Ok. Say you have this company. This company raises a bunch of money in one city, say…Happy Town, USA.
This company has another branch in AngryTown, too. Now the HappyTown branch raised half a million dollars in 2005, exceeding their budget. The Angrytown branch missed their budget by about $50,000.
At year end of 2005, $30,00 of HappyTown money mysteriously got allocated to Angrytown’s budget lines. The money is all there. It wasn’t stolen, or anything like that. It just now shows up on the budget of Angrytown.
HappyTown notices right away, in the next month, and becomes not so happy. When confronted, the finance people say “Nope, can’t do it, books are closed.”
Now. When the next year comes by Happytown will certainly be asked - where is the money? Why didn’t you raise it? When asked for a letter or some kind of proof that they did raise it, HappyTown was told “No way can you get a letter. Imagine what would happen if the auditors caught sight of it!”
My question is, how can this be right? If the auditors caught sight of it? But it’s already mis-allocated, why wouldn’t they catch sight of it? Isn’t it wrong already? Why is it being hidden?
Please let me know if this is too complicated or if you have questions.
While I’m not clear on what you mean by “raising money” (Are you referring to revenue?), I’m pretty sure that the problem lies in the quote above. No such thing as books being closed. Companies constantly restate financial information if a mistake is made. And fear of auditors should raise a red flag.
Raising money means just that - the company is a not-for-profit. I just don’t get how they can just move on and crush this under their feet - and then turn around and refuse to acknowledge it in the next breath. It makes me really angry.
before anyone worries, all the money is still going back to the right places. It’s not missing. It’s just in the wrong place. And no one seems to think it’s important!
here are the problems I see with it right off the bat:
Angrytown will have to raise that much more next year.
Happytown will show they didn’t raise their money.
Do they have it in “Due to/from” accounts? If this is the case, Happytown has an asset of $30,000 on the books and Angrytown has a liability of $30,000.
Angrytown’s subsequent fund-raising income should go toward reducing the “Due to Happytown” account.
The fact that someone is paranoid about the auditors is, like Jackknifed said, a huge red flag.
Usually when companies play balance sheet games like this, it’s for tax purposes. Rates can vary by jurisdiction, and it’s better to record profits in the lower tax jurisdiction. Unfortunately, I have no experience in the not-for-profit world where, presumably, taxes are not a concern.
Next question: Are there incentive-based bonuses involved? Maybe employees at Happytown already raised enough to secure a maximum bonus, and gave some proceeds to Angrytown so that those employees can also get bonuses. Perhaps this is a tradition of some sort. Of course, management should have major issues with that.
Sorry, that’s all I can think of, besides pure laziness on the part of the accounting staff.
No, the other thing is, Happytown, Angrytown, and everyone else knows exactly how it happened and it was a mistake. An error, laziness on the part of ONE person. And no, that person is not fired. They’re still working at Stupidtown, another branch.
No incentives or otherwise. And it’s there’s no “due to” account. They are just proceeding like it was Angrytown’s money all along.
My experience is with for-profit companies. But I’ve seen similar things, and it’s maddening.
In a for-profit, this usually arises when one unit provides a product or service for another. Say Unit A and Unit B are part of Division C. Unit A provides services to Unit B, and Unit B agrees in writing to “pay” (that is, to transfer money internally). Then they never pay.
In for-profits, bonuses are on the line, so Unit A gets pretty pissed. They complain to Division C management. But Division C’s management bonuses are determined by divisional results, so they couldn’t care less what each unit gets. They treat the Unit A managers like petulant children, and nothing ever gets resolved.
In your case, there are no bonuses involved, so it’s just a matter of how much money each branch gets to spend next year. Not that that will make people any less petulant.
The comment about the auditors sounds like total BS. I think it’s more a case of, “We’ve got the money, and we’re going to keep it, neener neener neener”.
I wish I could tell you what to do, but I’ve never found the answer. Just complain and document everything as best you can, and hope next time the mistake is in your favor.