Case Study: Not-for-Profit Organizations

The National Institute for Vocational Education and Imam Malik College both are offering education on non-profit bases. They generate fund from donations and charity organizations plus rendering limited services and consultancy and charge small fees to cover basic expenditure. Presented below are financial statements (except cash flows) for two not-for-profit organizations. Neither organization has any permanently restricted net assets, which are registered under the names of main donators.

Statement of Activities for the Year Ended December 31, 2019
	Imam Malik College		The National Institute for Vocational Education
	Unrestricted	Temporarily Restricted	Unrestricted	Temporarily Restricted
Revenues
Program service revenue	2,595,000		1,250,000
Contribution revenues	6,327,500	750,000	4,200,000
Grant revenue		96,000		1,025,000
Net gains on endowment investments	17,500
Net assets released from restriction
Satisfaction of program restrictions	450,000	(450,000)	377,000	(377,000)
Total revenues	9,390,000	396,000	5,827,000	648,000
Expenses
Education program expenses	5,621,000		1,559,000
Research program expense	1,256,000		2,256,000
Total program service expenses	6,877,000		3,815,000
Fund-raising	456,000		356,000
Administration	650,000		1,229,000
Total supporting service expenses	1,106,000		1,585,000
Total expenses	7,983,000		5,400,000
Increase in net assets	1,407,000	396,000	427,000	648,000
Net assets January 1	4,208,000	759,000	1,037,500	320,000
Net assets December 31	5,615,000	1,155,000	1,464,500	968,000

STATEMENT OF NET ASSETS, As At December 31, 2019
	Imam Malik College	The National Institute for Vocational Education
Current assets
Cash	105,000	256,000
Short-term investments	265,000	99,000
Supplies inventories	32,000	150,000
Receivables	239,500	88,500
Total current assets	641,500	593,500
Noncurrent assets
Pledges receivable	465,000
Long-term investments	2,590,000
Land, buildings, and equipment (net)	3,275,000	1,968,000
Total noncurrent assets	6,330,000	1,968,000
Total assets	6,971,500	2,561,500
Current liabilities
Accounts payable	23,000	129,000
Total current liabilities	23,000	129,000
Noncurrent liabilities
Notes payable	178,500
Total noncurrent liabilities	178,500
Total liabilities	201,500	129,000

Required:

1. Calculate the ratios that support the following requirements for both institutions:
   1. Ability to meet operating expenses from the unrestricted net assets.
   2. Efficiency of external fund-raising.
   3. Ability to meet short term obligations.
   4. Assessment of the financial position.
   5. The level of program expenditure and efficiency.
   6. Ability to raise and pay debt.
   7. Explain the self-finance ability of each program.
2. Based on answer of each requirement of 1 above, explain which of the two organizations has the stronger position and performance. Comment and advise the management based on calculated ratios and your own analysis.

If you have been selected to audit both institutions, which audit report and opinion you will submit for each institution. Justify your report.