For more than 75 years, the Jack Miner Gallery of Kingsville (JMGK) has offered a variety of

Fantastic news! We've Found the answer you've been seeking!

Question:

For more than 75 years, the Jack Miner Gallery of Kingsville (JMGK) has offered a variety of art sessions for artists of all ages and skill levels at the Billy Fontaine School of Profit Inc., (BFS). The BFS is a profit-oriented operation with a mission to inspire creativity, exploration, and artistic expression in the general public while raising funds for the JMGK. Any cash surplus arising from the running of the BFS is re-directed to the JMGK to fund renovations and curate artwork.
It is now November 11, 2022. You, CPA, have just joined the JMGK Board of Directors (Board). It has been a few years since the organization has had a CPA as a Board member and the other Board members are glad to have someone with your skill set.
At the last Board meeting on October 20, 2022, the JMGK Board was told that the BFS’ bank account was in an overdrawn position of $1,350. The JMGK Board does not understand how this could have happened when there is full session enrollment, minimal expenses, and there was a balance of $5,000 at the start of the year. You have been asked to determine the expected cash flow to be generated by the BFS for the year ended December 31, 2022.
Now that the JMGK Board is suspicious about the operations at the BFS, you have also been tasked to review the current operations of the BFS and suggest improvements for any weaknesses identified.
As a result of the JMGK Board’s suspicions, the BFS financial statements will be audited for the first time for the year ending December 31, 2022, in accordance with Accounting Standards for Private Enterprises. The JMGK Board would like you to explain what will be included in an audit plan for the BFS, but you do not need to provide any specific audit procedures. In addition, you were asked to discuss the appropriate accounting treatment for the enrolment fees.
The JMGK Board is also considering whether to set up an Audit Committee. The Board would like to understand what the role of an Audit Committee would be in overseeing the BFS financial statement audit, and any other governance responsibilities.
To begin your review of the BFS’ operations, you met with Lizza Picasso, the managing director of the BFS. Notes from your meeting are included in Appendix I.
APPENDIX I
NOTES FROM THE MEETING WITH LIZZA PICASSO, MANAGING DIRECTOR
Lizza believes that the talent, dedication, and energy of the instructors and volunteers are the lifeblood of the BFS. The BFS has a faculty of ten experienced instructors. Each instructor teaches two art sessions in their area of expertise each term and is paid $5,000 per session.
Most of the volunteers are high school students who are completing their volunteer community service hours required to graduate. Lizza commented that she welcomes any help that she can get from volunteers because there is plenty to do, such as cleaning up the art supplies and classrooms, taking enrollments, and performing the accounting and financial reporting functions.
Lizza explained to you that she is overjoyed with the increasing demand for art sessions. However, she believes there is too much for the volunteers to handle during the enrollment period because the phones are ringing off the hook and students are lining up at the BFS office to fight for spots in the art classes.
Lizza considers Maisy Monet her most dedicated volunteer because no other student has volunteered with BFS as long as she has. In fact, most volunteers last less then six weeks. Maisy also performs accounting functions for BFS and prepares the organization’s financial reporting to JMGK. You decide to meet with Maisy to gain an understanding of the current operations at the JMGK as part of your review for the Board (Appendix II).
APPENDIX II
NOTES FROM MEETING WITH MAISY MONET, VOLUNTEER
Maisy has been volunteering at the BFS for twelve months. She is pleased with the opportunities she has at the BFS, especially performing its accounting function and financial reporting to the JMGK. Maisy is a second-year university student in a Bachelor of Commerce program with an accounting focus. She plans to pursue the Chartered Professional Accountant designation.
Class Enrollments
In the month before the start of each term, the BFS office is incredibly busy due to class enrollments. At any given time, there is only one volunteer at the BFS office. Most volunteers either call in sick during enrollment or stop volunteering altogether. Maisy is the only recent volunteer to have survived more than one busy enrollment period.
If a student phones in or drops by the BFS office to enroll in an art session, the volunteer inputs the student’s information in an Excel spreadsheet created by Maisy. Currently, students can enroll in the art sessions either by phone or in person at the BFS office. Students enrolling in person can pay by cash, cheque, or credit card. Students enrolling by phone must pay by credit card.
