PUAD 664 -- Nonprofit Financial Management Sample ... - Classweb

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PUAD 664 -- Nonprofit Financial Management
Sample Syllabus - this syllabus is designed to provide an idea of the
course; it will change every semester


Understanding social mission and entrepreneurial cross pressures

Professor John F. Sacco, all rights reserved@2006; material from this syllabus
cannot be used for publication or any use outside prof. Sacco’s class.
jsacco@gmu.edu

Catalog description
--
Provides an understanding of the social mission and entrepreneurial cross
pressures underlying financial planning and accounting in the nonprofit sector.
Topics include budgeting, revenue sources, revenue projections, entrepreneurial
techniques, auditing and cost analysis for nonprofit and nongovernmental
entities. Information technology associated with nonprofit financial management
will also be covered.

Preparation and course requirements
–Need a basic knowledge of MS Excel or a
spreadsheet of your choice. However, GMU supports MS Excel and all
spreadsheet assignment will be sent in MS excel. Webct will be used. For details
on WebCT, another document will be provided.

Context - The impact of the global market and global environment on nonprofit
sector financing and accounting

With world capital flowing more in accord with market pressures and with
entrepreneurial expectations geared to gain a good return on investment,
nonprofit organizations will find it increasingly difficult to isolate themselves from
these competitive demands and entrepreneurial techniques associated with
raising money. While philanthropy remains an important societal force in
allocation of scarce resources, nonprofit organizations need to consider which
philanthropic and entrepreneurial concepts and tools are appropriate to adopt in
order to remain fiscally solvent. Such a task for these social mission oriented
entities is formidable. Often, these nonprofit organizations face social and
humanitarian pressures that do not meld with competing for money and capital
on the basis of economic efficiency nor return on capital. Nonprofit organizations
are built on trust. Additionally, statutory requirements, social mission statements,
donor restrictions, and bureaucratic lethargy can work against use of the
economic efficiency and the return on investment drive associated with global
economic markets. Historically, nonprofit organizations have viewed the saliency
of their social mission, not how entrepreneurial they were, as the way to stay
solvent. Moreover, opposition to economic or market efficiency goals is
frequently considered appropriate in value laden, socially conscious, democratic
societies. The anti-global, sometime cell based terrorist movement makes the
survival challenge more imposing for nonprofit organizations. The even present
demand since 9/11/01 makes preparedness (often via database construction and
access to good sources of information) an added task for nonprofit organizations.

Objectives -- explore, observe, and use traditional and entrepreneurial financial
planning and business accounting tools in nonprofit organizations facing the
cross pressures of markets, social missions and disaster preparedness

 Examine the nature of the cross-pressures between trust, social mission
and market criteria.
 Provide a basic understanding of special legal status and role private
nonprofit organizations are granted by governments for providing certain
public services
 Introduce students to the traditional social mission driven approach of
nonprofit organizations, the historic reliance on charitable contributions,
and traditional financial planning and accounting
 Examine budgeting and auditing including working with the Board on
these matters
 Consider entrepreneurial financial planning strategies and tools such as
in-house savings for investment, obtaining a line of credit, social
investment capital (sometimes through angels), long term borrowing,
royalty payments, endorsements, franchising and sale of products, that
can reasonably be adopted by nonprofit organizations facing market and
social mission cross pressures
 Incorporate emerging accounting and financial reporting models amenable
to judging entrepreneurial financial and social mission results realized by
nonprofit organizations
 Provide an atmosphere where students can learn by hearing from and
interacting with nonprofit and business professionals who deal with these
pressures on a daily basis.
 Use spreadsheets, such as Excel, to test and implement financial
challenges faced by nonprofit organizations.

