(or analysis of Financial Statement 5 Dec 98)
1. Arica Hawaii has arbitrarily fixed it's costs based on NY figures.
2. Significant fiscal accounting ratio's may be close to being violated.
3. Arica's Financial Statement regarding it's financial relationship with Hawaii is seriously misleading.
4. Arica seems to be carrying out 'double accounting' practices in it's relationship with Arica Hawaii.
5. Arica Institute appears to be paying a significant proportion of Arica Hawaii's expenses as part of it's own expenses. No explanation or contractual basis for this has been put forward.
6. Arica Hawaii is a significant drain on Arica Institutes resources and no proper means of accountability or regulation seem to be in place.
7. Serious questions may be able to be asked of the Financial Officers of Arica Institute regarding regulation, control and disclosure.
8. Arica Hawaii (i.e. Oscar Ichazo Co., Velocity Training etc.) is closely interlinked with Arica Institute.
9. A real understanding of what is happening financially is only possible by a detailed disclosure of the accounts of all parties.
10. There is probably a statutory requirement for disclosure of all of the interlinked enterprises both to the official bodies and to the membership.
11. It is quite possible that the Charitable/ Not-For-Profit status of the Institute has been violated and that this could attract the attention of the fiscal authorities.
12. Arica Hawaii seems to be the main beneficiary of the Activities of Arica Institute.
13. From the information available, the Principals of Arica Hawaii would appear to be enjoying a significant surplus through Arica Institute. (This has probably been happening for quite a significant number of years).
14. There is no real financial crisis in Arica Institute other than that generated by a desire to provide Arica Hawaii with the level of funding that they desire.
Analysis: Arica Institute Financial Report - Day Of Unity Report, 5Dec98.
The exercise of attempting to make the figures correspond to the spoken data was very interesting because it led to some interesting facts. Despite the moral issues involved in all this your friends at the IRS may be interested in the data. It is clear that your previous work on the accounting side has definitely born fruit. Someone is worried. It may be that quite considerable tax fraud has been going on and there might be some fines and bills to pay. In any event some thoughts for you to ponder:-
The first thing that is of interest is the way that Expenditure for Hawaii has been estimated. The Financial Report says this about Hawaii costs:- " The Hawaii office shares many of the same types of basic overhead expenses as the New York office." Now this sounds like a very glib general kind of comment that barely seems bothering about until you look at the figures themselves:- They are EXACTLY the same!
This seems to imply that both centres are running parallel operations with the same functions and costs. However it is admitted in several places that this is not the case. The most probable conclusion that can be drawn from this is that Hawaii don't know what their expenses are and have 'arbitrarily' assigned a value to them based on the more detailed accounts from NY who seem to be living a 'hand to mouth' existence. In other words Hawaii are tending to charge whatever they feel that they can get away with and the people in NY know this and are assisting them in doing so. There is however a magic number game going on and this may have something to do with the status of the Institute itself and the need for accountability. If you will notice the various ratio percentage figures that are given for 'Hawaii's Cut' they are all carefully kept in the low or mid forties percentile level. Apart from not looking good it may be that there is a tax or statutory reason for keeping such percentage figures below fifty percent.
The next thing that draws my attention is the way that the Hawaii expenditure has been presented. It is without doubt not just ambigious but misleading. In the UK no respectable accountant would put forward such a presentation for fear of being prevented from practicing for professional misconduct.
Viz:- "Total expense estimates for the Hawaii operation are expected to total $167,000 for this fiscal year, versus $143,000 in actual expense last year… Actually, upon being informed of our financial situation, Arica Hawaii has cut $36,000 from its own budget, thus reducing our budget deficit from $85,000 to the $49,000 mentioned in this report".
An unnecessary intermediate sentence has been removed from the actual text. (This was probably an intentional red-herring that was probably introduced in case anyone had the intelligence of decoding what was being said.) The implication however is that the bill of $167,000 has been reduced by $36,000 dollars out of the good will from Hawaii. In actual fact this is not the case, because when you put this figure into the accounts model it does not add up. The figure that does add up is the NY office cost of $203,000 minus $36,000 to give $167,000. This is a presentation that appears on the surface of it to be purposely misleading. If it is, then someone could be in trouble!
Having said all this a larger look at the statement about Hawaii says the following:-
"The Hawaii office shares many of the same types of basic overhead expenses as the New York office, which are largely covered by the Oscar Ichazo Company, but Arica pays for half the expenses for training development, production, and revision costs."
