The Deputy Chief Censor. Ms Nicola McCully, whose statutory position expired on the 18th of September 2005, and yet remains on in her job, confirmed in a Sunday Star Times interview (13/08/06), that 80% of her time and that of the 16 censors in the Classification Unit, is devoted to the careful examination, classification and registration of DVDs and videos featurng sexually explicit adult material (hardcore porn sleaze). McCully who recieves a salary package of between $150,000 and $160,000 joined the team at the Classification Office in 1994 after leaving her first ever full-time job as a primary school teacher aide. Her boss, Chief Censor Bill Hastings, who heads the Office of Film and Literature Classification (OFLC) and whose statutory position expired in mid-October 2006; receives a salary package of between $190,000 and $200,000. Precisely 82.21% of the combined salaries of these two Executive members funds their respective roles in the three-stage classification process of largely hardcore pornographic publications. In 2004/05 this amounted to $271,293 and in 2005/06 the contribution was $287,735, (remuneration costs in achieving Output 1 – defined as the examination, classification and registration of all publications dealt with in one financial year).
Add to this these salary costs those of the three senior classification officers (Mike Yule, Michael Harman and Susan Moore) whose combined salary package is about $180,000; and the salaries of the 11.3 full-time equivalent classification officers and two “casuals”, the combined total remuneration costs to the OFLC involved in achieving Output 1 is $976,293 (2004/05) and $1,082,735 (2005/06). These costs are only just covered by the income received by way of “Third Party Revenue” paid by distributors etc. in the form of classification application fees.
When these total annual personnel costs involved in achieving Output 1 are deducted from the total annual expenditure by the OFLC in achieving Output 1; massive additional overheads are highlighted. In 2004/05 the additional overhead was $1,355,297 and in 2005/06 it was $1,393.323. These operating costs (non-personnel) are paid for by the New Zealand taxpayer. It is the porn industry that is the big winner here. Producers of hardcore porn titles stand to earn on average about 45% profit over production costs for each new title within the first few years. The classification fees they pay to the OFLC are miniscule compared to their profits and don’t even go half-way towards paying the true costs of the classification. It is the taxpayer who pays the difference.
An analysis of the OFLC Financial Statements for 2004/05 and 2005/06, is set out below, illustrating the above points.
Financial Accounts 2004/05 (see OFLC Annual Report 2005)
In 2004/05 the total revenue received from Third Party Revenue to fund Output 1 (Examination, Classification and Registration of Publications) = $975,311 [A1]
The total expenditure by the OFLC on Output 1 = $2,331,590 [A2]
The difference = Total Overheads for Output 1 = $1,356,279 [A3] = [A2-A1]
The combined salaries of the Chief Censor and Deputy Chief Censor = $320,000 – $340,000
82.21% of this combined salary ($330,000) is used to achieve Output 1 = $271,293 [S1]
The estimated combined salaries of three senior Classification Officers = $180,000 [S2]
The estimated combined salaries of 11.3 F/T equiv. staff and 2 casuals = $525,000 [S3]
Total Remuneration (Classification Unit plus Executive Contribution 82.21%)
= $976,293 [S1 + S2 + S3] = [R1]
Total Expenditure on Output 1 [A2] – Total Remuneration (Output 1) [R1] = $1,355,297
Revenue sources additional to Third Party
Crown Revenue = $1,337,706
Other (including Interest) = $160,039
Conclusions:
1. The total remuneration ($976,293) to personnel for work directly related to Output 1
(including the 0.82 F/T equivalent input from the Chief Censor and his deputy and casuals) was probably covered by Third Party Revenue ($975,311) in 2004/05.
2. The true cost to the OFLC to achieve Output 1 was not covered by Third Party
Revenue. Total Expenditure on Output 1 was $2,331,590 so that after all
personnel costs had been covered (funded by Third Party) there were operating costs overheads of $1,355,297.
3. All non-personnel operating costs ($1,355,297) were able to be covered by a combination of Crown Revenue ($1,337,706 and Other Revenue (including interest) of $160,039.
