Financial Issues Within MAAC
Article 2. Misrepresentation of Accounts at the 2022 AGM
In this article you will find
- Comparison of financial data from the 2021 and 2022 AGMs.
- Large discrepancies in different Profit/Loss statements for the same year.
- Revelation of a large unexplained payment.
- A possible explanation for that payment.
- Recording of that payment in the wrong fiscal year, and the wrong category of expense – if the suggested explanation for the payment is correct.
- Multiple versions of “budget” for 2021.
- Evidence that prescribed accounting procedures were not followed and that this resulted in a false appearance of an income reduction.
At the 2022 AGM, two different sets of accounts were presented, both purporting to show some version of the “Actual” financial position as at the end of 2021. Rather than reproduce all of the material here, an abridged version of the statements is presented. We have added the 2019 and 2020 “actuals” for comparison. The more complete data can be found at page 6 of Appendix 3 and page 1 of Appendix 4 to the MAAC 2022 AGM Notice of Meeting and in the 2021 AGM material.
| 2019 Actual | 2020 Actual | 2021 Actual (p6 of App 3) | 2021 Actual/Forecast (p1 of App 4) | Variance from column 4 to column 5 | |
| Membership Fees | $745,104 | $753,659 | $711,256 | $711,706 | $450 |
| Total Revenue | $770,785 | $786,053 | $722,301 | $735,841 | $11,540 |
| Expenditures | $730,107 | $670,496 | $805,998 | $739,733 | $66,265 |
| (Deficit)/Surplus | $40,678 | $115,557 | ($83,697) | ($3,892) | $79,805 |
| Covid Subsidy | $52,447 | $31,057 | |||
| Adj (Deficit)/Surplus | $168,004 | ($52,640 |
MAAC’s fiscal year end is 31st December, and the AGM was convened four months later. It is unclear why the second set of presented “actuals/forecast” were different from the first set. Total Revenue is $13,540 different, expenditures vary by $66,265 and the stated deficit is $79,805 different – yet both reports are purporting to be supposed “actuals”!
Besides these clear anomalies in what MAAC is stating its financial position to be, within the same report, there are other unexplained concerns within these figures. If we compare the Profit/Loss for the consecutive years 2020 and 2021 we see that it changed from a $115,557 profit to a $83,697 loss – a swing of $199,254 in just one year – 27.6% of our net income! That figure, however, ignores the effect of the subsidies that we received from the federal government. If we compare the totals including those subsidies we see that the drop is $220,644 in one year. It has been characterized as a drop – but of course it is primarily an increase in expenditures, not a drop in revenues, that contributed to this large swing in financial position. In most organizations, a sudden change (as observed above) could or would result in a major shake-up of management. At the very least it should cause the membership to question the accuracy of the financial information presented.
Other anomalies not presented in the table format above include the following:- Head Office Expenditures for the years 2020 and 2021; we find that there is an increase from $284,195 in 2020 to $406,969 in 2021, a difference of $122,774 or 43%. Why would this be? There was no increase in staff in 2021. Some details have been provided, however, to explain such a huge increase in expenditures. On page 18 of Appendix 3 to the Notice of Meeting we find the Schedule detailing Head Office Expenditures. What we see is very interesting. There is an added item in 2021 – software subscription fees – in the amount of $29,167.00, an item that does not appear in the previous year. It is not explained what the new software is. There are two other expenditures that have significant increases between the two years – office and general expenses increased $12,250 (38%) and professional fees increased by $8,618 (36%). The biggest increase, however, was in salaries and benefits, which increased from $118,328 to $188,781 ($70,453 or 59.5%) – substantially more than the three other anomalies combined. This is a staggering increase given that no additional staff were hired.
While no formal explanation has been given for this increase in the salaries and benefits costs recorded in 2021, we can make certain assumptions. It is known that approximately $65,000 was given to an ex-employee, as a departure gift, in early 2022. The budget for 2021 shows an anticipated increase of salary and benefits from $119,350 in 2020 to $123,092 in 2021 (+3.13%) – presumably to allow for potential pay increases to existing staff. The difference between this budgeted amount and the $188,781 ‘actual’ amount, is $65,689 – leading a reader to suspect, in the absence of any other explanation, that this was the gift to the employee. We should point out that there is no line item identifying this increase as the gift extended to an ex-employee – or as any other actual salary payment – the matching of the amounts, and the lack of any other explanation for the nearly 60% increase in salary and benefits costs, is all the evidence that we know to exist. The matter of extending this gift is discussed in another article on this website – to be found on the page concerning the Board’s Fiduciary Duties.
