Inefficient security screening and flight cancellations and delays are air travelers’ top frustrations.”

“A majority of travelers thought that air travel safety was getting better and a majority thought the security was improving as well,” said David Winston, President of the Winston Group. “But there are clear frustrations around efficiency and reliability, which are contributing to travelers avoiding air travel.” The survey found that travelers believe that the air travel system is bad and getting worse, for example:

o More than 60 percent believe the air travel system is deteriorating;

o One-third of all air travelers are dissatisfied with the air travel system, with 48 percent all frequent air travelers (5+ trips per year) dissatisfied; and

o Travelers are most irritated about the air travel process, not the airlines. Issues the federal government can address are travelers’ top concerns: delays, cancellations and inefficient security screening.

“With rising fuel prices already weighing heavily on American pocketbooks, we need to find ways to encourage Americans to continue their business and leisure travel. Unfortunately, just the opposite appears to be happening.” said Dow.

Following this landmark survey, TIA will host an emergency summit of travel leaders on June 17 in Washington, DC to discuss next steps for moving this issue forward with policymakers. In addition, TIA has called on each of the major presidential candidates to commit to addressing this issue for the millions of American air travelers – and voters – who face the trials of the antiquated air traffic system on a daily basis and to issue a comprehensive plan to fix major elements of the air travel system during their first term in office.

The survey of 1,003 air travelers (adults who had taken at least one roundtrip by air in the last 12 months) was conducted between May 6 and May 13, 2008 and the statistical margin of sampling error is ± 3.2 percentage points.

SUMMARY OF KEY SURVEY FINDINGS

Air Travelers: Travel Process Is Bad and Getting Worse

• 78% of air travelers believe the air travel system is either “broken” or in need of “moderate correction.”

• 62% believe the air travel system is deteriorating.

• 33% of all air travelers are dissatisfied with the air travel system, and 48% of frequent air travelers (5+ trips per year) are dissatisfied.

• 39% of all air travelers feel their time is not respected in the air travel process, and among frequent air travelers that number surges to 51%.

• Travelers are most irritated about the air travel process, not the airlines. Issues the federal government can address are travelers’ top concerns: delays, cancellations and inefficient security screening.

41 Million Trips Avoided Strikes $26.5 Billion Blow to U.S. Economy

• 28% of air travelers avoided at least one trip over the past year (2.1 on average) due to the problems in the air travel process.

• 41,000,000 trips were avoided over the past 12 months (approximately 112,000 per day): 12 million business trips and 29 million leisure trips.

• The total economic impact of 41 million trips avoided is $26.5 billion; including losses of $9.4 billion to airlines, $5.6 billion to hotels, $3.1 billion to restaurants and $4.2 billion in federal, state and local tax revenue.

• When combined with a recent report by Senator Chuck Schumer (D-NY) showing that air travel delays cost the economy $41 billion in 2007, the cumulative cost of America’s air travel woes is in excess of $67 billion annually.

Air Travelers / Voters: Little Optimism for Improvement

• Nearly 50% of all air travelers do not think it is likely that the air travel system will be improved in the near future.

• Nearly 60% of frequent travelers express no confidence that the air travel system will be improved in the near future.

• Almost all of these air travelers – 90% – are “likely voters.”

Full survey: http://www.tia.org/resources/Public_Affairs/ME_KeyPoints_3.pdf.