4. OFLC achieved Output 1 with a heavy subsidy by the New Zealand taxpayer to cover overheads over and above Third Party revenue, calculated as $1,355,297.
THE PROBLEM:
Factoring in Data provided to parliament by Minister of Internal Affairs
The Hon. Rick Barker provided average annual costs for each of the tasks engaged in by the Classification Unit in achieving Output 1. These costs took into account personnel costs and overheads. Using this data the Society calculated that the it cost the OFLC $783,902.11 to classify and register all 2,164 publications it received in 2004/05 taking into account as the Minister stated “personnel costs and overheads”).
The difference between this expenditure to achieve Output 1 and the total expenditure given in the Annual Report to achieve Output 1 ($2,331,590) = $1,547,688
There is therefore a gap of $1.55 million, unaccounted for in the 2005 Annual Report relating the Output 1
Analysis of the OFLC Financial Statements 2005/06
2005/06 Financial Accounts (see Annuall Report 2006)
In 2005/06 the total revenue received from Third Party Revenue to fund Output 1
(Examination, Classification and Registration of Publications) = $1,298,693 [B1]
The total expenditure by the OFLC on Output 1 = $2,476,060 [B2]
The difference = Total Overheads for Output 1 = $1,177,367 [B3] = [B2-B1]
The combined salaries of the Chief Censor and Deputy Chief Censor = $340,000 – $360,000
82.21% of this combined salary ($350,000) is used to achieve Output 1 = $287,735 [T1]
Estimated combined salaries of 3 senior Classification Officers = $180,000 [T2]
Estimated combined salaries of 11.3 F/T equiv. staff plus 2 casuals = $615,000 [T3]
Total Remuneration (Classification Unit plus Executive Contribution 82.21%)
= $1,082,735 [T1 + T2 + T3] = [U1]
Total Expenditure on Output 1 [B2] – Total Remuneration (Output 1) [U2]
= $1,393,325
Revenue sources additional to Third Party
Crown Revenue $1,371,894
Other (including interest) = $177,291
Conclusions:
1. The total remuneration ($1,082,735) to personnel for work directly related to Output 1 (including the 0.82 F/T equivalent input from the Chief Censor and his deputy and casuals) was probably covered by Third Party Revenue ($1,298,693) in 2005/06.
2. The true cost to the OFLC to achieve Output 1 was not covered by Third Party Revenue. Total Expenditure on Output 1 was $2,476,060 so that after all personnel costs had been covered (funded by Third Party) there were operating costs overheads of $1,393,325.
3. All non-personnel operating costs ($1,393,325) were able to be covered by a combination of Crown Revenue ($1,371,894) and Other Revenue (including interest) of $177,29.
4. The OFLC achieved Output 1 with a heavy subsidy by the New Zealand taxpayer to cover overheads over and above Third Party revenue, calculated as $1,393,325.
THE PROBLEM:
Factoring in Data provided to parliament by Minister of Internal Affairs
The Hon. Rick Barker provided average annual costs for each of the tasks engaged in by the Classification Unit in achieving Output 1. These costs took into account personnel costs and overheads. Using this data the Society calculated that the it cost the OFLC $990,302 to classify and register all 2,595 publications it received in 2005/06 taking into account as the Minister stated “personnel costs and overheads”).
The difference between this expenditure to achieve Output 1 and the total expenditure given in the Annual Report to achieve Output 1 ($2,331,590) = $1,485,758
There is therefore a gap of $1.48 million, unaccounted for in the 2006 Annual Report relating the Output 1
References
1 David Wilson, Manager of the OFLC Information Unit has confirmed in a letter to the SPCS dated 16 November 2006, that “Application of [“a method approved by Audit New Zealand and referred to on page 55 of the 2005 Annual Report”] … resulted in the notational allocation of 82.21% of all overhead costs including Executive salaries to the production of Output 1.”
2 Deputy Chief Censor, Ms Nicola McCully has confirmed that senior classification unit staff receive a salary close to $60,000. “Watching The Defectives” published in the Sunday Star Times (13/08/06).
3 Personnel numbers provided on page 86 of the 2005 OFLC Annual Report. Average annual salary package assumed to be $40-45,000.
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