All eyes on Abbey's financial farce

The Abbey Theatre is due to receive the report into how it got into its present financial mess. It is time for the board to exit the stage, writes Fintan O'Toole

The vast expense of the Abbey Theatre's flagship production of The Shaughraun and the failure to include the costs of a national tour of The Playboy of the Western World in budget projections were the main reasons behind the theatre's losses in its centenary year. The Abbey lost €1.85 million in 2004; its projected losses had been €900,000, but the extra loss only became apparent in May of this year. These losses were from its centenary year, when it had substantial additional funds of €2 million from the Arts Council and €1.5 million from private sponsors.

Combined with losses that the theatre was already carrying for 2003, it was left with an accumulated operating deficit at the end of 2004 of €3.4 million. The scale of the operating deficit is remarkable enough in itself but just as significant is the fact that the Abbey's board and management were unable to identify the company's true financial situation for so long. Behind the figures lies a seriously dysfunctional organisation in need of root-and-branch reform. That process is already underway with the widely-welcomed appointment of the new director Fiach MacConghail. But if it is to succeed, the Abbey's board must accept overall responsibility for the debacle and offer its resignation.

The one piece of good news from the various internal reviews that have been underway within the Abbey in recent months is that there is no evidence of theft, fraud or bad faith on anyone's part. Everyone at staff, management and board levels seems to have been genuinely attempting to make the national theatre work. But massive systemic failures rooted in the Abbey's Byzantine structures were allowed to persist to a point where, it is no exaggeration to say, no one in the building had a clear picture of what was going on. Those systemic failures were obvious enough but were never addressed, and even limited attempts to do so were rebuffed by the board.

The scale of the problem is evident even in the attempts to get to the bottom of it. Those who have observed the process internally, for example, say the investigation of the losses by consultants KPMG, who were brought in by the board last May and whose report is nearing completion, has been unusually difficult. Simple questions about who was responsible for which aspects of the Abbey's budget have proved hard to answer. The budgeting process is not well documented. Figures seem to be in a constant state of flux.

As many as five different budgets for 2005 have been drawn up. The monthly budgets for last May alone showed variations of as much as €400,000 within a matter of a few weeks. Different parts of the Abbey's financial control systems use software programmes that are not compatible with each other, so management accounts still have to be drawn up by hand. Suggestions put forward by former managing director Brian Jackson in 2002 for a modest reform of the accounting system were not acted on by the board.

The picture that emerges from all of this chaos is astonishing. The Abbey managed an operating loss of €1.85 million in its centenary year through a simple incapacity to monitor its expenditure and compare it to its income. It increased its activities for the centenary without having any real control over its spending.

Those of us on the outside who sometimes wondered how the Abbey was able to afford the range of visiting and in-house productions, tours and events were, it turns out, in pretty much the same position as the board and management - they never really knew how it could afford them either.

The centenary programme, called AbbeyOneHundred, had an initial budget of €3 million, of which €2 million was to come from private sponsorship and €1 million from a special Arts Council grant. These costs were subsequently re-estimated at €3.3 million. In the end, the AbbeyOneHundred programme cost around €4 million and there was a shortfall of around €500,000 in private fund-raising.

Two major areas of spending seem to have eluded even the most rudimentary scrutiny by the board: John McColgan's production of The Shaughraun and the national tour of The Playboy. John McColgan played a very positive role in AbbeyOneHundred, both as chairman of the centenary committee involved in private fundraising and as a major donor himself. But his various roles as fund-raiser, donor, board member and producer of a show with designs on the London's West End may have made it difficult for the board and management as a whole to have complete oversight of the whole Shaughraun project.

The show was a big popular hit and brought in substantial box office revenues. Its international tours and possible returns to the Abbey stage may well provide significant income for the Abbey down the line. But in the short term at least, the huge costs of mounting the production accounted for a large chunk of the Abbey's operating losses for the year.

The Shaughraun was immensely expensive. The normal cost of sets, costumes and props for an Abbey main stage production is around €60,000. For The Shaughraun, these costs were more than four times that: well over a quarter of a million euro.

By August 2004, the board's finance and audit committee was projecting a cost overrun on the production of around €430,000. This turned out to be accurate enough. Excluding the portion of the Arts Council grant that was allocated to it, the operating loss on the first run of the production was very close to that figure. Even taking into account the approximately €400,000 of the Arts Council centenary grant that was allocated to The Shaughraun, that first run still lost around €50,000. It does not seem, however, that the board or the management of the Abbey prepared either a formal budget for the production or a full analysis of its costs and revenues and their implications for the theatre's overall financial standing.

The oversight of the national tour of The Playboy was even less impressive. (The problem was not, as has been previously reported, caused by the international tour of the same production, which actually made a profit of between €250,000 and €300,00.) The national tour was allocated €650,000 of the special €1 million centenary grant. In the Abbey's monthly statements of income and expenditure, however, this money was treated as revenue and set against other costs. The actual cost of the tour was simply left out of the accounts.

In fact those costs, around €850,000, were significantly higher than the initial grant. The Abbey was therefore spending money on the tour that was not covered by any offsetting revenue except a fairly minimal return at the box office. This situation was further masked in December 2004 when the Abbey was allowed to draw down nearly €500,000 of a special "stabilisation" grant given by the Government to alleviate its financial problems. This money was treated in the accounts as revenue for 2004, further masking the losses on the tour.

Thus, while the Abbey's management accounts in November 2004 showed a zero under the expenditure heading for touring, the accounts for last February showed a figure of over €850,000 and the draft audited accounts in May showed a figure of nearly €1.4 million. The magic of theatre, which can create something where there was nothing before, seemed to extend even to the Abbey's financial records.

There were other unbudgeted losses too. Chief among them was the debacle of the Book of Days, a handsome diary celebrating the theatre's history. It sold very poorly, and because its potential for sales evaporated at the end of the year, the theatre had to write off a massive loss - thought to be in the region of €160,000 - on the project.

This is especially egregious. For the Abbey to lose money on theatre productions may be unfortunate, but at least the money has been spent on fulfilling the theatre's basic function of putting on shows. But the Bookof Days was a purely commercial adventure, far beyond the theatre's public remit. The money lost on what seems to have been in part a corporate vanity project could have been used to employ four skilled professionals for a year or to commission perhaps five plays from young writers. That it was wasted on something that had no real relation to the Abbey's core functions raises questions about the board's collective focus.

All of these issues, and perhaps others, are bound to be at the core of the KPMG report, which will be considered by the board this week. That report itself should certainly be published in the interests of public accountability, and the Arts Council is understood to be anxious for this to happen.

It would be surprising if KPMG did not recommend (as the Change Programme Team established under Anne Bonnar as a condition of the Arts Council's €2 million restructuring grant last December has already done) that the National Theatre Society be replaced by a new company under a new board. This gives the current board the opportunity to do what it should have done in May: accept collective responsibility for a malfunctioning organisation and go gracefully.