Grading

The course will be based on an in-class midterm worth 45%, a set of homework
computer exercises worth 35% and a project worth 20%. For the project, each
student will find the financial statements for two nonprofits, scan the financial
statements and do a spreadsheet analysis. For the statements, apply ratio and
trend analysis. A theoretical basis will be developed in the course. Further details
on the project will be via webct. Some of the exercises will involve evaluating
actual financial statements. The project is due on the date set for the final in the
course. Grades are based on 90-100, A; 80-89, B; 70-79, C; 60-69, D; below 60,
F. Generally, medical excuses are the only reason for missing an exam or other
graded work. All work must be done electronically on webct (no hand written
work).

GMU Computer Accounts

Check this URL if you have not activated your GMU email account:
http://mason.gmu.edu/ISO/SysEng/Mason/account.html

If you use your own ISP, you will have redirect your GMU email to the email for
that ISP. Many of your assignments will be email to your GMU email accounts.


Texts and Readings

McLaughlin, T. (2002). Streetsmart Financial Basics for Nonprofit Management
.
Wiley. 2
nd
edition.

In the topics section, a number of the readings are marked email or the URL is
given. For email the professor will send these readings. Place the cursor over the
URL and you should get the keys needed to depress to obtain the documents.
The syllabus also includes a reference section for further reading. If you are
interested in one of these and cannot locate it, ask one of the reference
librarians. A list of assignment by document name is given. Not all will be sent;
some not listed will be added. The class may have to use Webct. A decision will
be made by the 2
nd
week of class.

Topics
1) Use Star Labs if you need help with the Excel Spreadsheet assignments

a) Information about Star can be found at
i)
http://media.gmu.edu/

b) Material will be provided (usually via GMU email) for the computer
exercises
2) Special status and traditional financial planning and accounting in nonprofit
organizations. The trust element is examined in this section.

a) Readings: In this initial section, the readings are designed to provide a
picture of the special legal and traditional social mission orientation of
private nonprofit organizations as well as different types of nonprofits.
(1) "Mission: managing your two bottom lines." Chapter 2 in
McLaughlin (2002). Streetsmart Financial Basics for nonprofit
managers. Wiley.
(2) McLaughlin. Chapter 15. "To Raise More Money, Think Cows"
Textbook
(3) See
http://www.bizfilings.com/learning/nonprofitfaq.htm
for
information on steps to incorporation a 501(c) 3. An IRS chart of
types of nonprofits is also given in the above URL. Look under
“What are the IRS classifications of nonprofit corporations?” Click
on the bottom that takes one to the chart
(4) Selected assignments will be emailed
3) Challenges nonprofit organizations face when multiple organizations (private
firms and government) see themselves as equally capable of providing
services traditionally rendered mainly by a nonprofit.

a) "The Future of the Nonprofit Sector: Its entwining with private enterprise
and government." Weisbrod, B. (1997) in Journal of Policy Analysis and
Management
. V. 16. # 4. 541-555.
b)
http://www3.interscience.wiley.com/cgi-bin/fulltext/49870/PDFSTART

4) A budget system for nonprofit organizations

a) Integrate with strategic plan
b) Integrate with IT capacity
c) Use of flexible budgets
i) Readings:
ii) McLaughlin. Chapter 11. Budgeting
iii) Discussion assignment, see Budgeting for a Nonprofit Organization,
via email
iv) Static budget assignment, email np budget static mclaughlin
v) Demo for flexible budgets- this spreadsheet will offer students an
opportunity to see how a flexible budget is presented and calculated,
np budget flex demo ans via email
vi) assignment for flexible budgets,
(1) np budget flex homework no ans via email
5) Cross pressures on finance and accounting in nonprofit organizations - trust,
global markets, and gaps

a) Historically, nonprofit organizations have operated on the basis of trust
and service. Nonprofits do not distribute any earnings and do not seek to
maximize profits. Thus, the assumption is that nonprofits can provide
efficiently to the needy and receive adequate resources from society's
philanthropic values. However, this view has been challenged by the
emergence of global economic markets as a major force for distributing
scarce resources.
i) The readings in this section examine the debate over whether global
economic markets can improve or adversely affect social equity and
stability, two values associated with governments and nonprofits.
Issues are also raised about anti-globalization forces and their impact
on nonprofit financing
(1) M. Lindenberg. 1999. "Declining State Capacity, Voluntarism, and
the Globalization of the Not-for-Profit Section." Nonprofit and
Voluntary Sector Quarterly. 28:4: Supplement: 147-167.
http://nvs.sagepub.com/cgi/reprint/28/suppl_1/147

