The Impacts of Accounting Information on Non-profit Makings Organization (A Case Study of Grace of God Mission Awkunanaw)
Chapter One
Objective Of The Study
Noted hereunder are specific objectives, which the project is designed to achieve:
To find out the impacts of accounting to non non-profit making organizations.
To find out the importance of accounting information to the church
To see how accounting information could be applied in the church
To identify the problem created when accounting information is not used in the church
To find out the problem associated with unqualified hand handling accounting information.
Importance Of The Study
The critical analysis of this work will be very beneficial to non-profit making organizations, especially churches.
It will serve as a better information guide for churches who wish to apply accounting information. It will help all to appreciate the impacts of accounting information not only on non-profit making organizations but on profit-oriented businesses.
CHAPTER TWO
LITERATURE REVIEW
THE CONCEPT OF FINANCIAL RECORD-KEEPING/EVOLUTION OF RECORD KEEPING
The origin of recording according to Okafor et al (1996:1) can be traced back to ancient civilization in Babylon, Egypt, Rome and Greece. Early Babylonians had begun by 4500BC, to levy and collect taxes and records the receipts and disbursements. The development of “papyrus” and “calamus” as paper and pen respectively by early Egyptians is a great impetus to record keeping.
Before the advent of writing, man could talk and could express himself in drawing but he could not write. Therefore, record keeping could be dated back to about 300BC with the discovery of
“hieroglyphics and cuneiform” writing by early Egyptians and Babylonians respectively. The introduction of the decimal system by the Arabs as early as 850AD greatly enhanced the development of recording keeping.
The emergency of money as a medium of exchange has provided impetus for development of accounting and record keeping (Okafor, 1996:1). It becomes necessary to record business events on monetary aspect rather than on physical quantities. Moreover, the industrial revolution of 18th century which brought about ample growth in the world trades and industry provided an important stimulus to accounting and record keeping.
The businesses have been on continuous growth and expansion, resulting in increased need for information through proper recording. Before this era, businesses were on small scale and individual proprietors were so personally involved in the business tat the need for information was less required. The industrial revolution was in effect the basis of the modern business enterprises ranging from partnership to joint stock companies. In view of Okpe (1998:1), described business organization as the vehicle for mobilization of funds and human resources”. He further stressed that it involves the principle of stewardship or accountability which marks a step further in the development of accounting and record-keeping.
There is great need for effective and efficient communication network between the enterprises and the interested parties especially for showing how the resources are utilized.
In the opinion of Okpe, (1998:1), he stressed that of the man or an entity just going into business, experience has clearly indicated that an adequate record keeping system helps to increase the chances of survival and reduces probability of early failure. Similarly, for established industrialist, it has been clearly demonstrated that a good record keeping system increases his chances of staying in business and or earning desirable profits.
Record-keeping can help owner managers of small enterprises keeping their business on a sound basis.
THE NATURE AND CHARACTERISTICS OF FINANCIAL SYSTEM OF NON-PROFIT ORGANIZATIONS
The non-profit making organizations are established mainly to render services and not to make profits (Freeman, 1988:14) the objectives of most non profit organizations are to provide as many goods or as much service each year as their financial and other resources permit. They typically operate on a year-to-year basis, raising as much financial resources as possible and expending them in serving their constituency. The non-profit organizations include a wide variety of organizations in the present social and economic environment. They include government units – Federal, State and other educational institutions, hospitals and health care organizations, voluntary association, research organizations, foundation and other social and cultural organizations.
According to Freeman (1988:16), he observed that financial management of a non-profit organization typically focuses on “acquiring and using financial resources upon sources and uses of working capital, budget status and cash flow rather than on net income or earning per share”. There is no profit motive and there is no individual share holders to whom dividends are paid.
In essence, businesses are organized for profit, the church for Christian services. Again businesses may be re-organized, sold or liquidated, churches are difficult to re-organize or liquate and their properties are rarely considered as cash assets. The use of funds is restricted when given by donor for specific purpose. In other words, some assets are restricted for a particular purpose like in a club, the members may be assessed for certain capital improvements such as the construction of a swimming pool, the proceeds from the assessment will be set in a restricted fund to be used only for that particular purpose.