It may be wondered why we have characterized this payment to an ex-employee as a gift, rather than a benefit, or a salary increase. There are a number of reasons for this. The employee in question announced her intention to retire in the late Fall of 2021, the effective date for that to be January 6th, 2022 – it is believed that this is the date on which she would become eligible for her pension. Having only two employees, MAAC has never had a pension plan. No employment contract existed between MAAC and this employee carrying a clause requiring a lump-sum payment to be made upon retirement. The employee voluntarily resigned – there was no involuntary dismissal – for cause or without cause, or at least, none has been disclosed. In fact, it is a reasonable assumption that this employee could have continued in employment with MAAC if she had so wished. In those circumstances there is no obligation for termination pay. So, there was no legal obligation to pay anything in lieu of salary or benefits. In light of that situation, this payment can only be characterized as a gift.
Furthermore, the Board discussion on making this payment took place in January of 2022, after the employee’s last day of work, and well after her announcement that she intended to retire. As the employee’s connection to the association had been severed prior to that Board discussion, and all due salary had been paid, there is no work for which this could be considered payment – hence it is not a salary. We have already seen that there existed no obligation to make such a payment on retirement – so it cannot be construed to be a benefit. It can only truly be classified as a gift. It is fairly normal for a Corporation, even a Not-For-Profit Corporation, to extend a parting gift upon the retirement of a long-serving employee. Such a gift would normally, and reasonably, be anticipated to be some sort of memento item (an engraved watch, maybe) – perhaps in the neighbourhood of $1,000. A monetary award amounting to approximately one year’s salary would certainly not be considered reasonable or in any way normal. Several Board members objected to the extension of such a large gift, but they were outvoted. Those Board members subsequently officially recorded their dissent from the decision. The payment was then made, early in 2022. It would appear, however, from the factors described above, that this payment might have been recorded as an expenditure for 2021. If that is so, this financial statement would be in breach of GAAP – the Generally Accepted Accounting Principles – which are expected to govern the accounting activities of Corporations both in Canada and in the USA.
We discuss the legitimacy of extending this magnanimous gift in another page of this website, where we explore the subject of breaches of fiduciary duty. We also discuss, in that posting, the manner in which all information on this matter has been withheld from the membership until now.
Unfortunately, this does not complete the anomalies that can be found in the financial records that have been presented to the membership as describing the association’s financial position. We have already mentioned the rather odd presentation of something labeled as the Actual/Forecast Profit/Loss account for 2021 contained within the 2022 AGM material. It is mysterious why there should be something that is a mixture of actuals and forecast when the fiscal year had been closed for four months and another part of the documentation contains data which is labeled as actuals. That said, if we compare the figures in the ‘Actual/Forecast’ data we cannot find even one that matches the numbers in the ‘Actual’ data. We have no direct reference to what is meant by ‘Forecast’, in order to compare that, but the only data that is presented which might be presumed to be a ‘forecast’ is the ‘budget’ amounts for that year. After all, a budget is just that – a forecast of what is anticipated to be received and spent. Page 1 of Appendix 4 to the 2022 AGM material has a column labeled Budget 2021. None of the numbers in that column match any of those in the 2021 Actual/Forecast column either. On page 6 of Appendix 3 there is also a column labeled 2021 Budget – the numbers there do not match any of those in the 2021 Actual/Forecast column either – nor do most of them match the other column labeled Budget 2021. It is quite a mystery how there can be two sets of budget figures for the same year. Typically, a budget is considered to be a fixed document – the reality is then compared with the budget and any significant differences accounted for, but the budget doesn’t change. Here are the numbers for the major headings in the various sets of data provided:-
| 2021 Actual/Forecast Page 1 Appendix 4 | Budget 2021 Page 1 Appendix 4 | 2021 Budget Page 6 Appendix 3 | |
| Membership | $711,706 | $672,699 | $672,699 |
| Total Revenue | $735,841 | $696,699 | $688,249 |
| Expenditure | $739,733 | $739,752 | $762,452 |
| Surplus/(Deficit | ($3,892) | ($43,053) | ($74,203) |
There is a further inconsistency in the figures presented on P1 of Appendix 4. There is a figure presented as gross income – which is the figure used above for Total Revenue. There is a second figure given in the general account, however, labeled as Total Income, and that is $733,956 – reduced from the Gross Income by $1,885 which is identified as the cost of sales inventory. It is unclear whether this is a cost that had been borne in a previous year (when, perhaps, the inventory was obtained) or whether it is a cost incurred in the year reported. In either case, it is a cost and should have been reported in the expenditures for whichever year it was incurred in, not in the Income section. By introducing an expenditure as a negative in the income statement the total income is falsely reduced. This is another breach of the GAAP.
Given the inconsistency in these numbers it is not possible to have any faith in the competence of those who have prepared them and it is also impossible to believe that an accurate picture of MAAC’s financial position has been presented.
Further to the above observation we must note the following. In case it should be believed that the financial statements referred to above were prepared by qualified accountants, and thus should be accepted, we reproduce this statement from the Notes to the Financial Statements, which can be found in the material presented to the AGM:-
Responsibilities of Management and the Board of Directors for the Financial Statements
The Board of Directors are responsible for the preparation and fair presentation of the financial statements in accordance with ASNPO, and for such internal control as the Board of Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors are responsible for assessing the Corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intend to liquidate the Corporation or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Corporation’s financial reporting process.
