[Linux-aus] [LACTTE] That "Close Of Partnrship" transaction in AGM the Income Statement

[Russell Stuart]

At the AGM a query was raised over this line in the Income Statement
attached to the Committee's report to members:

    Close of partnership       $19,923

I said at the AGM that expense was entered by the Auditor to offset an
asset in the balance sheet, but I didn't understand the reason he did
it.  I undertook to find out why and report back to this list.  This is
me reporting back.

Once sentence version :
    The transaction is the (delayed) appearance in the P&L of a GST
    payment to the Australian Tax Office for Gov Hack transactions in
    the Jul..Sep 2016 period.

Technical version :
    In April 2016 LA split it's accounts into 2 independent systems, one
    for Gov Hack (only) and the other for the rest of Linux Australia.

    In Oct 2016, our BAS statement was prepared by our accountant.  As
    the ATO is not interested in how we run out internal affairs
    (ie, the accounts split), he just adds the two sets of accounts
    together to yield one figure LA owes to the ATO.  Since LA wears the
    cost of GST for it's conferences (ie, our books show it as an LA
    expense rather than coming off conferences profit figure), this
    expense is paid from LA's own bank account.  However, this time
    around that procedure created an accounting problem as $19,923 of
    the BAS payment was paid on behalf of a different set of
    accounts.  The accountant solved that by creating a G/L Account
    called "629 - Linux Gov Hack BAS intercompany account" and parking
    the $19,923 in there.  He didn't do anything with the Gov Hack
    accounts.  If  you are wondering why it's an assert, it's because
    the LA Accounts are owed that money by the Gov Hack accounts, but
    note this is "funny money", as it says LA owes itself $19,923.

    In Feb 2017, I was elected as treasurer.  I did not notice the new
    balance sheet account.  That's partially because I wasn't looking
    very closely at transactions created by our accountants and
    auditors, and partially because it doesn't appear separately in our
    audited accounts presented at the AGM as the Auditor bundles it into
    "Current Assets".

    I was however looking very closely at transactions created by Gov
    Hack.  This was because the council members who were re-elected
    were very firm in their desire to complete the spin off of Gov Hack
    into it's own entity.  Unfortunately, the accounts had been split
    when Gov Hack was in full swing, so there were many transactions 
    (invoices, purchases, bank statements) that had to be transferred 
    across, and after that was done payments still arrived in the
    bank accounts owned by the other set of books.  I spent many
    days trying to prepare for the coming split, creating several
    spreadsheets in an attempt to reconcile it, but didn't succeed. This
    may sound alarming, but remember from the Auditors point of view for
    the 2017 AGM, he was Auditing Linux Australia as a whole.  The split
    up didn't matter, so he, like the accountant earlier, just added the
    two sets of books together.

    While I didn't succeed in formally reconciling the accounts, it had
    already been done informally when the accounts were split. Gov Hack
    had been given their own bank account and the balance was a figure
    both LA and Gov Hack agreed was Gov Hack's assets at the time of the
    split.  Gov Hack had operated from exclusively from that bank
    account thereafter.  So the proposal for the formal split was to
    just to transfer the balance of that bank account to the new Gov
    Hack entity.  But there was a complication.  Although I didn't know
    the precise amount, I knew BAS owned by Gov Hack had been paid by
    LA.  In order for this informal split to proceed LA had to decide to
    donate the BAS payments to Gov Hack.  A format motion was passed to
    that effect by the council at it's meeting on 2017-03-30.  The split
    later proceeded on that basis.

    In December 2017, the time comes for the Auditor to do his thing. As
    Gov Hack had formally become its own legal entity he could no longer
    add the two sets of accounts together, so he had to clear all
    balance sheet accounts relating to Gov Hack.  The $19,923 expense
    was the transaction that cleared (ie, set to $0.00) the "629 - Linux
    Gov Hack BAS intercompany account" account created by our
    accountant.  He verified with me this had been authorised by the
    executive before doing so.

What Really Happened :
    Some time early in 2016, the purely volunteer part time Linux
    Australia council found itself utterly overwhelmed by the work load
    created by a conference the size of Gov Hack.  It reacted by
    making preparations to spin off Gov Hack, but that didn't stop the
    flow of work.  Fortunately the accounts did not have to reflect the
    split, so getting behind in that part of it didn't matter.  In 2017,
    the council worked to catch up on the backlog created.  This has now
    been done.  As I said in the one sentence version, that $19,923
    transaction is the (delayed) appearance in the P&L of a Gov Hack GST
    payment. Ie, it t was part of that effort in clearing that backlog.



-- 
Regards,
Russell Stuart
Treasurer, Linux Australia
+61 438 805 133
http://www.humbug.org.au/RussellStuart