Letter To stakeholders
Stakeholders and Other Interested
Parties,
At the end of 2014 we find University Financial Services (UFS) in a very bad
position financially. Although UFS has provided invaluable services to the
community and helped many interns achieve experience in their chosen careers it
finds itself in an awkward position of losing money. UFS is not a going concern
which is the expectation that a company will have a long life (Kieso, 2012 pg.
54). UFS is not in a position to meet either its current or long term
obligations.
Those who are considered stakeholders are many. This would include,
students (interns), the community, and UFS’s sponsors. The
management and directors of UFS owe these stakeholders an accounting for the
organizations financial problems. The problem comes in two parts. First the
association of UFS with University Consulting, another non-profit organization
sponsors and management problems within UFS.
The employee pay scale in University Consulting was out of line with the
revenue earned. Revenue was in the area of $500,000 while wages were in the
$700,000 area. The same held true for UFS but not to the extent of University Consulting. As a matter of fact UFS was
originally a department of University Consulting. In an effort to alleviate the
ever growing problem UFS broke away from University Consulting forming its own
non-profit organization.
UFS currently has a deficit of $70,765 (see Financial Highlight section
of report). To alleviate this debt and to safeguard the concerns of the stakeholders
of the organization UFS should petition the Federals courts for a Chapter 7
Bankruptcy. A Chapter 7 Bankruptcy serves the goals of allowing a debtor to
make a fresh start and ensures equitable treatment to the creditors (Jentz,
2010 pg. 423). The stakeholders most
affected by this bankruptcy would be the interns, who have not been paid due to
the deficit. This bankruptcy would allow for an equitable settlement of unpaid
wages while allowing the UFS to reorganize with a business plan that better
meets the projected revenues allowing them to become an ongoing concern again.
It would also eliminate the need to liquidate the assets of UFS.
Chief Financial Director
University Financial Services
University Financial Services Financial Highlights
Income Statement
Income
113,588
Expense
184,353
Net Income
- 70,765
This Income Statement illustrates the economic woes of UFS.
The organization lost $70,765 in 2014.
Balance Sheet
Cash
-69,503
Accounts Receivables
16,637
Total Assets
-52,872
UNIVERSITY FINANCIAL SERVICES FINAL
PROJECT
(5)
Accounts Payable
379
Payroll Liabilities
8,823
Total Liabilities
9,202
Retained Earnings
-8,231
Owner Investment/Draw
16,905
Net Income
-70,765
Total Equity -62,073
Total Equities and Liabilities -52,872
Income Statement and Balance Sheet from: Director of Finance.
Again the Balance Sheet shows the economic woes of UFS.
Management Discussions
As UFS emerges out of bankruptcy a clear plan must be in effect to avoid
the financial pitfalls that plagued the organization from the start. The first step would involve establishing a
budget. A budget is normally associated with a for- profit company but
according to the text, Managerial Accounting, a budget is necessary for a
non-profit organization as well. A budget is useful in that it displays the
organizations business plan in financial terms. The object of a budget is to
set plan goals, achieve the plans and revue and compare the plans to actual
performance (Warren, 2007 pg. 968). A big challenge that a non-profit faces is
that some terms of grants awarded the organization have specific terms as to
have the money is spent. These are called “restricted funds”. An example of
this would be a grant award that is specifically designated to hire accountants
to develop a program for start-up non-profits. The monies in this grant can
only be used for wages to pay the accountants working on the program. It could
not be used to pay others wages. Another example would be a grant for new
computers. Only new computers could be purchased with the grant money (Hoyle,
Chap 16, 2013).
The new budget must be tied to expected grant revenue. All expenditures
must be tied to this revenue forecast. Now UFS serves another function than helping
the community. That is the education and experience opportunity to interns from UFS.
