Not-for- profit Accounting discussion


Question Description

The Article “One Attorney General’s Response to Creative Non Profit Accounting” by (Ruth McCambridge in NonProfit Quarterly May 11, 2018)

You are a new auditor reviewing the financial statements for a not-for-profit charity providing overseas needs relief utilizing donated clothing, food, and medications. You recall from your Not-for-Profit Accounting Class in college that not-for-profit charities have some unique accounting rules that don’t apply to other types of businesses, but you don’t remember exactly what those rules were. You decide to make an overview of the financials before you look into those rules. One of the first things you do is to compute the program’s services ratio by taking program service expenses divided by total expenses. You are surprised to find that ratio is very high, which should be indicative of the organization’s ability to operate with very low overhead costs. You’ve heard of the organization before, but it did not seem like the organization was of the size that it could operate very efficiently since they provided relief items to mostly third world countries. Upon further examination, it comes to your attention is the substantial revenue claimed given the majority of its income is in-kind donations of pharmaceuticals. Although pharmaceuticals can be very expensive, these (you are told) are close to the expiration date and therefore, by law, they cannot be sold to customers in the United States. They are able to be utilized in foreign countries. The value of the in-kind pharmaceutical donations was in the financials as $1.6 billion. The more you review the financials the more you feel like something just doesn’t seem right. Before you spend more time on the project, you approach your manager to run the scenario by her.

After a few minutes of your discussion, the manager agrees that something doesn’t seem quite right. She asks you to put together a memo to her that details:

  • What you have found in your review regarding accounting issues;
  • What you believe the appropriate accounting treatment should be on items you are questioning;
  • Any positive or negative informational items you can find regarding the charity by researching it online; and
  • In the case of suspicious activity, there are likely AI technology options that could help with narrowing down the issues, so be sure to make at least one AI application recommendation in your letter.

Paper Requirements:

  • You will be required to come up with fictional data for your memo. It may be advantageous to lay them out at the beginning of the letter for your instructor to follow more easily.
  • Submit your memo response in a 3-4-page document in MS Word.
  • Please make sure your responses are well written.
  • Assignment should follow APA guidelines with respect to use of subheadings, 1” margins, and double spaced.
  • The required number of pages for the assignment does not include the title page and references page.
  • References need to include your textbook plus two additional credible academic references. All sources used, including your textbook must be referenced; paraphrased and quoted material must have accompanying citations and cited per APA guidelines.

Tutor Answer

School: Cornell University



Not-for- profit Accounting
Institutional Affiliation




To: Manager
Subject: Accounting Issues
Not-for-profit Accounting
The purpose of not for profit organisation is to address the needs of society.
Numerous accounting rules are applicable to non-profit entities. A critical look at the
financial statements makes one question whether the contributions help the beneficiaries or
they go into the pockets of the individuals who manage the charity (Prentice, 2016).
Accounting Issues
Ratios are practically meaningless as they do not give an accurate representation of
the financial status of an organisation. Overheads are a poor measure of a non-profit
organisation’s performance (Burks, 2015). Although overhead ratios provide insights into the
organisation’s performance, it does not guarantee charity accountability. To ensure charity
accountability, it is imperative to add other critical dimensions of finances.
From the analysis of the organisation, it seems that the organisation spends less on
overheads. Expenses enable a charity to be able to improve itself. High overhead costs mean
that the company makes investment decisions and uses expenses to achieve the same. Based
on the analysis...

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