Many not for-profit organizations use the restricted fund method of accounting. Under this approach, a set of separate self balancing accounts is set up for each fund that is established by legal, contractual, or voluntary agreement. The use of the resources in each fund is either internally or externally restricted. Common funds include endowment, capital, and operating. Within the operating fund, cost accumulation accounts collect costs that are associated with services provided to support the many different functions/programs of the not-for-profit organization. For example, the Canadian Cancer Society of Saskatchewan reports cost accounts for bulletins and reports, computers and services, conferences and meetings, exhibits, displays and posters, insurance, office stationery and supplies, postage and courier, publicity, salaries and benefits, telephone and fax, travel and volunteer development, and so on. Each type of cost is collected in an account and then allocated to the functions carried out by the society (e.g., research, advocacy, prevention, information, support for people living with cancer, fundraising, management, and general). In addition, the Canadian Cancer Society's national office allocates a share of its costs to the provincial societies (i.e., national office assessment).
REQUIRED
A. Conduct research on the Internet to locate information about the restricted funds used by a not-for-profit organization and how common costs are allocated to functions and/or programs supported by the organization. What restricted funds are used? What is the description of each fund? What costs are allocated to other functions?
B. How are the uses of restricted funds similar to the uses of support cost allocations in a business organization?
C. "Failure to allocate inter- and intradepartmental costs overstates the cost of general administration and management, making a not-for-profit appear to be inefficient and understating the cost of other activities." Explain what these arguments mean.
D. As a citizen and taxpayer, what do you think are the benefits of not-for-profit organizations using a restricted fund approach? Explain your reasoning.