It could be said that it’s the
primary purpose of the virtual company in that it is the mission of University to educate students to enter the workplace. The problem this causes is that, unlike a
normal non-profit that can lay off employees as the revenue dictates, UFS must
employ all students who are required to enter the program. An answer would be
to have a sliding pay scale that changes in relation to the revenue on hand and
the number of students involved in the internship. By adopting this plan UFS
would be grounded in the real world as its expenses should never exceed its
revenue.
Smaller decisions about the operation of UFS would revolve around payroll
taxes. Unemployment taxes are not
required by the IRS for a non-profit organization. In order to keep payroll
expenses down, remembering that payroll was the major expense before
reorganization, UFS needs to decide to pay them or not. In the real world this
would mean that an employee that was laid off, which happens frequently as
grants are lost, would not receive any unemployment. In the virtual world of UFS it would mean that tax specialist would not have the experience of filing
the state and federal returns associated with unemployment withholding.
The IRS requires a non-profit organization to file a yearly return. It
is filed on a form 990 or 990EZ. This requirement is for any tax exempt
organization that has annual gross receipts in excess of $50.000. Running a
loss, UFS, would not be required to file an annual tax return. It is felt a return not should
be filed for 2014 because the organization was insolvent. With the
reorganization of the company UFS should file an annual return even if the
gross receipts do not total $50,000. Because the IRS will revoke the tax exempt
status of a non-profit if it fails to file, it is recommended that a Form 990
be filed to let the IRS know that UFS is now a going concern.
University Financial Services Additional Performance Measures
At this time UFS is in talks with University Consulting to establish rates
for the work performed assisting them with their financial needs to include
payroll. UFS should also strive to obtain grants and other funding so they are
not solely reliant on University Consulting. The development of a grant writing
position would help towards these ends. Although not part of a financial
service, grant writing is a high paying position in the real world and in much
demand. Without a grant writer many non-profits would not be able exist.
UFS has much to offer the public on its own. Many new non-profits start
off with good intentions but fail because of a lack of knowledge of accounting
fundamentals. According to Don Griesmanns Non-Profit blog, he lists a number of
reasons non-profits fails. Among them is not staying current with state and
federal regulations, to include tax filings, no business plan, inadequate
fiscal controls and poor budgets. UFS could provide assistance in all these
areas.
References:
Kieso, Kimmel, Weygandt. Accounting Principles. John Wiley
and Sons Inc. 111 River St, Hoboken NJ. 2012
Kieso, Weygandt, Warfield. Intermediate Accounting. John
Wiley and Sons Inc. 111 River St, Hoboken NJ. 2009
Hoyle, Schaefer, Doupnik. Advanced Accounting. McGraw-Hill,
Irwin, 1221 Avenue of the Americas, New York. NY 2013
Jentz, Miller, Business Law. McGraw-Hill, Irwin, 1221 Avenue
of the Americas, New York. NY 2013. 2010
Nobles, Scott, McQuaig, Bille. College Accounting.
South-Western, Cengage Learning. 2013
Pany, Whittington. Principles of Auditing and Other Assurance
Services. McGraw-Hill, Irwin, 1221 Avenue of the Americas, New York. NY 2012
Warren, Reeve, Duchac. Managerial Accounting. Thompson,
South-Western. 2007
Bieg, Toland. Payroll Accounting. South-Western, Cengage
Learning. 2012
Anderson, Pope. Federal Taxation 2013, Prentice Hall. One
Lake Street, Upper Saddle River, NJ. 2013
University Finance Service Income Statement and Balance Sheet:
Mazza, Tammy. MT390-1 Experimental Learning Career Engagement Dec. 24, 2014
Annual Exempt Organization Return: Who Must File. Retrieved
from http://www.irs.gov/Charities-&-Non-Profits/Annual-Exempt-Organization-Return:-Who-Must-File
28+ Reasons Non-profit Startups Fail. Retrieved from: http://dongriesmannsnonprofitblog.blogspot.com/2012/05/why-do-start-up-nonprofits-fail.html
