An accounting muddle at wealth manager IOOF led to the treatment of an asset of one of its managed funds as income, leading to a mistaken distribution to unit holders, the financial services royal commission heard on Friday.Christopher Kelaher, managing director of IOOF, was questioned on "governance concerns" aired by APRA in recent years, centring on the structure of dual responsibilities of trustees and responsible entities."APRA has been insisting that the dual structure that is the responsible entity for the managed investment schemes and also the RSE licensee be dissolved" Michael Hodge, counsel assisting, asked Kelaher early on in a testy examination."That's the aspiration, yes," Kelaher confirmed. Hodge soon delved into embarrassing detail relating to the Questor Cash Management Trust."The situation was that Questor, as licensee of the superannuation fund - the Portfolio Service Retirement Fund - had invested money into the CMT of which it was the responsible entity …. And there was an issue in 2009, although not detected in 2009, which was that a term deposit became due and was treated, rather than as an asset, as income?" he asked."I'm not specifically sure about the actual cause of the problem," Kelaher said of a matter on which he had supplied a specific witness statement to the royal commission.Kelaher explained that this was a difficulty "inherited when IOOF merged with Australian Wealth Management Ltd."Their custodian arrangements were with NAS. And our pre-existing custodian outside of that transaction was BNP. We transferred [custody of assets from] NAS to BNP and in the course of that it was detected that there was an over-distribution had taken place," he said.Hodge pressed for clarity: "That occurred because neither the custodian, nor Questor, had identified this was an asset rather than income?""The custodian didn't recognise. Not Questor," Kelaher said.Disbelieving, Hodge pressed: "So it didn't keep an accurate register … as far as you're concerned, that's not Questor's fault?""Strictly speaking, no … I think with the benefit of hindsight maybe you might have done things differently, but arguably, you contract a custodian to act, your expectation is they will act accurately and report accurately," Kelaher said."And what Questor then did, in 2011, was to reduce the distributions to be made over the next three years?" Hodge asked.Yes, the Kelaher confirmed." And who did it tell that it was doing that .. did it say to the unitholders"?No, no, it didn't … it just commenced a program to dilute the distributions."From October 1, IOOF will take control of ANZ's OnePath pensions and investments business, and its aligned dealer groups.Kelaher told the royal commission that "we would wait till we completed the ANZ transaction and then, potentially, pick up a [new] RE structure that was separate to the [legacy] structure, which would be then in full compliance with APRA's concerns."