Participative Living, Inc. (a fictitious name), is a charitable organization in a medium-size community in Canada. It was organized by parents of disabled adults to provide accommodation and training for severely disabled adults in the community. With the help of the Ministry of Community and Social Services, the parents organized six different homes, each with two to four residents.

Participative Living also had an employment and education program that provided training and assistance for residents seeking employment or educational opportunities. Overall, the organization had eight divisions composed of six homes, the employment and education program, and an administrative program. A supervisor who reports to the Participative Living executive team staffs each division. The executive team, in turn, reports to a volunteer board of directors composed of 12 people from the community.

Participative Living is a not-for-profit organization. Hence, while surpluses and deficits are occasionally expected, each division is expected to break even each operating period. Seven of the eight divisions are established as break-even operations, with responsibility for both revenues and expenses. The main revenue source is the Ontario government, through the Ministry of Community and Social Services, which provides all funding necessary to support each home as well as the employment and education program. All costs of Participative Living's administrative division in excess of any donations from the community are allocated to its other seven divisions. The Ministry follows a procedure of disbursing operating funds for all social service agencies under its direction based on annual operations budgets submitted to the Ministry. Generally, the Ministry is not concerned about whether an individual budget item was overspent as long as the overall spending is within the approved budget. As a result, it became a common practice among agencies to transfer expenses from one budget line to another and, in the case of Participative Living, to transfer expenses from one division to another, depending on which division had excess budgeted funds. As with most government organizations, the Ministry's administrative process of reviewing and approving a new home for Participative Living is often quite slow. As long as the Ministry is holding up the establishment of a proposed new home, it provides significant interest payments to Participative Living. The Ministry was making large interest payments during the first few months of Participative Living's 2012 fiscal year (which ended on March 31, 2012) while the organization waited for government approval and funding of the sixth group home. In November 2011, Mr. Brad Dunford, the executive director of Participative Living, Inc., was reviewing the financial statements for the first seven months of the 2012 fiscal year. He was puzzled about how the agency could suddenly be $50,000 over budget in salaries and benefits when just last month the statements indicated that spending was slightly under budget.

*Budget columns represent the total annual budget. Note that Participative Living is now seven months into its fiscal year.
**Ministry revenues are based on actual payments made by the Ministry. Total payments limited to maximum of total annual budget approved.
1. As you review operating results for the last seven months at Participative Living, what problems do you foresee?
2. Consider the style of management and management accounting for this not-for-profit organization, as well as its relationship with the Ministry of Community and Social Services. What aspects of the way business is conducted here do you think have led to the currentsituation?

Transcribed Image Text:

Participative Living, Inc. Operating Results For the Seven Months Ended October 31, 2011 Group Admin. and Edu. and Edu. Homes Budget Costs Employ. Employ. Group Homes Total Admin. Total % of YTD Costs Budget Costs Budget Actual Budget* Budget Revenues: Ministry** Interest. $206,315 $297,675 $521,841 $476,714 $728,156 S774,389 94.0% 20,943 1,567 $ 22,510 S 20,943 1,567 Donations $206,315 $297,675 $521,841 $476,714 $750,666 $774,389 96.9 Total revenues. Expenses: Salaries $ 59,029 S 61,754 S141,034 S197,386 $434,014 $327,789 S634,077 $586,929 108.0 61,598 16,812 2,205 14,147 86.5 Occupancy costs. Services, supplies, and food Personal needs . 10,392 4,375 12,264 7,000 39 72,029 24,830 3,112 6,613 17,054 4,400 (32,119) (35,707) (32,119) (1) 68,761 35,301 26,327 19,236 7,868 4,900 83,230 56,448 26,327 22,244 20,244 14,567 (35,707) 3,643 3,077 60 44.0 35 11.8 6,548 15,681 1,992 New furnishing and equip Other expenses Travel and training Specific reimbursements Allocated admin. costs. 350 4,669 875 29.6 84.2 30.2 2,765 7,707 8,792 1,176 436 197 1,972 90.0 19,123 $206,315 $297.675 $523,684 $476,714 S729,995 S774,389 (1,843) S 22,239 (75,417) (86,912) (4) $ $ 22,514 56,293 64,673 0.0 94.3 Total expenses Net surplus (deficit) S 20,671 S N/A