(2)
Sense and Nonsense in the Globalization Debate
(in
Globalization: The Debate), Dani Rodrik. Foreign Policy, No. 107.
(Summer, 1997), pp. 19-37. Click on the “button” to get the sense
and nonsense article
(3) Email np financing and globalization definitions
(4) Email, np financing in global context (discussion questions
assignment)
ii) Notes and practice problem to show challenges faced by nonprofit
entities in this competitive global market -- when should nonprofits
operate globally? This assignment will provide another example of
working with Excel
(1) Email np global reach spreadsheet assignment
6) Readings for financial statements

a) “Balance sheet: How they get that way.” Chapter 4 in McLaughlin
b) “Nonprofit Accounting: Acknowledging the Strings Attached.” Chapter 6 in
McLaughlin
7) The financial reporting and accounting system -- measures of success,
health, and compliance

a) Using these financial statements for decision making by insiders and
outside parties
b) Understanding that these financial reports can dramatically affect
allocation of scarce resources to the nonprofit
c) The role of FASB (financial accounting standards board)
d) Accounting basics
i) The accounting equation
8) The statement of activities
(similar to the income statement)
i) Use of accrual, matching, and fair value and how "paper" losses can
adversely affect the report on operating success
(a) Types of revenue
(b) Handling pledges receivable
(c) Paper losses and gains
9) The statement of financial position
(similar to the balance sheet), the use of
fair value and how "paper" losses can adversely affect the operating success
and how poor management of endowments can make the statement of
financial position look bad
(1) Assignment via email, np fin statement (sheet 1 is the problem;
sheet 2 gives the answers), showing the components of net assets,
unrestricted, temporarily restricted, and permanently restricted
ii) Additional practice financial statement problems are available if you
wish to do more
10) Preliminary Report on Project

11) Midterm, in class, about here

12) Readings, Borrowing and Pricing

(a) "Capital: why capital is not four letter word." Chapter 10 in
McLaughin (2002). Streetsmart Financial Basics for nonprofit
managers. Wiley.
(i) Email assignment np capital chapter questions
(ii) Email np capital net present value demo and problem (np
capital net present value no ans
(b) "Pricing: How much should it cost?" Chapter 13 in McLaughlin
(2002). Streetsmart Financial Basics for nonprofit managers.
Wiley.
(i) Assignment np pricing [discussion]
(ii) Np pricing students demo and exercise
13) Readings, "Cash flow management." Chapter 9 in McLaughlin.