In view of James et al (1976:24) in their handbook titled “The Modern Accountant Handbook” the measurement of the benefits resulting from sacrifices of the non-profit organizations are much ore difficult since the attainment of goals can be measured only in term of “performance” to compare to that of commercial enterprises which can be measured as net income. The commercial organizations do have the responsibilities to report on the stewardship of their resources, the emphasis of their accountability is on the utilization of the resources to earn a profit. But in non-profit organization, the emphasis is placed on accountability and stewardship.
It is important to understand that the standard of reporting for non-profit organizations have developed differently from commercial accounting standards because there is a difference in emphasis in the objectives for recording the date and because of legally binding restrictions in non-profit organizations which have no real counterpart in business enterprises. One of the characteristics of non-profit organization is that those contributing financial resources to the organization do not necessary receive or proportionate share of its goods or services (Freeman, 1988:40).
The non-profit organizational financial reporting should provide the economic resources, obligations and net resources of an organization and the effects of transactions, events and circumstances tha change resources and interests in those resources
(Harry, 1993:16). The performance of an organization during a periodic measurement of the changes in the amount and nature of the net resources of a non-business organizations, and information about its service efforts and accomplishment provided that the information most useful in accessing its performance. How an organization obtains and other factors that may affect an organization’s liquidity should include an explanations and interpretation to help users understand financial information provided.
In relation to James et al (1976), the objective of record keeping and the presentation of data is to make available meaningful financial information. This requires appropriate and adequate disclosure of the information required by the users of financial data. The purpose of preparing and presenting such data are comparable to the purposes of presenting financial statements for commercial profit seeking corporations.
Because of both and special nature of the data required and historical developments specialized accounting principles and reporting practices can and, in a number of instance, do differ materially from the principles and reporting practices of commercial organizations.
The emphasis in a non – profit organization accounting is on “stewardship” rather than on matching cost with revenues. This emphasis arises from the fact that non-profit organizations receive funds for which they must maintain accountability. This takes the form of general accountability and specific accountability. The non-profit organization (school or colleges, church, hospital, community funds etc) are established to carry out special functions and to meet the designed objectives of the organizations. The organizations have the general accountability to use the funds and resources it receives for the established objectives. In some cases, funds are contributed for use in a specific accountability to be certain that the specific requirements on the donor are carried out.
The general characteristics of recording and reporting data for the various types of non-profit organizations are similar; the historical development of accounting principles and procedures has resulted in a variety of record-keeping procedures and forms of presentation of the financial data. Recognizing the need for uniformity in reporting some of the organization groups (e.g. colleges and universities, hospitals, states and local government, churches, voluntary health and welfare organizations) developed manual doe use by their groups.
FINANCIAL DECISION MAKINGS PROCEDURES IN RELIGIOUS ORGANIZATIONS
The financial decision making in religion organizations like Christian religions is being taken by the church officials in charge of finance with the overall conclusion by the pastor or pastor for the particular church. Before any expenses or project is to be executed, the pastor in conjunction with finance council will deliberate on it and decide the amounts that are to be expended. This forms a basis for controlling excessive spending and relating actual income to it expenditure. Most of the churches operate a bank account of which the pastor or the pastor forms the signatory to the account along with the person that handles the cash. Thus financial decision making in religious organizations involves taking risks.
According to Anyafo (1997:25) in his book “God’s People Finance”, decision making is not an easy task, it is even more difficult when it has to do with money. We are talking about financial derivation by risk taking. Financial decision making is made most of the time under conditions of uncertainty. Because of uncertainty of outcome, there is risk. A systematic approach to solving decision problems under conditions of uncertainty is referred to as decision analysis (Anyafo, 2001:8). It seeks to prescribe a decision for the individual that is consistent with his or her preferences and attitude towards risks.
Real life decision problems; financial or otherwise involves the selections of a course of actions from among two or more alternatives. This can be classified into two or more categories:
- Decision-making under uncertainty: This entails the selections of a course of actions when we do not know the certainty the results that each alternative action will yield. However, it is assumed that the outcome of whatever course of action we selected is affected only by chance and not by an opponent or competitor.
- Decision-making under conflict: This is similar to decision making under uncertainty in that we do not know with certainty the result each available alternative course of action will yield. However, the reason for this uncertainty is different in the case of decision making under conflict. In such cases, we are in effect confronted by one or more opponents or competitors. The outcome of our chosen course of action depends on decisions made by our opponents. Decision problems of this type fall under the discipline known as game theory.
