Charitable Contributions and Debt
Instructions:
Write a 1,050- to 1,400-word response in which you address the following questions from Case 3, Charitable Contributions and Debt: A Comparison of St. Jude Children’s Research Hospital/ALSAC and Universal Health Services:
- Questions from Requirement A
- Questions from Requirement B
- How would your answers to Requirements A and B differ if the government owned and operated the hospital?
Solutions
Charitable Contributions and Debt
Requirement A: Recording Contributions
The Statement of Financial Accounts Standards 116 (FAS 116) articulates the essential guidance that relates to the recording of contribution revenue for NFPs – Not-For-Profit organizations. As such, the FASB 116 came up with standards that relate to recording and exhibition of contribution revenue as well as it introduced terms “restricted revenue” and “net assets” the primary effect of FASB 116 entailed that the NFPs are obliged to record all unconditional contributions as revenue immediately they receive the contribution (FAS, 2009). Contributions and gifts are considered as an unconditional transfer of assets in accordance with FAS. This contribution is unrecognized until conditions are met, and the donor does not accrue any value for the contribution, hence, considering it as a fee od service.
The FAS 116 adjustment referencing table 5.3-1 indicates that the adjustment is made to recognize interest revenues as well as pledge receivables. The variations illustrated in Table 5. 3-1 regarding the FAS 116 adjustment denotes the changes made as it shows deferred debits and credits by a contracted amount of 157, 628 dollars. Notably, St. Jude’s Children Research Hospital (SJCRH) shows that there is an alteration made to recognize interest revenue for the total expanse stipulated. As such, the information exhibited indicates that both organizations are required to make adjustments for contribution, grant, and gift stated in Form 990. Also, the table indicates a suggestive view that contributions were formerly made either from an indirect or direct public support.
It is imperative to understand the salient differences in pledges receivable and account receivables. According to Benea and Duma (2013), pledges receivables are referred to as the unconditional promises that an organization or an individual make without a supply of goods or provision of services. On the other hand, account receivables can be defined as debts in which an organization or an individual has in the case where goods are delivered, or services are offered.
Regarding recording contributions, NFPs perform it when either cash is received, or pledges are made. Erstwhile receiving cash, the donor will record a pledge receivable as well as a contribution income. The FASB stipulates a restriction of contribution to partial use but does not result in liabilities. While recording on the balance sheet, this contribution is well-defined as a revenue up until it is met. As such, such an amount is documented as a current income albeit it will be made in a future period. From the table, the contribution is documented between contributions of the government or non-government. Received pledges found and used in ALSAC are not accepted or recognized by the hospital as pledges, only recognized and accepted if they are a direct contribution. As such, there are two separate calculations for account receivable.
- Contributions Received: – 1. SJCRH – $91,97,426; ALSAC – $231,793,748
- Contributions from the Government: – SJCRH- $31,469,447
- Account Receivable: – 1. SJCRH – $24,217, 029 2. ALSAC – $4,230,764
- Pledges received: ALSAC- $23,604,748
The financial statements can enumerate volunteer’s services since volunteers have created time for fundraising activities, though, these services are not recognized in the financial statement because activities of volunteers have supervisory characteristics or relationship as either an employee or an employer. Consequently, FASB (1993) stipulates that volunteers’ time should be documented only if the services rendered were professional in nature and would have been paid if a physical asset is built by the volunteer. As such, SJCRH indicates that volunteers are not employees.
The financial statement user of NFP hospitals’ financial declaration can be informed by associated parties, between SJCRH and ALSAC. As such, anyone can alter its filing, affiliations, or trade when they are documented appropriately. Therefore, if SJCRH fails in reporting the linkage to ALSAC, the amount exhibited on the financial statement is inaccurate since the amount reflects the total for SJCRH inclusive of the separate amounts for the Foundation and ALSAC.
Requirement B: Revenue Mix
According to Ingram (2013), NFPs such as ALSAC and SJCRH are established with underlying services such as humanitarian and environmental while For-Profit (FPs) such as Universal Health Services focus on income generation for the corporation as well as employees. At Universal Health Care, the revenue mix is structured from the customers that need their services or paid through health insurance plans such as Medicaid, Medicare, and other insurance services. Alternatively, for SJCRH and ALSAC, the revenue mix includes outside sources such as grants for research, investment income, patient services as well as other income.
