Serving Our Seniors (SOS) is a nonprofit organization dedicated to providing services for senior citizens. Formed at the end of Year 7, the organization has 2 full-time fundraisers and a volunteer bookkeeper. Over the first year of operations, SOS started several programs, including meals-on-wheels, homemaker services, transportation services, and a drop-in center for seniors who need care or companionship during the day. SOS has a six-person board of directors that sets policy and approves plans, but the day-to-day operation is left to the full-time, salaried executive director. Financial support for SOS comes from a variety of sources. The initial funding came from a local church and a neighborhood community center. Together, they helped to set up SOS. The church and the community center each have one representative on the SOS board.

The SOS Board heard about the CPA Handbook requirements for not-for-profit organizations and is unsure if SOS is currently following the Handbook requirements. SOS’s Board of Directors recently hired you to advise them of the Handbook requirements and how they might apply to SOS. They want you to review the information below and recommend appropriate treatment under the current Handbook requirements. The Board would like to receive a clean audit opinion when applying for government funding for future operating plans. According to the guidelines from the Ministry of Health, the organization must submit audited financial statements by three months after the year-end to remain eligible for funding.

During Year 10, SOS obtained additional resources from contributions raised through a mail and door-to-door fundraising campaign. The organization raised a total of $35,000, of which $20,000 was received in cash during the year with no specific restrictions on its use. The remaining $15,000 consists of three $5,000 sponsorships pledged by the local Rotary, Kinsmen and Elks Clubs during a Christmas campaign blitz. The board is confident that this will be collected in Year 11. The $15,000 sponsorships are to be used to support the operations of the meals-on-wheels program, according to the wishes of the three service clubs.

SOS charges a fee for the drop-in center program. The board decided that this program must operate on a break-even basis and has set the fee schedule according to the projected usage and budgeted costs. Patrons who cannot afford the full fee are given a reduced rate based on their ability to pay. SOS intends to apply to the Ministry of Community and Social Services (MCSS) in Year 11 for supplemental funding in hopes of recovering the cost of the reduced fees (these costs amounted to $5,000). The Ministry’s representatives assessed the drop-in center program and determined that SOS’s application will be approved for fee support once received.

In June of Year 10, the Ministry of Health awarded SOS a special grant of $45,000 to be used exclusively for an experimental group counseling program. The grant was received on August 15, Year 10 and is intended to cover operating expenses for the program for 18 months from July Year 10 until December, Year 11. The program is operating in accordance with the Ministry’s guidelines.

Since the beginning of the year, SOS’s offices have been located in surplus space donated by the city library. The space could have been rented out for $2,000 per month, but because the library’s board anticipates that the space will be required for 5 expansion in Year 11, they did not seek a commercial tenant. SOS does not expect to have rent-free space after Year 10.

The meals-on-wheels program uses two vans that were purchased at the beginning of Year 10 for a total of $18,000 from a local auto dealer. The vans had an estimated remaining useful life of five years.

Currently SOS does not disclose the value of volunteer services and are wondering if they need to under the current CPA Handbook requirements. Further, the fundraisers often participate in handling office administration duties during busy periods that are not related to the fundraising function.

Required: 

Prepare a memo to the Board that identifies and explains any four key issues you find and what you believe is the proper accounting treatment under the CPA Handbook requirements. Each issue identified and explained is worth three marks. Remaining marks are given for proper business memo set-up and closing.