FPA butts heads with Michael Kitces over $8 million in 'missing' funds

A Kitces blog post implying potential fraud and embezzlement triggers a biting FPA response

Mar 18, 2019 @ 2:15 pm

By Jeff Benjamin

The Financial Planning Association was forced into scramble mode Friday after a blog post from Michael Kitces alleged that the FPA was responsible for nearly $8 million worth of "missing" revenue over the past decade.

Mr. Kitces, partner and director of wealth management at Pinnacle Advisory Group and co-founder of XY Planning Network, drew his conclusion by comparing audited FPA financial statements from 10 years ago with data provided during a January webinar to FPA members.

Mr. Kitces, who acknowledged in his blog that it could be a simple mistake, homed in on a webinar chart showing revenues and expenses that were out of sync with the financial statements from 2007 through 2009.

For it's part, the FPA spent most of Friday working with accountants and auditors to try and "understand where he's drawing his conclusions," according to an FPA spokesman.

Late Friday, the FPA sent an email to its chapters that charged the popular blogger with "attacking FPA volunteer leaders and staff for alleged financial mismanagement of FPA's resources, going so far as to imply the possibility of fraud and embezzlement."

The FPA email, sent with the subject line "Response to Michael Kitces Blog Post," went on to rebut and explain specific charges by Mr. Kitces regarding the FPA's financial statements.

Turns out, the explanation for the $7.7 million gap highlighted by Mr. Kitces was due to an accounting change instituted in 2013 that was presented retroactively in the January webinar slide, which showed the revenues to be lower than were presented in audited statements for years prior to 2013.

The issue, according to FPA president Evelyn Zohlen, related to the way the FPA since its inception had been counting membership dues as revenue and the varied rebates back to chapters as expenses.

That changed starting in 2013, when an external audit by CapinCrouse said the member dues and rebates were pass-through transactions that should not be counted as revenues or expenses.

Gordon Yale, principal at the forensic accounting firm Yale Forensics, found nothing out of the ordinary about the FPA's practice of retroactively removing the membership revenues and related expenses for the purpose of consistency in its January webinar to members.

"You will often see when there's an accounting change the prior periods will be recast to reflect that, and it looks like the FPA was just trying to make the chart consistent with the accounting changes," he said. "I don't find it particularly misleading."

After reviewing the FPA's 2013-2014 financial statement in which the accounting change is explained, Mr. Yale said, "The blogger raised doubts that had a rational explanation. And if he didn't accept the propriety of the accounting, he should have talked to FPA's auditors or to an accountant who could have explained the differences to him."

Mr. Kitces, in an email response to InvestmentNews Monday, described it as "bizarre" that the FPA would focus on a point that "was literally mentioned once, in a single sentence, in the latter half of the article …"

In its Friday email to chapters, the FPA called out the prolific blogger and industry influencer for "making false assumptions," adding that Mr. Kitces' statements are "based on incomplete data."

"We offered to clarify and correct his assertions to ensure his post was accurate, as a professional journalist would have wanted, but were told he could not wait for a clarifying response from FPA due to publishing deadlines."

Mr. Kitces said the more important part of his Thursday blog "was about the FPA's already-published audited financials, which are supposed to be the final record of the FPA's financial reporting to members. Which means the FPA is complaining that I didn't contact them to ask if there was a super-secret second set of books that they were keeping on the side, that had never been disclosed to members, never been published, and never acknowledged in the FPA's own webinar."

While Mr. Kitces said he is "relieved" to hear the explanation for the discrepancy, "it doesn't change the fact that restating financials after the fact on an undisclosed basis is a major embezzlement risk."


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