The revenue mix analysis for SJCRH and ALSAC based on 2008 were scanty as it did not contain more information as the Universal Health Services Corporation’s 2008 report that included the following information.
(SEC, 2009)
The revenue mix for Universal Health indicates that Medicare percentages have reduced steadily from 35.6% to 22.07% ranging from 1996-2008. Regarding Medicaid, it reduced from 15.30% to 14.43% in the same range. Alternatively, managed care increased from 19.10% to 45.02% from 1997-2008, while Other sources reduced steadily to 18.48% from 49.10%.
For SJCRH and ALSAC, the table below shows some data from 2007 to 2008 as well as some data from 2009 reports.
(St. Jude Children’s Research Hospital, 2017);
There were some interesting changes in the information provided above as the company’s net investment income percentages of the overall revenues reduced from 25.72% to 3.85% from 2007-2008. And the revenues from total support increased 59.32% to 78.91 percent.
The patterns from the above revenue blend examination mirror that on investor-owned health facilities, administrators tend to move to hoisted edge activities. For instance, Managed care was moved far from low edge activities, including Medicaid and Medicare reimbursable care administrations. In spite of the fact that, hospitals, even investor-owned care centers, have an expert obligation to give therapeutic administrations to anybody in need, however, administration likewise has the duty in demonstrating sufficient come back to the investors of the clinic. Subsequently, the administration is required to act professionally in giving administrations to the destitute and in the meantime, ensuring investors’ revenues.
Government-Owned Facility
If the government owned the hospital, revenue and contributions would not be documented unless they receive it within sixty days before the end of the financial year. As such, the FAS 116 adjustments would not recount with a concession that the contribution is effectively proven. Also, revenues and cash flows would be processed from taxation, bonds, program services as a substitute to imploring donations (Dewenter & Malatesta, 2001). The patient revenue mix will resemble the one for Universal Health Services Inc. Direct funding from the government will be received by the hospital and will not depend on the donations from corporations. Also, the government will not have concerns over financial risks, rather, they will focus on its social consequences in that the revenues will be received differently, but it would not alter the objective of providing care for all individuals. Regarding financial statements, volunteer’s time can be utilized for external and internal purposes. The facility’s financial statement users would be able to distinguish and comprehend the interactivity of affiliated and related parties from government’s CAFR -Comprehensive Annual Financial Report. The organizational structure will be consisting of government elected board members and supervisors within the government that controls the facility.
Conclusively, for NPS and FPs, the revenue
gain/loss would not be less or more since GASB covers financial report for
private contributions as well as donations. Also, the acknowledgment of funds received will be propagated in line with
accrual or improved accrual standards. For FPs, the government-owned facility,
volunteer services will not quantify the financial statements lest they provide
some cost for the hospital.
References
Benea, I., & Duma, F. (2013). Financing with Receivables: Factoring, Securitization and Collateral. Finance: Challenges of the Future, 15(15), 79–86.
Dewenter, K. L., & Malatesta, P. H. (2001). State-owned and privately owned firms: An empirical analysis of profitability, leverage, and labor intensity. American Economic Review, 91(1), 320–334. https://doi.org/10.1257/aer.91.1.320
FAS. (2009). FAS 116 | Nonprofit Accounting Basics. Retrieved April 18, 2017, from http://www.nonprofitaccountingbasics.org/contributions-financial-statementsreporting/fas-116
Ingram, D. (2013). Non Profit Organization Vs. Profit Organization. Retrieved from http://www.marsd.org/cms/lib7/NJ01000603/Centricity/Domain/202/Non Profit Organization Vs For Profit.docx
SEC. (2009). Universal Health Services, Inc. Form 10-K. Retrieved from https://www.sec.gov/Archives/edgar/data/352915/000119312508041955/d10k.htm#toc
St. Jude Children’s Research Hospital. (2017). Financials – St. Jude Children’s Research Hospital. Retrieved April 18, 2017, from https://www.stjude.org/about-st-jude/financials.html?sc_icid=us-mm-financials