14) Readings, “Internal controls for External Goals.” Chapter 17 in Mclaughlin

15) Readings, “Auditing and Using an Auditor.” Chapter 8 in Mclaughlin

16) Progress report on Project

17) Review

18) Final Exam- take home


Some nonprofit sites

http://www.guidestar.org/

http://www.nationalcne.org/papers/corp_partner.htm

http://www.independentsector.org/mission_market/tax.htm

Entrepreneurial financial management in complex systems.
Entrepreneurial
means using business like tactics to raise money and control spending. Licensing
is an entrepreneurial technique.
a) Once nonprofits move aggressively into entrepreneurial techniques they
face several challenges. These include
i) Taxation
ii) Private sector rivals
iii) Reluctance of staff and boards
b) A nonprofit may allow a company to use the name or logo of the nonprofit
for a fee. Here is a list of entrepreneurial techniques.
i) Royalties
- A royalty is a payment for the use of a valuable right.
Payments for the use of trademarks, trade names, or copyrights are
ordinarily classified as royalties by the IRS (Internal Revenue Service).
ii) Endorsement
- A nonprofit can earn a healthy profit by lending its
name and logo for a fee to a for profit. The motivation is to allow the for
profit to show that the nonprofit endorses the for profit's products and
services. The Arthritis Foundation had an agreement with Johnson and
Johnson to endorse aspirin.
iii) Affinity cards
- A nonprofit's name or logo is imprinted on a commercial
credit card and marketed to the organization's constituents.
Universities use this techniques. The nonprofit receives a percentage
of what is charged by the cardholder. The danger is that the nonprofit
may be providing personal services to its members in working with the
credit card company. That is, the nonprofit is finding credit card deals
for its constituents.
iv) Advertising
- Nonprofit organizations can sell space in their
publications. If done on a regular basis this practice is UBI (unrelated
business income) and is taxable.
v) Corporate sponsorship
- Nonprofit organizations can display corporate
logos and receive payment from the corporation.
vi) Mailing lists
- Nonprofit organizations can receive rental income from
allowing others to use their mailing list.
vii) Educational travel tours
- The social mission of a nonprofit organization
can be advanced by offering travel tours to education people on the
value of the social mission.
viii) Borrowing
- using the credit markets to raise capital and money
instead of relying on donors solely.

Project

Project Requirements

The primary questions to be answered in this project are derived from the class
material. The questions are:
1) Background
a) Which goals or mix of goals seem to dominate the nonprofit organization --
social equity, social change, political change, others? In addition, make an
explicit statement or the mission.
b) How can the financial management and accounting system be described?
For example, which rule making body covers the organization? Which
financial management model does the entity use? Is there a treasurer, an
accounting department, and who does the audit?
2) How do you judge the financial success of the nonprofit organization? Is it
good, poor, average? Some models will be given in class to analyze the
financial statements. These will include ratio and trend analysis. Use a
spreadsheet to do your analysis of the financial statements. In addition, place
the values from the statement of activities and state of financial position in a
spreadsheet. It is these two statements from which your ratio and trend
analysis will come. You will need two years of data from these statements as
well as two years of the Form 990.
3) Entrepreneurial Techniques
a) Describe an entrepreneurial technique used or if none are apparent,
explain why.
b) What is the history of the selection of this entrepreneurial technique?
c) How has its success been measured?
4) What recommendations would you make for change in the overall financial
management and in entrepreneurial technique? Take a position. If the
financial condition is declining, what changes might be made? If you feel the
entrepreneurial technique is the wrong one for the organization or that is has
been imposed or forced on the organization, what changes should be made?

Each project will consist of
 An interview with a staff member of the nonprofit
 A careful review of the financial statements -- financial statements must have
two years of data and that is usually the case in the annual report. The review
includes the same two years for the Form 990.
 Coverage of the points noted above under questions
 A spreadsheet analysis of the financial statements and Form 990. Models will
be provided in class, including ratio and trend analysis.
 A copy of the statement of activities (similar to an income statement) and a
copy of the statement of financial position (sometimes called the balance
sheet) with all the data in a spreadsheet. These must have two years of data.
 All material must be in one document that can be emailed via webct. This
means you’ll like have to scan the financial statement

It is wise to copy and paste this format (i.e., Project requirements) into a Word
Document and fill in information as you gather it.


