Kudler_Fine_Foods

Charitable Contributions and Debt: A Comparison of St. Jude Children’s Research Hospital/ALSAC and Universal Health Services Hospitals are encompassed by a diverse industry in which the entities are either regulated in not-for-profit, governmental or private investor owned form. As such, the diversity amongst entities’ makes it difficult to be comparable to an industry standard. To obtain a better understanding of this diverse industry this paper will examine specifically how not-for-profit organizations report financial information in forms of charitable contributions, debt, volunteer services, disclosures of affiliated parties, differences in revenue mix in regards to not for profits vs. for profits, risk management and a comparison to government operated hospitals. Contributions St. Jude Children’s Research Hospital/ALSAC, a not-for-profit organization who’s mission is to “advance cures, and means of prevention, for pediatric catastrophic diseases through research and treatment. Consistent with the vision of our founder Danny Thomas, no child is denied treatment based on race, religion or a family’s ability to pay (St. Jude’s, 2009, Mission Statement).” In order for St. Jude Children’s Research hospital to maintain its goals and mission, special criteria and reporting standards are permissible for this form of not-for-profit organization specifically the process of recording contributions and deferred revenue adjustments. According to the Financial Accounting Standards Board SFAS No 116, revenues for contributions are recognized in the period they are received and recorded at fair market value (FASB, 2010, SFAS 116). Pledges are a type of contribution that is recorded in a comparable manner to accounts receivable. However, there are distinctions between recording pledge receivables and accounts receivables. These distinctions mainly stem from the type of pledge; unconditional or conditional. Unconditional pledges are recorded when received or receipt is reasonably assured. Conditional pledges are recorded when the conditions have been met by the entity. This differs from accounts receivables which requires that dual party involvement is substantially completed i.e. product/services are rendered, and payment is reasonable assured. Uncollected pledges are written off similar to the process of recording the contra asset account allowance for doubtful accounts and related expense. Furthermore, in regards to recording contributions, FAS 116 adjustment, as exemplified in Table 5.3-1 in the case study material, is for the deferred revenue pertaining to conditional promises to give. This exemplifies a schedule of deferred debits and credits by contract, of contributions made or received and are recognized in the period received or when the condition is met. “Conditional promises to give, whether received or made, are recognized when they become unconditional, that is, when the conditions are substantially met” (FASB, 1993, para. 1). Since, the conditions in the contract have not been met; the revenue has to be deferred until it becomes unconditional. Another difference that benefits not-for-profit organizations is the recording of volunteered services. There are circumstances when financial statements can quantify volunteers’ services performed by skilled professionals. According to FASB, Statement No. 116, two conditions must be met for contribution services to be recognized; it must be performed by skilled professionals and if the services were not volunteered, the organization would have had to pay for the services. The conditions exemplified in SFAS 116 are as follows: • “The services create or enhance nonfinancial assets. • The services require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Services requiring specialized skills, according to the FASB, are those provided by accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers and other qualified professionals.” (Granof, 2007, p. 498). Contributions and the direct involvement of affiliated parties assist not-for-profits considerable. However, the financial statement users of NFP hospitals’ financial statements cannot expect to be fully informed regarding affiliated parties directly. The user must do the research and review the Internal Revenue Service (IRS) Form 990, Part VI, Governance, Management, and Disclosure, in order to establish what affiliates are related to the organization. (I think we need to go into more detail here – Stephanie can you please elaborate') The user can review the IRS Form 990, Part VI, Governance, Management, and Disclosure, Section B - Policies, line 10 (a) and (b) pertaining to local chapters, branches, or affiliates (IRS, n.d.). Organizations would list the affiliates related to them. Revenue Mix (Strategy-Related Considerations) Another distinct difference in not-for-profit entities is the revenue mix they obtain. Based on the information obtain from the revenue mix, Universal Health Services revenues from Medicare have steadily been declining. In 1996 revenue retention was at 35.60% and has steadily declined to 22.07% in Medicaid revenues, on the other hand remained around the same level. Revenues coming from managed care and other sources went through radical changes, from total revenues of 19.10% in 1997 to 45.02% in 2008. Other sources of revenue compromised 49.10% in 1996, while it was only 18.48% in 2008, revealing a significant inclination. From data obtain from St. Jude Children’s Research Hospital website remarkable changes took place from 2008 to 2009. Net investment income experienced a significant loss, from 32,189 in 2008 to (368,351) in 2009. Net Patient Services Revenue had an increase from 68,853 in 2008 to $81,712 in 2009. Total support, research grants and other revenue sources increased. Still St. Jude Children’s Research Hospital experienced a decline in total revenues from 2008 to 2009. ALSAC/St Jude Children’s Research Hospital Combined Financial Highlights for Fiscal Year 2009 Years ended June 30 (in thousands) Revenues 2009 2008 Total Support $681,904 $660,200 Net Patient Services Revenue 81,712 68,853 Research Grants 82,329 67,665 Net Investment Income (Lost) (368,351) 32,189 Other 9,400 7,708 TOTAL REVENUES 486,994 836,615 The development shown in the data indicates that managers for investor-owned hospitals have a tendency to shift to high margin activities such as managed care, away from low margin activities such as Medicare and Medicaid reimbursable medical services. Then again management has an obligation with the investors of the hospital as regards to an adequate return on investment. Next we will examine the staggering differences between not-for-profit and governmental owned and operated hospital entities. Governmental Medical Accounting Governmental and not-for-profit (NFP) organizations both share many similarities. However, governmental organizations have a few financial advantages that NFP organizations do not receive. Both types of organizations’ goals are to further advance a cause on behalf of the betterment of society, as oppose to profit maximization in a for-profit organization. Both hospitals treat patients regardless of financial position. Both organizations collect revenues the same way from patients that have medical insurance or assisted governmental healthcare such as Medicare. Furthermore both organizations have the same patient day rate for government assisted medical coverage. NFP and governmental organization of similar goals share many things in common, and in many ways are hard to distinguish. However, the main difference between a NFP and government hospital is budget and fund accounting. Most governmental accounting is based off a budget which tracks in real time by using the fund accounting method. Fund accounting is a quadruple entry method, which utilizes two entries (debit and a credit) for the balance sheet and two entries to withdraw funds from the budget. The good thing about fund accounting is that management can keep track of how well the facility is meeting its budget, as a whole on a real-time basis. It is as current as entries are completed. The negative aspect of fund accounting is that it requires twice the amount of work. Another major difference within governmental facilities compared to almost any other type of organization is the allocation of the budget. Traditionally for most organizations it is commonplace to try to be under-budget to either minimize expenses, therefore maximize profits in a for-profit organization, or to minimize expenses to further benefit goals to society. On the other hand, in government accounting it is commonplace to either come in on budget or over budget in order to not reduce the next year’s budget. In addition, a governmental organization compared to NFP in terms of borrowing is taxation. NFP organization, of course does not have to pay taxes on income because a NFP organization does not make income. However when a NFP organization issues a bond the purchaser of the bond is taxed. In contrast, a government bond is tax free so the fair market value is actually higher than the stated amount, which earns a premium. In other words, when the government issues a bond they receive more money than what is borrowed, which is a significant advantage in terms of being able to stay afloat during poor cash flow. Lastly, although government organization has many advantages compared to private sector NFP organization, governmental facilities often also run higher costs. According to Cauchon D., of USA Today (2010) “. . . federal workers earned an average salary of $67,691 in 2008 . . . The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.” (para. 3). Just the salary expense in the government organization is higher than NFP organization. The government benefits are also better than a private organization. In conclusion, charitable contributions and debt of a hospital not-for-profit (NFP) and private investor owned have requirements on financial statement reporting. The case study for St. Jude Children’s Research Hospital/ALSAC and Universal Health Services shows the standards to follow with contributions with cash and volunteer services, the statistical changes of revenue mix of charity and investment, and its comparison to government owned hospitals. The charitable work and services provided by hospitals are positive for our society. References Cauchon D. (2010) Federal pay ahead of private industry, USA Today. ¶3. Retrieved from http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm on October 29, 2010. Financial Accounting Standards Board (FASB) (1993). Summary of Statement No. 116: Accounting for Contributions Received and Contributions Made (Issued 6/93). Retrieved on October 29, 2010 from http://www.fasb.org/summary/stsum116.shtml Granof, M. H. (2007). Government and NFP accounting: Concepts and practices. (4th.ed.). Hoboken, NJ: John Wiley & Sons. IRS.gov. (n.d.). Form 990.. Retrieved on October 30, 2010 from http://search.irs.gov/web/query.html'col=allirs&charset=utf-8&qp=&qs=-Wct%3A%22Internal+Revenue+Manual%22&qc=&qm=0&rf=0&oq=&qt=form+990 St. Jude Children’s Research Hospital, (2009). Annual Report. Retrieved on October 28, 2010 from http://www.stjude.org/SJFile/annual_report_09.pdf