GOOD WORKS, BAD ACCOUNTING

GOOD WORKS BAD ACCOUNTING
If Lynn Oakes finds out that Good Works used her funds for activities other than the childcare program for which they were designated, then she can stop all donations. Can Jill Lassiter present an action plan for Good Works to improve on past performance?

ABSTRACT
Jill Lassiter is the newly appointed executive director of a charity dedicated to helping single mothers. She must get the financial statements in order so that they satisfy the organization- largest donor. Should she restate her budget using faulty estimates—or should she be candid about the organization- difficulties and face losing a crucial donation?  
BACKGROUND
Jill Lassiter pressed a fingertip to her already throbbing temple and wondered for the fourth time if she’d made a mistake in her addition. If she hadn’t, Good Works for Women was in trouble. And trouble was not something Jill needed, least of all now, in the middle of her second week as the charity- executive director.

She’d known she faced a challenge when she accepted the job offer. When the last executive director quit, the board had been slow to look for a replacement. By the time the search began, three months had gone by. When they hired Jill, another month after beginning their search, the board had admitted the accounting records were in a tangle.

Make that a full-fledged knot, Jill thought. She pushed a curl of blond hair behind one ear and stared at the calculator tape in her hand, thinking about her reasons for taking the position at Good Works for Women. She’d been drawn by the charity- dedication to helping single mothers find meaningful employment. In addition to maintaining a computerized job bank database, Good Works provided assistance with résumé preparation, interview techniques, wardrobe, childcare, transportation and job skills improvement.

Though the pay was less than Jill had earned as the accounting manager at Crestview Hospital, she’d jumped at the chance to become part of an organization that she believed would allow her to make a difference in so many lives. Since she was a single mother herself, being part of the solution held a strong attraction.

But now, after two weeks spent updating and reviewing the accounting records, Jill could see exactly how much of a challenge she’d taken on. Over the past four and a half months, finances had fallen into disarray.

She’d made enough sense of what records there were to chart the decline in fundraising efforts, and--as a natural consequence--the way contributions had dwindled. The loss of income was bad enough, but then she’d discovered administrative expenses had grossly exceeded the budget. To round out her problems, when she checked the contract with Good Works’ largest donor, Lyndelle Oakes, she realized the charity was behind in providing the quarterly financial statements necessary to continue receiving funds. In fact, Lyndelle Oakes had not seen any statements since the audit conducted at the charity- prior year-end, eight months before.

“There- someone here to see you.” Alice Hunt, the Wednesday morning volunteer receptionist, walked into Jill- office, her round face beaming with her usual good humor. A tall, slender woman with steel-gray hair and stern blue eyes magnified behind silver-rimmed glasses followed her. Alice said, “Jill, this is Lyndelle Oakes. She- one of our Angels.”

Trying to ignore her growing headache, Jill stood, came around her desk and held out her hand. “I’ve heard of you,” she said. “And I want to thank you for all you’ve done for Good Works for Women.”

Lyndelle shook Jill- hand, but her expression remained unchanged. “You can thank me by getting my accountant the information I need in order to make this quarter- donation. I know you were only hired two weeks ago, but I was certain the financial records would be your first priority.”

“Let me assure you they are.” Jill gestured toward her paper-strewn desk. “In fact, I’m working on last quarter- statements now. But it- a bigger job than you might think, Ms. Oakes. I have four months of records to review. I also intend to go over the records for the four prior months, back to the last audited statements.”

“Is there some problem?”

“I like being thorough,” Jill said. Having to be evasive annoyed her, but she was certain she was going to figure out a way to solve the mess she’d uncovered. She was equally certain the success of Good Works depended on it. She added, “Good Works is very important to me. I’m a single mother, so I understand--and have a personal interest in--the value of the work we do here. I’m going to make darn sure we fulfill our mission, Ms. Oakes.”

Lyndelle studied her. Her face softened. “Please, call me Lyn. I apologize if I seemed harsh, but I’ve been very frustrated by not being able to get an answer about Good Works’ finances. You see, my mother struggled for years to make ends meet after my father died. She was a wonderful woman, a true role model. I owe my success to her, and I’ve dedicated myself to making life easier for women like her. But my accountant says I can’t donate any more to Good Works until I get those financials.”

“You’ll have them next week,” Jill promised.

“I’d better.” Lyndelle- voice tightened. “Even though I think the world of what Good Works does, there are plenty of other organizations with the same goals. They can use my help just as much.”
THE PROBLEM
“I realize we have a problem,” Charlene Pinero said. A tiny, energetic woman, she perched on the chair opposite Jill- desk, slender jeweled hands fluttering, one small foot tapping on the carpeted floor. “But I honestly don’t believe it- as bleak as you’re making it out to be, Jill. After all, we’ve been in a tight spot before--maybe even tighter. Why, I can remember having barely enough cash to keep going on a day-to-day basis. At least now Good Works has enough cash to support our programs for another week, until Lyndelle makes her next contribution.”

