Thrive Community Services (TCS) is a not-for-profit organization in Victoria, British Columbia that was established in response to the influx of refugees to Vancouver Island. TCS offers community integration, career and entrepreneurial mentorship, and English language instruction for newcomers.

TCS relies on funding from a variety of sources, including the provincial government, private contributors, program fees, and fundraising initiatives. TCS has six employees: an executive director, three program directors, an accountant, and an administrative assistant, hired for their experience in human-resource management, finance, marketing, and administration. Several professional volunteers also donate time to the organization.

You are the new accountant of TCS. You report directly to the executive director. In addition to your accounting duties, you assist the program directors in preparing financial information for project grant applications.

The board of TCS is responsible for the organization's financial management. This includes establishing and maintaining governance policies and effective internal controls over financial operations. This past month, the board implemented a new set of governance policies, including a statement of values, a code of ethics, and public relations policies. The executive director has also developed human resource policies relating to vacation, sick time, hours of work, and overtime. These policies have been communicated to the employees via email.

To carry out its duties, the board incurs costs for cross-Canada travel, attendance at TCS quarterly meetings, office supplies, and small amounts related to program development. Several receipts have been lost. Expense claims are often submitted long after June 30, the NFPO's year-end.

Because TCS is a relatively new NFPO and had only a few transactions last year, accounting information is maintained on an electronic spreadsheet. The former accountant manually entered all the data into the spreadsheet. Several errors were included in the financial information. There will be a much larger number of transactions next year as a result of new programs. The executive director has requested your advice on ways to improve the financial reporting system.

TCS has recently set up an Intensive Entrepreneurship Program to provide emerging entrepreneurs in the community with business and management skills needed to successfully market their ideas and services. The provincial government has announced that it will provide a total grant of $320,000 during the two-year duration of the project. Refer to Exhibit A for details of the approved budget and results to date.

Some of the conditions of the grant are as follows:

• A maximum of $70,000 may be spent on administrative expenses.
• A report must be submitted at the end of the fiscal year, June 30, that includes project financial statements prepared using accrual-based accounting.
• Any unused funds, or funds used for purposes other than those approved, must be returned to the provincial government.
• If TCS runs a deficit of more than 20 percent of the project's budget, the provincial government will not provide further grants.

TCS will collect a fee from participants that will cover about 16 percent of the total program costs. The fee will entitle the participants to unlimited access to the resource library, personalized sessions with the program counselors, and access to several program workshops. Low-income refugees with perceived business skills are encouraged to participate in the program free of charge. To date, such participants have been identified by personal knowledge of TCS staff.

The program director is responsible for entering all relevant participants' information into an electronic database that all employees and volunteers can access. One of the participants notified you that he received an unsolicited email from TCS regarding fundraising, which included a list of other people to whom the email was addressed.

The year-end of TCS is June 30. The program development costs shown in Exhibit A include advertising and promotion, professional fees for the program developers, and salaries of staff involved in finalizing the programs. The salaries and benefits expense includes 100 percent of the program director's remuneration ($40,120) paid for the year ended June 30, 2020.

It is now June 30, 2020, and you are currently in the process of preparing the financial report for the first-year results of the program. You have forwarded a draft copy of the program revenue and expenses in Exhibit A to the executive director and board for their review and comments prior to submission to the provincial government. They requested the following changes to the financial report:

• During the year, 30 low-income participants with perceived business skills were enrolled in the Intensive Entrepreneurship Program free of charge. Because this did not result in any cash inflow or outflow, the group believes that the amounts reported in the revenue item "Program fees - subsidized" and the offsetting expense "Subsidies to participants" should be excluded. The number of participants to be subsidized by the program in the next 12 months is expected to be the same as that for the current year.
• An additional $30,000 should be included as salaries and benefits expenses in the direct costs portion of the report. This is the executive director's estimate of the applicable proportion of salaries and benefits paid to the administrative assistant, accountant, and executive director that should be allocated to the program. Of these allocated expenses, $5,000 was incurred between March 1 and June 30, 2019.
• An additional $10,000 should be accrued as contingent expenses.

In addition, the executive director purchased $7,000 in supplies for this program to be used in the next fiscal year. He has asked you to record the supplies as expenses for the current year because there appears to be a surplus for the program.

Question

1. Indicate whether the requested changes to the financial report should be made, with a reason. Also , critique the presentation format of the report.

Exhibit A Thrive Community Services Intensive Entrepreneurship Program Statement of Operations For the Year Ended June 30, 2020