By noting the inconsistencies in the financial statements as presented we do not cast doubt upon the work done by the auditors.
We would like to point out the following extracts from a document produced by BDO explaining some of the provisions of ASNPO (Accounting Standards for Not-For-Profit organizations) which is referenced in the above excerpt. The GAAP provides the overlying principles, the ASNPO provides the standards for more detailed aspects of the procedures. There are two accepted methods of accounting – The Deferral method and the Restricted Fund method. Here’s what is said:-
In the Deferral Method (believed to be what is presented in the MAAC case)
Restricted contributions for expenses in one or more future periods
- Must be deferred and recognized as revenue in the same period/periods in which the related expenses are recognized.
In the Restricted Fund Method
Restricted contributions reported in the general fund.
- When a NPO does not present a corresponding restricted fund for the type of restricted contribution received, the restricted contribution must be recognized in the general fund in accordance with the deferral method depending upon the nature of the restriction imposed.
It is clear from this that the $11,000 of income recorded in 2020, and then as an income reduction in 2021 should not have appeared there at all and that this violates the ASNPO which the Board of Directors is obligated to follow.
** Addendum to “Financial Issues Within MAAC – Article 2 **
A criticism of this article has appeared on the RCCanada forum. It was written by a person who claims that he doesn’t know MAAC’s financials, but he does know the nonprofit world. We will not be making a habit of responding to material seen on that unmoderated forum. We will, in this instance, correct the errors made in that person’s analysis but first we will address the final statement in his diatribe. He says “The entire site is written like someone either thinks they have accounting knowledge, or they HAD accounting knowledge and have lost it.” That is an interesting observation because the MAAC financial statements, and the notes to those statements, were read carefully, in their entirety, by a CPA (Chartered Professional Accountant) – one who holds a senior (CFAO) position in a large corporation – and the findings were then discussed with the person who wrote the article. The article was then read and edited by that CPA before it was posted on this website.
Now let’s talk about the fact that the critic, by his own admission, doesn’t know MAAC’s financials. That is a shame because all of the financial reports that are referred to in the original article were sent to every MAAC member prior to the AGMs in question. If a member has discarded those emails, not to worry, the full documentation is available on the MAAC website – under RESOURCES/DOCUMENTS/AGM. Page numbers and appendix numbers were provided in the article, so that the reader could check the information if they wished.
This critic says that everything is built on the argument that there are two sets of actuals. Not only is this not true – there are multiple anomalies in the financial statements that are discussed in the document – but he claims that the article compares ‘actuals’ with something called “forecasted actuals in the budget”. Let us be charitable and say that this shows that he has not read the article very carefully. The article directly compares two columns of figures from the financial information provided to the 2022 AGM, one of which is labeled “2021 Actuals” and the other is labeled “2021 Actual/Forecast”. In accounting practice there is no such thing as a compound of Actual and Forecast but it is perfectly legitimate, when a reader is presented with such a column of data, to try to determine what is actually contained in it. Which figures are Actuals and which are Forecast. The figures contained in that column did not match with any actuals or any forecasts – so what were they and where did they come from? Just as important – what meaning were they supposed to have for the reader? The two different columns painted a very different picture of what MAAC’s financial position was, so it is important to know what to believe.
Let’s return to the claim of there being something called “forecasted actuals in the budget”. There is no such thing. The budget contains forecasts, not actuals. The actual figure is something quite different from the forecast figure – even if, by some miracle, they actually match. This critic displays his level of knowledge quite clearly. Our article does not compare actuals with budget – it compares two sets of figures, both claimed to include at least some of the actuals for the year, and containing not a single figure that matched.
Now we come to the matter of an expenditure being reported in a prior year – and the critic’s claim that this is a “common and accepted practice in the business world”. We don’t know what business world this critic has operated in, but it is surprising that his colleagues aren’t in jail if they indulged in this as a common practice. There are conditions under which an expenditure actually made in one fiscal year can be reported in a prior year. Those conditions are quite strict. It must be possible to document that a commitment existed, prior to year-end, to make a specific payment. If that can be shown, but the money transfer (cheque or whatever) didn’t get processed until after year end, then it can legitimately be accounted for in the year in which the liability was acknowledged. It is absolutely not sufficient for some people to have been speculating about the possibility of incurring an expenditure – there must be clear evidence of a decision having been made – by those who are empowered to make such a commitment. That did not happen in this instance, yet a gift to an ex-employee was classified as “salary and benefits” and tucked away in a year prior to the one in which it occurred. An amount which is approximately 9% of our total annual revenue and which this association had no obligation to pay.
This critic seems to have been quite accurate in stating that he doesn’t know MAAC’s financials (the more’s the pity) but his claim to know the nonprofit world is clearly overstated.