Because Satan is an opponent, the Christian is confronted most of the time with decision making under conflict. Nevertheless, the bible assures that you are of God, little children, and have overcome them; because greater is He that is in you than he that is in the world (1 John 4:4). The Christian is well equipped to take risk because greater is Jesus Christ that is in Him than Satan that is in the world. Making money involves risk-taking of some degree. Every child or God has the privilege of transferring these risks to Jesus Christ who stretches out His hands to take over the risks with the words come unto me, all ye that labour and are heavy laden, I will give you rest (Matthew 11:28).
However, the financial decision making in Catholic Church is being taken by the District Finance Councils of the district with the district pastor as the chairman. The District council decides the financial strength of the district by consulting the Finance Committee and discusses all financial prospects of each organization or society that make up the district and act accordingly. Thus, the District Council calls for tenders, selects and approves one and authorizes treasurer and district pastor to pay on completions of the project. The district finance council discusses relevant issues concerning the church with the district pastor and decides how the matter will be solved financially. In other words, the district pastor does not have sole authority to the church’s funds but takes directives or works along with the district council on issues concerning finance. Because of the vital importance of the financial decisions to the church. It is essential to set up a sound and effective organization for the finance functions.
FINANCIAL CONTROL: INTERNAL AND EXTERNAL
The establishment of church is mainly channeled towards bringing souls to God and not for profit making (Olademej, 1985:35). Though the fund for managing its affairs has to be controlled, there is the necessity for an effective approach to the exercise of appropriates and effective controls over the finance of the church. Control is a management activity of comparing actual output or performance with pre-determined or planned situation and analyzing any differences for purpose of managerial corrective actions and co-ordination. Such controls are of two types viz.: internal controls and external controls. Internal control must be such that it will establish the credibility and project the image of the church as semi-autonomous
organization able to plain their financial programmes and collect and disburse their monies in a controlled and systematic manner designed to achieve their objectives without waste or loss and at a minimum cost. Millichamp (1986:42), internal control system is defined as the whole system of controls, financial and otherwise established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the record. The individual components of an internal control system are known as “control”.
More so, a good system of supervision and control over church fund is necessary in order to be able to prevent fraud and detect errors as soon as possible. They advocated for the appointment of church auditors both internal and external. The duties of the accountants will not stop with the preparation and submission of income and expenditure accounts but also must find the best way to present and communicate to members the financial statement of the church at various levels of expenditures and to the appropriate bodies.
It is however, pointed out that managers should see that money is being expended in a systematic way and should make sure that church items are not consumed too fast. Thus, for financial control purpose, the manager or whoever is in control of church’s fund should try to control cost by eliminating unnecessary spending and making sure that money donated by people are judiciously utilized for the purpose it was received.
In essence, the existence or effective internal and external control of this nature should be of considerable importance to the progressive development of sound financial management. The most important to the internal financial control fund in catholic churches are the preparation of annual and supplementary estimate of income and expenditure and the operation of a system designed to ensure that actual expenditure does not exceed the approved estimates. Also, that of revenue reaching the budgeting figure so that the finance of the church will be well managed.
Each individual district in the diocese sends their yearly budgets to the diocese. In the district level, there is internal control where the financial secretary collects, records and deposits money into the bank account of the district. The district pastor and treasurer or one other person are the authorized signatories to the account. Also another form of internal control is the appointment of financial committee who have special responsibilities for the maintenance of effective system of financial control.
In terms of external control, the diocese controls over the finances of the districtes. Each district pastor is expected to present an annual budget of his district to diocese, and also expected to render an annual or semi-annual account of all income and expenditures of the district. The districtes should be encouraged to stand on their own feet and prove that they have demonstrated a sound understanding of their financial responsibilities and of public accountability.
FINANCIAL REPORTING AND ACCOUNTING RECORDS IN NON-PROFIT ORGANIZATIONS
In “Government and Non – profit Accounting Theory and Practice by Freeman Craig and Lynn (1988:50) the authors stipulated that the financial reporting of non profit organization each included religious organization (church) emphasized that such reporting should provide the following information:
– The economic resources, obligations and net resources of an organization and the effects of transactions, events and circumstances that change resources and interest in those resources.
