The Shelter Association of Gogebic County gets the majority of its funding from the local chapter of the United Way. That federated fund-raising organization has this policy:
If a member agency reports unrestricted net assets in overload of one year's budgeted revenues and support, the excess may be deducted from its allocation for next year. The association's reporting year ends 31st December, and unrestricted net assets are just about same to last year's revenues and support.
On 30th December, Bill Olson contacts the Shelter Association about making a large contribution. It is important to Bill to make the gift in the present calendar year so that he will deduct the charitable contribution on his personal federal income tax return. Thus, Bill has heard that the treasurer of the association and various board members currently resigned after allegations of financial misstatements were made. He is considering restricting his gift for the direct purposes of acquiring food, supplies and clothing for the homeless over the next numerous years so that management could use none of the money for overhead expenses.
Required:
a). Do you recommend that the organization advise Mr. Olsen to make the gift unrestricted or restricted? Give your reasons.
b). Mr. Olsen asks you how he can be sure that the organization spends his contribution as he intends, consider that he restricts the purpose of his gift, as well as efficiently and effectively. Illustrate to Mr. Olsen what type of public information is available to him. Do you consider that information adequate to assess whether the not-for-profit agency was effective and efficient in its use of public donations?