> In response to detailed questions, commission spokeswoman Terrie Prosper said that Stebbins’ allegation of $200 million in missing fines and fees was the result of a misunderstanding of the commission’s accounting practices.
Like in many accounting controversies, the fundamental problem here is how to account for future expectations. If you’re owed a big sum of money but you know for sure payment is coming soon, your accounting statements should show you as much wealthier than the actual money you have on hand, because receiving a payment you already knew you’d get shouldn’t change how you measure your financial status. The commission says that’s all that’s happening here and the “missing” money will come in over the next year, while Stebbins says they have no reason to expect this and aren’t actually keeping track.
How to account for this isn't controversial -- you put the expected money to be received on your balance sheet, either under "Accounts Receivable", which is listed as an asset, or another similarly related account that shows the money is due. Of course, you can't have "Accounts Receivable" for eons with no update, at some point an auditor will say the money should be collected, or you have to write it off as a bad debt. But you must account for it one way or another.
The article seems to say that this money was not accounted for at all in the documents, and that in general, the accounting is a mess. If you don't know all your financial information, then how do you make financial decisions?
Well it doesn't matter in CA apparently, you just ask the state govt for more, who then either says they are underfunded and need to raise taxes, and/or ask the federal govt for more. The whole thing is a racket - be very very suspicious of any entity that is purposefully opaque by design, and gives you a shrug/"gee-willickers" reply to how this is just the way it is and can't be changed.
and there-in lies the catch - you cannot know for sure something that hasn't happened yet. There can not be accounting practises that count money that has yet to be received on hand.
Yes, there is a thing that almost guarantees things in the future will materialize, it’s called a contract. People and businesses have been dealing in futures for centuries. For instance, Italian banks have special vaults for Parmigiano Reggiano taken as collateral. If some of their customers didn’t have access to these tools they probably would’ve gone out of business long ago, and we’d all have lost access to great cheese.
They’re just tools, as such expected to be held the wrong way by some people.
PS: I had a lot of fun developing an accounting system for a client that needed to solve exactly this problem :)
There actually is. Accounting is complicated because it has a multitude of rules around all this stuff.
The goal is transparency. Yes, if someone owes you money it’s an asset on your books. But there are a ton of rules around proof that you expect to be paid, when it must be paid by, when you need to write off all of it or some of it.
There can be and often are, because it's important to account for future expected flows - credit that's been extended and is due to be repaid, for instance, has to be accounted for. The thing is, these flows should be clearly and cleanly separated from actual cash on hand.
A misunderstanding of accounting practices?