Managing in Crisis

The effect of the economic challenges of the nation will negatively impact government entities in the second half of 2023. A Principal Spending Officer of a public university, the University of Universal Studies (UUS), is so concerned about the ramifications of the fiscal crises of the country on the liquidity condition of the University. He wants to know how the situation will impact the cash condition of the university, therefore, has asked the Director of Finance to provide him with some information that will help to assess the cash flow of the entity and the way out if any challenge arises.

The austerity policy of the government has ramifications for the management of UUS. First, the government intends to cut the quarterly subvention to the universities beginning from July 2023 by 40%. The subvention received for the second quarter of the year was GHc2,000,000. The cash advice for the payment of the subventions is usually in the second and third month of the quarter in the ratio of 1:3. Second, the university is required to start paying for its non-established salaries from July 2023. The non-established post salaries for the second quarter were GHc250,000, GHc300,000 and GHc320,000 for March, April and June respectively. The non-established post for July 2023 will be the same as for June but subsequently, the management of the university decides to lay off some casual workers, which will reduce the wage bill by 10% on a month-to month basis.

Required:

i) Discuss the practical possibility of the Director of Finance predicting the cash future of UUS under austerity and explain the appropriate financial statement that the Direct of Finance should prepare, if possible.

ii) Prepare the statement you have recommended in question (i) above for the third quarter of the year, showing clearing the prediction for each month and the quarter as a whole. You are to disclose any additional assumptions that you have used in the preparation of the statement.

iii) Recommend two appropriate cash management strategies to the management of UUS based on your result in question (ii)

The economic crisis has also affected the internally generated fund of UUS. The students find it extremely difficult to honour their academic facility fees (AFUF) and residential facility user fees (RFUF). The projected fees for the second half of the year are as follows. Until recently, the University collected 90% of the fees due for each month. However, the hardship has affected the student's ability to pay AFAF promptly. It is estimated that only 50% of the AFUF will be collected for each month and the balance of 60% collected in the second month. RFUF are received as and when due, as students are made to pay before entry to the hotel facilities. At the end of June 2023, an amount of GHc4,000,000 was receivable from the students in respect of AFUF. It is projected that 50% will be collected in July and the rest collected in September 2023. The government has also asked all public universities, including UUS, to take responsibility for their utility bills from March 2023. The March, April and June Bills were GHc800,000, GHc820,000 and GHc840,000. Whilst the government has paid the March bill, the April and June bills will be honoured by UUS in July and August respectively. Concerning capital expenditure, the University has an outstanding payment to contractors amounting to GHc15,000,000, which is due for payment in August 2023. Additional GHc5,000,000 will be paid in October 2023. Other suppliers due for payment in the third quarter amounted to GHc3,200,000. The university will also foot the administrative cost, GHc1,200,000, for the third quarter. For the first time, the balance of UUS at the end of the second quarter dropped to as low as GHc 700,000OD. The information available is causing sleepless nights for the Principal Spending Officer. He fears UUS will face unbearable cash crises in the first three months of the austerity policy. He wants to know how the cash future of UUS will be under austerity to enable management fashion strategies to overcome the likely challenge. He challenged the Director of Finance to provide that prediction within 48 hours