In an attempt to relieve Indexstock (IS) photographer anxieties, Photolibrary Group (PL) has made public details regarding payments of outstanding pre-acquisition royalties and the ongoing reliability of PL's accounting system.
Questions were raised recently when Carlos Santos, then controller of Photolibrary's operations in New York, sent an unauthorized memo to photographers (published in PDN) that indicated monies owed photographers had not been paid. The memo recommended that photographers contact PL's headquarters in Australia.
Photolibrary's chairman,Tim Moore pointed out that since the acquisition of IS in November 2006, PL has funded IS in the amount of $3,736,152, the vast majority of which was used to pay contributor royalties incurred before PL acquired the company.
Following the acquisition, PL faced additional issues resulting from the inherited accounting system, which had not been audited for at least seven years. In addition, IS had entered into a myriad of low-value-per-unit transactions, the complexity of which contributed to the accounting challenges, particularly in the manual environment used by IS.
Photolibrary hired the international accounting firm KPMG to review the IS records. That review was completed to the extent possible in April 2007. However, KPMG did not complete a transactional-based audit, due to the inadequacy of IS's manual record-keeping process.
The KPMG report said, "The lack of an integrated accounting system requires manual inputs and increases the time necessary to prepare valuable information in a reasonable amount of time. In addition, manual account reconciliations are often needed as balances from different sources/systems do not reconcile. These issues adversely impact the reliability of data prepared by the company with identified examples as follows:
- Royalty payables per general ledger did not agree to the ageing schedule
- Accounts payable per general ledger did not reconcile to the ageing schedule, Â Â Â Â Â Â Â Â Â Â Â - Key documents, such as invoices, loan agreements, contracts with customers and agreements with artists were not always available... or had expired."
Upon receiving this analysis, PL began the arduous process of reconciling the IS records. That process is ongoing.
The Santo memo raised the issue of unmatched image numbers. Moore points out, "Like all large libraries, we do, on occasion, have mismatching of image numbers to those supplied to us by our overseas agents. These amounts are minor and are followed through by our International team. To put this issue into context, in the case of one of our agents, of net revenue to Photolibrary of $156,906.35 for the third quarter of 2007, only $597.50 have unmatched image numbers for verification and payment."
Since the Santos memo was distributed, many PL contributors have requested immediate payment. PL had previously advised contributors that small payments would be batched and paid when they reached $250, due to the losses in bank transaction fees the contributor would incur from a number of smaller checks. Moore said, "Of the individual contributor responses received to date, following the recent press coverage, the large majority are for amounts less than the $250 threshold or have already been paid in full."
One of the issues raised as a result of the Santos memo was whether PL had written off royalties in IS's books. The company's emphatic answer is, "No. It is a matter of fact that no contributor royalties have been removed from the accounts nor have documents been destroyed."
However, Photolibrary's U.S. subsidiary, PL Inc., will replace IS as the operating entity and future royalties will be moved from IS to PL Inc. Photolibrary believes contributors should view this as a plus, since PL's systems are well established, robust, multi currency and used internationally through its office network in 10 countries. This migration should be completed over the next several months.
PL also pointed out that until all past records can be reconciled, the company can not be sure of exactly what is owed every photographer. Based on what has been learned so far, they estimate that of all the contributor royalties that may be outstanding, nearly 40% will be owed less than $250. An additional problem making it difficult to properly pay all contributors is that IS does not have email or correct postal addresses for over 25% of photographers whose images are in the system.
Moore added, "It should be noted that all of the outstanding royalty issues concern only Indexstock and have no relationship to Photolibrary's present and future business policies and practices. Photolibrary did not create this problem, but is using its best efforts to remedy the past."