Each art session runs for ten weeks and is comprised of ten one-hour art classes. Sessions are held three times per year in the winter, spring/summer, and fall terms. The winter term runs between January and April, the spring/summer term runs between May and August, and the fall term runs between September and December. The enrollment period begins one month before the start of each term. Each art session is limited to a maximum enrollment size of 40 students. The 2021 terms were the first that the BFS achieved full enrollment for all art sessions.
The four-month art session costs $200 for the general public and $175 for JMGK members. Approximately 75% of the students claim that they are JMGK members. The volunteers are supposed to call the JMGK office to determine whether the students have a valid JMGK membership. However, the volunteers usually compile a list of the students’ names and membership numbers and call the JMGK office at the end of the day. The JMGK office typically determines that 50% of the students on the list do not have valid JMGK memberships. The BFS has had difficulties recovering these membership discounts because the students’ contact information in the Excel spreadsheet is often incorrect or incomplete. Once it is established that these students are not JMGK members, a receivable is recorded for the outstanding fees.
Volunteers place any cash or cheques received from students in a locked cash box programmed to be opened with “416”. Lizza chose this combination for all of the BFS locks because everyone should easily remember it since it is an area code in the Greater Toronto Area. The cash box is placed on a shelf behind the office counter and is always locked when no one is in the BFS office.
APPENDIX II (CONTINUED)
NOTES FROM MEETING WITH MAISY MONET, VOLUNTEER
Approximately 20% of students pay the session fees in cash. Students rarely ask for receipts. However, when they do, a volunteer manually numbers the receipt and places the receipt stub in the cash box.
Typically, bank deposits are made weekly by Lizza. During enrollment periods, Lizza goes to the bank at least twice per week.
The volunteers use the Excel spreadsheet on the BFS office computer to calculate the total payments received from students during the day. This amount is then recorded as “enrollment revenue” in the BFS’ accounting application at the end of each day. No password was needed to access the computer or the spreadsheet. She created the spreadsheet to track session enrollment and student information (e.g.name, address, phone number, e-mail address, membership number, payment method, credit card type, credit card number, and credit card expiry date).
Additional Model and Material Fees
On the first day of classes, the instructors announce whether any additional model and material fees are required for their art class. The instructors only accept cash for these additional fees. The responsibility lies with the instructors to remit these additional fees to the volunteer on duty at the BFS office. The volunteer then places the cash received from instructors in a designated envelope in the safety box and books this amount as “model and material revenue” in the accounting application.
For this year, Maisy recalls that only four instructors have remitted additional material fees to her.
Instructor Expense Accounts
Each instructor is entitled to an expense account of $2,000 per term. The account is to be used for art supplies, teaching materials, and other expenditures that will increase the quality of art instruction. Anything purchased using the expense accounts remains the property of the BFS.
Purchases can only be made at Bean’s Art Emporium (Beans). Each instructor is given a Beansy corporate credit card, and all purchases are paid for by the BFS. Molly’s impression is that instructors are happy with this process because there is no delay in getting reimbursed for expenditures. Maisy suggested that you see Francine van Gogh, the painting instructor. You met with Francine to gain an understanding of the instructor’s general thoughts on the expense account process (Appendix III).

APPENDIX II (CONTINUED)
NOTES FROM MEETING WITH MAISY MONET, VOLUNTEER
Expense account purchases to date have totaled $72,000. Other than instructor wages, the only other expenses incurred by the BFS are operating costs to support the classes, totaling approximately $20,000.
APPENDIX III
NOTES FROM MEETING WITH FRANCINE VAN GOGH, PAINTING INSTRUCTOR
Francine has instructed art classes in painting at the BFS for the last seven years. She is fairly satisfied with the expense account process for instructors. Unlike other organizations that she has worked for, the BFS does not have any annoying bureaucratic policies over the review and approval of expenditures. This means that she does not have to wait until months after the purchase to be reimbursed for her expenditures. Instead, Francine can pick up whatever she wants at Beansy and the BFS will take care of paying for it.
She is glad that the BFS chose Beans because they are known for having high-quality art supplies and equipment and teaching materials at reasonable prices. However, Francine has been disappointed with Beansy's variety of painting media and tools. Luckily, she was able to get what she needed to run her art classes from another art store using the cash she received from students for additional material fees.