Case Study #2 Budgeting for the Not For Profit

(Situation)

Support Ontario is a not for profit organization that has been in existence for 10 years. The organization operates in various cities throughout the province of Ontario providing assistance to families in need as a result of emergencies and disasters, and to the elderly that live alone and require assistance.

The organization has recently hired you as the Budget Officer for the branch in Sault Ste. Marie, Ontario. A main task of the job is that you are required to prepare the budget for the next fiscal year ending December 31, 2022. The following items need to be considered when you prepare the budget for the year of 2022:

• Funding is received from the municipal, provincial and federal government. The municipal government provides $100,000 monthly at the end of each month, similar to the previous year. The province is projected to provide $10 million in 2022 while the federal government is to provide $6 million. The provincial funding is received monthly on the first day of the month starting January 1, 2022. The federal funding is received on the first day of each quarter beginning with January 1. Each quarter receives an equal amount. Thus, the funding in January is for the months of January, February, and March.
• At the end of Fiscal 2021, the organization is expected to have an ending cash balance of $500,000.
• The budget is to be set up on a monthly basis. At the end of the 12 months, there is a total column that consolidates and totals all line items to a yearly summary.
• The organization receives interest revenue of $48,000 per year from an interest bearing monthly investment. The interest is received on the first day of the month and in equal amounts.
• In the 6th month, the organization intends to sell a piece of equipment for $75,000.
• In the 9^th and 10^th month, they plan to purchase fixed assets in the amount of $20,000 during each month.
• The monthly expenses last year averaged $1,050,000 per month and are expected to increase by 5% each month in the 2022 budget year that you are completing.

Required

1. Complete the monthly budget for the 12 months in 2022 given the above mentioned budget items. Then consolidate into a yearly summary. Show all proceeds coming into the organization, the expenses, and net difference for each month.
2. The workload in one department has increased. The organization has a choice to either hire two staff at a combined cost of $100,000 per year or hire contract workers for only one year at a cost of $120,000 per year. The organization is unsure on how long the department will stay busy at the level they are now at. Does the budget exist to hire the additional office staff or contract workers and which option do you prefer.
3. At the end of the month of December 2022, the organization has the option to purchase property for $2,000,000. The property would be the new location for the organization. Should the organization pay cash for the property or borrow by way of a bank loan. The bank loan would be repaid in 120 months starting January 2023 at an interest rate of 5% on a principal plus interest repayment plan. The organization would no longer need to pay rent of $10,000 per month if they purchase their own property. Also calculate the principal plus interest for the Bank loan in 2023.
4. The organization includes 4 separate departments. How should each separate department be engaged in the budget process to ensure everyone has a clear understanding of the budget?
5. In one of the departments, the department wants to purchase an item that was not in the original budget. The amount of purchase is $100,000, there is the money in the Bank for this purchase, what should the department do in regards to this $100,000 purchase?
6. For this organization, the budgeting process usually happens in the first month of the new fiscal year. Thus, the month of January is historically a very busy month for the office. Provide and explain your recommendations if there may be a preferred alternative to completing the budget in the 1^st month of the new fiscal year.
7. There are some employees that suggest Budgeting is a waste of time as no one can predict the future. How would you explain the benefits of budgeting to these employees?
8. Currently, the organization takes last year expenses and includes an inflation adjustment to estimate the forecast year monthly expenses. The organization is considering zero based budgeting, explain the difference if zero based budgeting was used.
9. How do you recommend the budget be monitored during the year of 2022 to ensure expenses stay within the budget expectations?