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- 15 Marks
Question
NICE & DICE
NICE & DICE is a large charity located in Abuja and set up to provide support and assistance to disadvantaged people in major cities. Most of the charity’s income comes from members of the public through direct cash collections and regular monthly payments from donors. The other source of funding comes from government bodies who give grants to support specific projects that are recognized as being beneficial to the public good.
The charity publishes a detailed annual report. Performance is described largely in terms of an analysis of income received and the manner in which it has been spent. The trustees are concerned that this type of analysis does not really reflect the performance of the charity. They would like to report performance in terms of the work done rather than in terms of cash inflows and outflows. They want donors to appreciate how efficient the charity is.
The statement of financial position of the charity is a typical one for a large organization. NICE & DICE owns numerous properties in Abuja, some of which have been owned for many years. These are shown at historical cost less depreciation. The trustees do not wish to revalue the properties because this will create the impression that the charity is wealthy and that it does not require further financial support.
Required:
(a) Prepare a report to the trustees of Nice & Dice advising them on the reasons why specialized entities are required to publish detailed information about their activities. (5 Marks)
(b) Analyze the problems of quantifying and reporting the efficiency of not-for-profit organizations such as Nice & Dice. (5 Marks)
(c) Discuss the decision of the trustees to value its properties at cost less depreciation rather than at fair value. (5 Marks)
Answer
(a) Report to Trustees: Reasons for Detailed Reporting by Specialized Entities
To: Trustees of NICE & DICE
Subject: Importance of Detailed Reporting for Specialized Entities
Introduction:
Specialized entities like NICE & DICE must publish detailed information to ensure accountability, transparency, and compliance with stakeholders’ expectations.
Key Reasons:
- Accountability to Donors and Grantors:
- Donors and government agencies require assurance that funds are used for the intended purposes.
- Detailed disclosures increase trust and encourage continued financial support.
- Legislative and Regulatory Compliance:
- Specialized entities operate under strict laws to prevent fraud and misrepresentation.
- Transparent reporting fulfills these regulatory obligations.
- Performance Measurement:
- Stakeholders need clarity on the charity’s achievements in terms of work done, not just financial metrics.
- Comprehensive reporting aligns activities with organizational goals.
- Tax Exemptions and Privileges:
- Charities often benefit from tax exemptions; they must disclose how these advantages support their mission.
- Public Trust and Reputation:
- Transparent reporting maintains public trust and avoids reputational risks.
- Attracting More Contributions:
- Clear reporting on efficiency and impact encourages new donors and supporters.
Conclusion:
NICE & DICE should embrace detailed reporting to align with best practices and stakeholder expectations, ultimately strengthening the charity’s credibility.
(b) Problems of Quantifying and Reporting Efficiency in Not-for-Profit Organizations
- Lack of Comparable Metrics:
- Unlike profit-driven entities, charities do not have standardized metrics such as profit margins or ROI, making comparisons challenging.
- Difficulties in Measuring Impact:
- The work done by charities often involves intangible benefits (e.g., improved well-being), which are hard to quantify.
- Limited Focus on Outputs:
- Financial statements emphasize inflows and outflows, neglecting qualitative outcomes and societal impact.
- Non-Financial Inputs:
- Volunteer time and donated services, critical for charities, are not easily reflected in financial statements.
- Potential for Misinterpretation:
- Efficiency ratios can be misleading if costs increase to improve quality or outreach.
- Resource Constraints:
- Charities often lack the financial and human resources to prepare detailed efficiency metrics or performance reports.
Conclusion:
Despite these challenges, NICE & DICE should strive to integrate qualitative and quantitative measures to give a holistic view of its efficiency and impact.
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