– The performance of an organization during a periodic measurement of the changes in amount and nature of the net resources of a non-business organization and information must be useful in assessing its performances.
– How an organization obtains and spends cash or either liquid resources, its borrowing and repayment of debt and others factors that may affect an organization’s liquidity should include explanations and interpretation to help user understand financial information provided.
According to encyclopedia of accounting system volume 1, a simplified treasurer’s financial report is prepared at the close of each month to provide each member of the board of trustee with monthly information on the cash transactions of the various funs. Certain trustees may feel that knowledge of the amounts received during the month, the disbursement made during the months, and the balance on hand at the end of the month is sufficient. A balanced sheet is prepared at the close of each month to provide on comparative basis monthly information on the assets, liabilities and fund balances so that the current financial standing of the entire church organization may be determined.
More so the accounting system of a religious organization (church) involves financial activities that are performed by the treasurer, the financial secretary and other committees. The treasurer keeps or oversees the keeping of the financial records, but is not usually burdened with details, especially the counting of collections opening of pledge envelopes and the like. He prepares or has prepared the quarterly statements on pledges and also monthly reports of receipts, expenditures and assets and liabilities to the board of trustees and he also signs cheques. The financial secretary on the other hand usually handles all accounting and book keeping matters fund in non profit organization accounting is a self contained accounting entity with its own assets, liabilities, revenue, expenditure or expense and fund balance or other equity accounts and within its own ledger.
A church as a religious organization is established mainly to win souls to Christ and not for profit making. Therefore, a church is not supposed to have profit and loss account but an income and expenditure account with a balance sheet. This then means that the system of accounting that is involved is a receipt and a payment account. In addition, all those engaged in the finance of the church – the church stewards, the treasurers, the book keepers, and ministers should be guided how to keep accounts of funds raised by the church and how to manage them. For good accounting process, the book keeping of church funds will not be complete without the cash book, the ledger, the journals, analysis book, petty cash book or imprest books. At the end of the period, the treasurer or whoever is in charge with the book keeping will prepare an income and expenditure account.
In a religious organization (church) the financial reporting in Catholic church is done in district level and also in diocesan level where the financial secretary reports all financial mattes to the District Pastor who in turn reports to the Bishop at the diocesan levels. The District pastor relays and reports all financial records of the district to the bishop. The accounting is the guide post for managements. Every religious organization should know the financial implications of its operations. The financial scope is kept by the accounting system, it points on the problems faced or likely to be faced. The accounting system identifies and gathers data. In every district there is district council account that is all monies belonging to the district house account like offertory collections, stole fees, stipends and other sources.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
In this chapter, we would describe how the study was carried out.
Research design
The study employs quantitative descriptive research design to examine the impact of accounting information on a non-profit making organization
Sources of Data
The data for this study were generated from two main sources; Primary sources and secondary sources. The primary sources include questionnaire, interviews and observation. The secondary sources include journals, bulletins, textbooks and the internet.
Population and sample size
The population for this research work was based on the district as a whole. The sample size was based on selected parishes. The researcher distributed 63 questionnaires of which 50 respondents were gotten or received and 13 were returned back unattended. Equally, oral interview which serves as a follow up to the questionnaire were asked and defined by the researcher to the appropriate respondents.
However, the total number of branches is 75.
Thus the formula for determining the sample size using Yaro’s
Yamen’s formula:
n = N
1 + N(e)2
Where:
n = sample size
N = Population size
e = proportion of sampling error put at 0.05 level of
significance
1 = Constant
n = ? N = 75 e = 0.05
Note: The choice of 0.05 level of significance (i.e. 95% confidence limit) is purely an executive decision of the researcher.
Substituting the above values into the formula, we have: 75
1+ 75 (0.05)2
75
1.1875 = 63
n = 63
CHAPTER FOUR
ANALYSIS OF RESEARCH RESULTS
PRESENTATION AND ANALYSIS OF DATA
Having collected the necessary data, the researcher has adopted a systemic approach to analyze the data. Some of the questions in the questionnaires distributed were examined to evaluate the frequency of responses and what they reveal concerning the financial record keeping of non-profit organization.
The answers to the research questions were analyzed using simple percentages. The calculations of the percentages were done based on 50 successfully completed questionnaires.
Those who had the same opinion to each type of question asked wee placed over the total number of respondents and thus multiplied by hundred.