“Just barely, Charly,” Jill said. Despite the short time she’d been with Good Works, Jill had quickly come to realize how dedicated Charlene “Charly” Pinero was to the cause. As one of the initial three board members who had conceived the idea for the charity, Charly had spent countless hours--and much of her own money--over the years making the dream a reality. That was why she was the first one Jill had called when she’d discovered the overspending. 

“We’re required to meet specific guidelines in order to continue receiving those donations,” Jill reminded her.

“Of course we are. I don’t enjoy accounting, but I have enough not-for-profit experience to know that much.” Charly wiggled her fingers, setting faux gemstones flashing under the fluorescent lighting. Rumor had it that the real jewels had been sold to fund Good Works. “We’ll give Lyndelle the financial statements for the past two quarters, and then we’re caught up with our obligations. You said you could have them done by next week. She’ll hand over a check the same day, as long as the financials look okay.” Charly leaned forward, interrupting when Jill would have spoken.  “Look, I understand what you were saying about management expenses going over budget. I also know our fundraising efforts slowed down while we were looking to fill the executive director position. Put those two facts together, and we’re looking at a potential shortfall.”

“A definite shortfall,” Jill corrected her. “In fact, if Lyndelle hadn’t made her second quarter contribution despite not having financial statements, we would have already run out of money.”

“Okay,” Charly agreed. “A definite shortfall. So the financials don’t look so hot.”

“Right,” Jill said. “It- a round robin. We need Lyndelle- contribution to stay in operation. But we need solid financials to get her contribution.”

“So all we have to do is make the financial statements look good for the short term. And I have a simple solution.” Pleased with herself, Charly smiled. “Just transfer some of the surplus in the restricted funds to cover the management and general expenses. We’re not talking about actual cash here, just a journal entry between accounts--a bit of accounting sleight of hand, if you will. Then, presto, we’ll get our money.”

“Not a good solution, for several reasons,” Jill said. “In the first place, I don’t perform magic accounting tricks. Second, we’re ethically required to follow the restrictions Lyndelle put on her donations. And third, as you’re well aware, Good Works signed a contract when Lyndelle made her promise to give, so we’re legally bound, as well. Lyndelle- contributions are restricted for use in our childcare program, meaning we’re not allowed to spend her money to fund management activities or anything else.” 

Jill picked up the guidelines Good Works had to follow in order to receive Lyndelle- donations and handed them across the desk to Charly. “If the financial statements show we’ve used the funds for other activities, Lyndelle can not only stop the next donation, but she can ask for the last one back.”

“I’d forgotten.” Charly- face paled. Instead of looking at the papers she held, she stared at Jill. “Paying back last quarter- donation would mean the end of Good Works. There- no way we can come up with the money. But there must be a way to make the numbers work out.” She thought for a moment, then brightened. “I believe you’re overlooking something, Jill. If I remember correctly, we can spend Lyndelle- donations on any aspect of our childcare program. Why not allocate a larger percentage of management and general expenses to all our programs, including childcare? Those percentages are just estimates anyway. Technically, we’d be following the legal terms of the contract, and we’d still be in compliance.”

Jill felt her headache coming back. “What you’re suggesting is more accounting hocus pocus.”

“Not really,” Charly said. “It- perfectly acceptable accounting practice to revise estimates--that- why they’re called estimates, after all. We’re not changing the net assets, we’re not misappropriating funds or anything else, and we can reverse course easily, when we choose.  Who- to know?”

“The board, for one,” Jill replied. “We’d have to restate the budget for the year, which would mean board approval.”

“You let me take care of the board. You just work out the numbers so Lyndelle makes her next contribution. By the end of this quarter we’ll be back on track.”

“What if we aren’t?” Jill asked.

“We will be.” Charly rose from the chair. “Over 200 women count on us every day, Jill.  There- no way I’ll let Good Works be de-railed by something so easily fixed.”
THE DILEMMA
Alone in her office, Jill swiveled her chair to look out the window.  She was not entirely comfortable with Charly- proposal. While the expense allocations were estimates, changing them just to make the numbers work felt wrong, even though the overall picture, as Charly had pointed out, was unaffected.

But Jill was well aware that if Lyndelle chose to stop making donations, Good Works would be in dire straits. The problem would mushroom from there. Any hint of financial problems, whether real or not, could ruin the reputation--and the effectiveness-- of the charity. She’d hate to see that happen.

 
Assignment:   This replaces PA #4 and #5   (40 points).   This cannot be dropped as one of your lowest scores.  

Considering all the women whose futures depended upon the existence of Good Works, could she risk losing Lyndelle- donations? Or should she go along with Charly- suggestion, and make a simple, temporary change in her expense allocations?

Provide your answer and analysis in a three - to four page double spaced manuscript.  

1.	Clearly identify the key issues that Jill must address.
2.	Indicate how you think she should resolve these.
3.	Explain why she should resolve them in this manner.  

Due Date:  November 13, 9:30 a.m.