UKCOD and mySociety Ltd Accounts

[Warning – the following is an exceedingly dull blog post but important for accountability]

We’re writing this post today because we’ve made a mistake. It’s not a mistake that will matter to many people, but because (rightly) our accounts are public, anyone looking at those that we just filed this week will see that we’ve admitted we made some mistakes in previous accounts.

It’s not a very exciting mistake – no money has been lost or misused – but we made some previous declarations about how money was accounted for inside mySociety that were wrong. And in the interests of complete transparency, we’ve written this post to explain how.

Our structure

First off, it is probably worth explaining that mySociety is a project run by the charity UKCOD. UKCOD runs all of the not for profit sites that you see and use under the mySociety umbrella.

In order to fund the development and support of these not for profit sites we carry out commercial work from which we make profit. This commercial work is carried out by mySociety Ltd – a commercial trading company that is wholly owned by UKCOD.

The latest accounts

Yesterday UKCOD and mySociety Ltd submitted their accounts to Companies House (and, for UKCOD, to the Charity Commission) for the financial year ending 31st March 2010.

Anyone reading our accounts would notice two important points:

1) Both sets of accounts were several months late
2) In both sets of accounts the figures for the previous financial year 2008/09 have been restated, and a note has been added to the accounts which states for UKCOD:

In previous years, amounts of £136,274 received from the subsidiary, mySociety Limited, a company, were classed as donations from them. However, these amounts were for paying the VAT creditor and repayments to the parent for services provided by them. This has resulted in donations received (and consequently the net income) being overstated by £136,274, hence the need for the prior year adjustment.

Which leads to these questions:

1) Is the financial health of UKCOD/mySociety worse than previously reported?

2) Why are the accounts so late?

3) What does the adjustment note mean?

The answer to 1) is no, absolutely not – see below for more detail.

The answer to 2) is quite simply that discovering the errors that led to us writing the adjustment note resulted in a lot of extra work having to be carried out in order to ensure that the accounts are correct and the prior years are appropriately restated.

The answer to 3) is the next section.

Okay, so what does the adjustment note mean?

mySociety Ltd, our commercial arm, makes payments to the charity UKCOD to pay for the commercial development work carried out by UKCOD developers. In addition it makes payments to UKCOD to cover its share of the group VAT liability. Any surplus profit it makes is donated to UKCOD to support the not for profit work.

In previous years all of the payments made from mySociety Ltd to UKCOD had erroneously been reported as donations. So, for instance in a year when mySociety Ltd had paid £20,000 for VAT, £60,000 for development time and a £30,000 donation all £110,000 had been reported as a donation. The £80,000 for VAT and development had been noted, but treated as an unpaid debt owing from mySociety Ltd to UKCOD.

This had three results:

1) The surplus of UKCOD had been overstated.
2) The profit of mySociety Ltd had been under stated (or to be more precise, the loss it made was over stated).
3) A non-existent debt was reported as existing between mySociety Ltd and UKCOD.

This was, quite simply, a mistake that should have been picked up by both ourselves and our accountants. Sorry. It is embarrassing, but it does not alter the overall financial position of UKCOD/mySociety Ltd.

So what have we done about it?

1) We have reviewed our accounts and inter-company transactions for the last three years to ensure that we correctly apportion the payments between the two organizations.

2) For mySociety Ltd we have restated the profit and loss figures for the financial year 2008/09 and the creditor position at the end of the financial year 2009. In addition we have restated the donation value from mySociety Ltd to UKCOD for the financial year 2008/09.

3) For UKCOD we have restated the surplus/deficit position for the financial year 2008/09 and the debtor position at the end of the financial year 2009. In addition we have restated the donation value from mySociety Ltd to UKCOD for the financial year 2008/09.

4) We have sought independent legal advice and engaged a second firm of accountants with a charity specialism to review these changes. On the advice of accountants we haven’t resubmitted the accounts for any prior years as the above changes are sufficient to reflect the reporting correction. There is no increase in the tax liability of mySociety Ltd for prior years as result of these restatements.

5) We have already started work on the preparation of our 2010/11 accounts to ensure that they are delivered in a much more timely manner.

So to sum up

The net financial position of UKCOD and mySociety has not changed in any way. The accounts submitted yesterday have corrected the reporting errors of prior years so that both the starting and ending financial positions of the two organizations are correctly stated.

This is a fairly long and detailed post, but as an organization that champions transparency we felt that it was important to be as open and clear as possible about what has happened.

Paul Lenz, Head of Operations and Finance
Amandeep Rehlon, UKCOD Treasurer

Note [added 06.03.12]: We have modified this blog post to remove a single word, and replace it with one more appropriate to the topic.

1 Comment