Thus, we have,
Percentage Response:
Frequency of each type of opinion X 100
Total of Respondents 1
CHAPTER FIVE
SUMMARY, RECOMMENDATIONS AND CONCLUSION
This chapter presents a resume of the findings conclusion arrived at by the researcher and some recommendations regarding the form of financial record-keeping the church should employ where appropriate, so as to meet up to its financial needs.
SUMMARY OF MAJOR FINDINGS
Having analyzed the questionnaires, some of the major findings on the research work are:-
5.1.1 The study revealed that districtes make returns to the diocese yearly, semi-annually and also on quarterly basis so as to ensure that proper accounts are kept and returns are made when appropriate.
5.1.2 The study showed that the church keeps its money in eth bank and otherwise operates bank accounts. It does not leave it money with the priest. Only the money collected from the offertory is used for the welfare of the priest.
5.1.3 As the church keeps it money in the bank, it was observed that only three people form the signatories to the account; comprising the district priest, treasurer and any other person that may be authorized by the council. The priest does not form only the signatory as well as its assistant, this will ensure that the members of the District Finance Council is made aware when any money is to be deposited or withdrawn from the church’s bank account.
5.1.4 The study revealed that only the District Finance Council which the district priest is the chairman authorizes the expenditure to be made by the church, he works in conjunction with the District Finance Council to ensure that the money available are utilized in the appropriate ways.
5.1.5 In order to ensure a good financial management, it was observed that the church adopts budgetary system so, as to curtail its expenditures. Also in line with the budgetary system, the District Finance Council discusses any expenditure to be incurred and approves the budget.
5.1.6 The accountability of the church’s fund is important and the members of the church are always notified on any amount realized for its growth. This is done either by oral announcement by a member of the District Finance Council or by preparing a statement of account. In short, the two of them work together.
5.1.7 The study revealed that only the District Finance Council maintains proper books of account of the church and also are in custody of them.
5.1.8 It was revealed that the accounting systems in operation by the church are income and expenditure, receipt, payments and balance sheet. These form the basis for financial statement analysis. There is no profit and loss account for the church because it is not profit-oriented.
5.1.9 The study revealed that the Church prepares budget which can be made quarterly, semi-annually and yearly. This is used to curtail incurring expenses higher than the actual money at hand. Indeed, the church operates a surplus budget where revenue is always greater than the expenditure.
RECOMMENDATIONS
Having highlighted some of the major findings it would be appropriate and logical to tender the following recommendations for achieving effective financial record keeping.
- There should be an in-built and automatic feedback network embedded in the system-both financial and administration. This will make for quick responses to current issues requiring management attention.
- The church should consider computerizing its affairs and documents since it is large in size and controls many parishes.
- The line of authority for expenditure should be explicitly defined and strictly adhered to. Funds should as much as possible be applied to what they are meant for, to ensure the growth of the church.
- The issue of internal control system should be properly addressed.
- There should also be a management supervision and review of expenses.
- Also chartered accountants and accountants who are experts in the areas of accounting and management of finance should help to the system the more.
CONCLUSION
The inefficient financial management hampers the performance and threatens the existence of any organization be it business or religious organizations, that is why the study of this is very important and constitutes one of the major reasons the researcher wants to know if such exists in religious organization.
A lot of muddling up is seen in some churches (and of course in every non-business organization). Personal interests tend to over-ride the parish management of the church. Indeed, the church just as any other non-business organization is regarded to be very poor; everything associated with it is equally poor. But when you take a critical look at the make up of the church funds, you will believer that it has various sources of funds, the problem being the cost it incurs and control of such funds.
Nevertheless, the system of operation, that is the financial record-keeping of the Church is said to be good, after going through the analysis and system of their operation. The church is a well organized body and takes authority based on their hierarchy. The man at the apex of the churches, the Pope gives orders and directives on how the churches are to be run financially and otherwise. The other leaders of the church like the Bishops and priest work along with the law guiding the church and administer its affair in truth and in faith.
However, the church being a large organization should adopt a computerized system of account and where such exists should be properly maintained. On the issue of auditing the account, the charted accountants and the accountants who are experts in these areas should be properly maintained. On the issue of auditing the account, the charted accountants and the accountants who are experts in these should help to guide the system.
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