Project Requirements

Select a nonprofit with the consent of the professor
The primary questions to be answered in this project are:
5) What nonprofit and financial theories are you testing? For example,
a) Commercialization of nonprofits
b) Management theories
c) External relations
6) Background
a) Which goals or mix of goals seem to dominate the nonprofit organization?
b) How can the financial management and accounting system be described?
For example,
i) which rule making body covers the organization?
ii) Which financial management model does the entity use?
iii) Is there a treasurer, an accounting department, and who does the
audit?
7) How do you judge the financial success of the nonprofit organization? Is it
good, poor, average? Some models will be given in class to analyze the
financial statements. These models will be based on ratio and trend analysis.
Some typical ratios are the liquidity ratios such as the current ratio and capital
structure such as long term debt to total net assets. Two years of Form 990s
for the nonprofit selected are a must. The annual is also a must for the
project. In addition, what indicators, including but going beyond ratios and
trends would show whether the nonprofit is a risk taker or risk adverse?
8) Use a spreadsheet to do your analysis of the financial statements. What
external factors such as economic conditions affect the finances?
9) Do for-profit firms in activities similar to the nonprofit feel the nonprofit is
unfair competition?
10) Entrepreneurial Techniques
a) One definition is willingness to disregard conventional wisdom; others will
be discussed such as royalties
b) Describe an entrepreneurial technique used or if none are apparent,
explain why.
c) What is the history of the selection of this entrepreneurial technique?
d) How has its success been measured?
e) In your analysis of the nonprofit’s risk taking propensity.
11) What recommendations would you make for change in the overall financial
management and in entrepreneurial technique? Take a position. If the
financial condition is declining, what changes might be made? If you feel the
entrepreneurial technique is the wrong one for the organization or that is has
been imposed or forced on the organization, what changes should be made?

Each project will consist of
 An interview with a staff member of the nonprofit
 A careful review of the financial statements in the annual-- financial
statements usually have two years of data in the annual report; two years of
Form 990 are a must
 Coverage of the points noted above under questions
 A spreadsheet analysis of the financial statements and Form 990. Models will
be provided in class for ratios and trends
 Use tables for presentation to supplement your written and quantitative
analysis
 A copy of the statement of activities (similar to an income statement) and a
copy of the statement of financial position (sometimes called the balance
sheet). These usually have two years of data. Put the data into a spreadsheet
 All material must be in one document that can be emailed via webct. This
means you’ll likely have to scan some material, e.g., a pamphlet if it’s
appropriate. Do not scan hand written


It is wise to copy and paste this format (i.e., Project requirements) into a Word
Document and fill in information as you gather it.

Projects should be about 10-15 pages in length (double spaced and typed). Be
consisted with references. A variety of references should be used, including
academic, trade organization, and sources relevant to the organization being
studied. You can consult and discuss the topic with other members of the class,
but the paper must be your own product. Remember, the material from the
course can be used for organizing and writing the paper.



Other references:
 "Globalization and its limits." Wade, R. in Dickens, P (1998). Global
Shifts.

 Chapter 1 - "A View from the Top" in Herzlinger, R. and Ntterhouse,
D. (1994). Financial Accounting and Managerial Control for
Nonprofit Organizations
. South-Western Publishing Co. Cincinnati,
OH.
 "Post-Walrasian Political Economy." Bowles and Gintis (1993). In
Bowles, S, Ginitis, H, and Gustafsson. Markets and Democracy:
Participation, Accountability, and Efficiency
. Cambridge University.
 "The Role of Nonprofit Enterprise in '1993': Hansmann Revisited."
Steinberg, R. and Gray, B. (1993). Nonprofit and Voluntary Sector
Quarterly
. V. 22. # 4. Winter: 297-315.
 "Modern Economic Theory and the Study of Nonprofit
Organizations: why the twain shall meet." (1996). Nonprofit and
Voluntary Sector Quarterly
. V. 25. # 4. December: 470-483.
Optional.
 "Application of cost-volume-profit analysis in the governmental
environment." Caldwell and Welch. (1989). Association of
Government Accountants Journal. Summer. 3-9.
 "Evaluating the Economics of Public Sector Outsourcing." The
Government Accountants Journal
. Winter: 30-35.
 "The bigoted Scouts of America. (discrimination against
homosexuals and atheists in the Boy Scouts of America)." Dority,
B. (1998). The Humanist.
July-August v. 58 # 4: 35(3).
 Ryan, W. (1999). "The New Landscape for Nonprofits." Harvard
Business Review
. Jan-Feb: 127-136. Handout.

http://ksghome.harvard.edu/~ekeatin/finassess.pdf