Again we have the magic fifty percent number. What I detect here however is an admission of 'double accounting'. NY is admitting that in it's expenditure budget of $203,000 it includes half the overhead cost of the Oscar Ichazo Co. for some of it's main costs. One may ask why is it doing so? And also that if this is the case how is it that the Oscar Ichazo company needs the same kind of money spent on it as NY? If Arica is paying for half the expenses for training development, production, and revision costs, one can hardly imagine what else that there is that may need to be paid for! In other words this 'double accounting' is having the effect of channelling additional monies to Arica Hawaii without appearing to violate the magic percentage rule. Whether or not this has a cosmetic or marketing significance, or a real statutory and fiscal significance remains to be seen.
Efforts are however being made to make things appear as being different than the actually are. Without detailed figures one cannot make an analysis but I think that it is becoming increasingly clear that the majority of the funds raised by Arica Institute appear to be being channelled into the Oscar Ichazo Co. While the Institute struggles to make ends meet the Oscar Ichazo Co. seems to absorb any excess that may be. The result is that the Institute has no funds of its own to develop itself and pay it's volunteers. It is clear that the priority seems to be to channel the monies to Hawaii. If this is the case then the Institute may be guilty of misleading it's memebers and be in violation of statutory requirements.
Taking the tables previously supplied it would appear that in the current financial year that the Principals of Arica Hawaii/OIC co. etc are likely to be in receipt of something between $110,000 to $190,000 of free gross disposable income! This is taking into account all overhead costs! I base this on my intimate knowledge of fixed and variable running costs in small business's and the information supplied by Richard Mason in his Arica Institute Treasurer's Report of 5th December 1998. He has asked for solutions to the Institutes current financial difficulties. The answer is quite simple: Pay Hawaii less money and put the accountancy process on an Ethical Basis.
1. Hawaii has arbitrarily fixed it's costs based on NY figures.
2. Significant Magic accounting ratio's may be close to being violated.
3. Arica's Financial Statement regarding it's financial relationship with Hawaii is seriously misleading.
4. Arica seems to be carrying out 'double accounting' practices in it's relationship with Hawaii.
5. Hawaii is a significant drain on Arica Institutes resources and no proper means of accountability or regulation is in place. Serious questions could be asked of the Financial Officers of Arica Institute.
A turkey was standing in a field chatting to a bull. "I would love to be able to get to the top of yonder tree", sighed the turkey, "but I haven't got the energy".
"Well, why don't you nibble on some of my droppings?" replied the bull. "They're packed with nutrients".
The turkey pecked at a lump of dung and found that it actually gave him enough strength to reach the first branch of the tree.
The next day, after eating some more dung, he reached the second branch.
Finally after a fourth night he was proudly perched at the top of the tree, whereupon he was spotted by a farmer who dashed into the farmhouse, emerged with a shotgun, and shot the turkey right out of the tree.
The moral of this story:
Bullshit might get you to the top, but it won't keep you there. ============================================================
JIM BURNS. Monday, 14 December 1998
1998-99 1997-98 MEMBERS 614 672 Income 98-99 Budget Estimate Previous Year Fund Raising $88,000.00 $100,000.00 Membership $183,000.00 $189,000.00 Products/ Sponsors Product Income $35,000.00 $53,846.15 Sponsors Income $48,000.00 $89,000.00 Misc. $6,000.00 $6,000.00 Total Income $360,000.00 $437,846.15 Excess/ (Shortfall) -$49,000.00 $45,164.34 Projected Expenditure $409,000.00 $392,681.82
Expenditure 98-9 Initial Estimate Revised Estimate Previous Year New York Expenses $203,000.00 $199,500.00 Hawaii $203,000.00 $167,000.00 $143,000.00 OI Royalty Payments $21,000.00 $21,000.00 $38,181.82 Loan Repayment $12,000.00 $12,000.00 Accounting Software $6,000.00 0 Unmentioned Costs Total Expenditure $409,000.00 $392,681.82 Sub-Total to Hawaii $188,000.00 $181,181.82 Ratio: OI Royalty/Spnsrs In 44% 43% Ratio: Tot Hawaii/Tot Exp 46% 46% OIC Income Est. 8th Level Training's. 60 @ $500 $30,000.00 Tot Hawaii Income $218,000.00
Hawaii Small Company Expenditure
Secretarial /Staff $60,000.00
Staffing and Overheads of a small 4-5 people company operating from own home property in Hawaii. Total staffing and overhead cost of $105,000 are given on the higher side. This may be an over-generous allowance taking into account the cerebral and professional nature of the work undertaken. The Estimates are based on analysis of similar background information relating to companies of this size.
The Principals should have a minimum gross disposable income in the region of $113,000. With prudence this could easily be $165,000.
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