The case is based on the actual events for a nonprofit organization. Students are required to analyze the information given in the case to determine what information is relevant for analyzing variances, determine the reason for variances, and provide suggestions to avoid further losses. In addition, the case simulates a real-world situation where all relevant information is not available or not in a format that allows for detailed analysis.
Sometimes Accountants Fail to Budget
SM9115 Advanced Finance and Budgeting resit project
Abstract
The case is based on the actual events for a nonprofit organization. Students are required to analyze
the information given in the case to determine what information is relevant for analyzing variances,
determine the reason for variances, and provide suggestions to avoid further losses. In addition, the
case simulates a real-world situation where all relevant information is not available or not in a format
that allows for detailed analysis.
Case
Budgeting is important in all organizations, but it is especially in nonprofit organizations where revenue sources
are often inconsistent from year to year. Nonprofit leadership has a fiscal responsibility to monitor the
variances between actual revenues and cost and make operating decisions to ensure the organization’s
viability and success.
Introduction
In August 2003, the Steering Committee of the American Accounting Association Midwest Region (AAA-MW)
discovered that its 2003 annual meeting had a net loss of $24,232, leaving a net account balance at less than
$50,000. This was on top of a loss of $13,264 the previous year. Concerned about a possible trend, the board
created a treasurer position and asked the treasurer to investigate these losses.
The Organization
The steering committee is an entirely volunteer board whose task is to organize and run an annual conference
targeting members of the American Accounting Association who reside in the states of Illinois, Indiana, Iowa,
Kansas, Michigan, Minnesota, Missouri, North Dakota, South Dakota, Nebraska, and Wisconsin. The American Accounting Association (AAA) is a not-for-profit organization whose members are primarily accounting
academics. The organization “promotes worldwide excellence in accounting education, research and practice. Founded in 1916 as the American Association of University Instructors in Accounting, its present name
was adopted in 1936. The Association brings together the academic community to further accounting eduPage 2 of 6
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cation and to advance the discipline and profession of accounting.” (American Accounting Association Our
Shared Vision: http:llaaahq.org/aboutlAAAShareVisionDocumentJan08fnl_4_.pdf, 2008, p 6)
The steering committee meets twice a year; every spring at the annual AAA-MW Region meeting and in August at the national meeting of the American Accounting Association. The typical process for organizing the
AAA-MW annual meeting was as follows:
1. Eighteen months prior to the meeting (usually at the August AAA national meeting), the steering
committee determines in which city within the Midwest region to hold the meeting and submits a
meeting site search request to the AAA national office.
2. The program chair for the meeting is a volunteer of the steering committee and is a different (and
new) person each year.
3. The event coordinator (a third party hired by the AAA national office) contacts hotels in the chosen
city and provides the AAA-MW steering committee with a list of hotels, room rates, and parking
rates.
4. At the spring AAA-MW regional meeting, one year prior to the next meeting, the steering committee
chooses a hotel based on its location in the city and room rates offered.
5. The event coordinator negotiates the final contract, it is signed by the AAA executive director, and a
copy is kept in the AAA headquarter files.
6. The new AAA-MW regional meeting program chair is then responsible for organizing the meeting.
There was little in the way of a formal process, so each program chair would determine how he/she wanted
to run the meeting. There was a tradition of charging a registration fee that covered food, audiovisual needs,
and meeting rooms. The program chair, working with a few other volunteers, would organize the call for papers, review of papers, program speakers, receptions, and communication with members within the region.
Typically, the meeting had multiple continuing professional education (CPE) sessions, offered breakfast on
Friday and Saturday, lunch on Friday, snack breaks on Friday and Saturday morning and Friday afternoon,
and evening receptions on both Thursday and Friday. All of this planning was a significant amount of effort
and generally consumed the program chair’s attention. All cash inflows and outflows were handled by the AAA
staff members.
They collected registration fees, paid the hotel bills, etc., charging or crediting the region’s accounts. The AAAMW steering committee president would receive periodic account activity reports. Prior to 2002, the AAA-MW
meetings had generally resulted in an increase in cash flow and the steering committee had little need to worry
about finances.
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Background
At the August 2002 meeting of the AAA-MW steering committee, the committee learned that the spring 2002
regional meeting showed a loss of $14,389.13. The comparison of 2001 and 2002 is shown in Exhibit 1.
The 2002 AAA-MW regional meeting had been held in Milwaukee in March and the attendance at that meeting was 170. This was a 30.6 percent drop from the previous year’s meeting held in St. Louis, and one of the
few times in the region’s recent history that the meeting attendance was below 200 attendees. The committee
believed the main reason for the low attendance was reluctance to fly (travel) so soon after the after the 9/11
terrorist attack. In addition, the committee believed the location (Milwaukee, Wisconsin) in early spring was
difficult to travel to and may not have been appealing. Therefore, the committee was satisfied that the net cash
outflow for the 2002 meeting was an anomaly and there was no need for more investigation. As such, the
committee proceeded to discuss the plans for the 2003 AAA-MW annual meeting, which was to be held the
following spring at the Millennium Hotel in St. Louis. The Midwest region had the policy of holding the annual
meeting in St. Louis every other year and, because of the central location and more favorable spring weather,
the St. Louis meetings had always been well attended. For that reason, the committee was not con-cerned
that the 2003 meeting might result in a loss.
The March 2003, AAA-MW meeting was held and followed the typical two-and-a-half-day format, with participants attending a number of CPE sessions and other activities included in their registration fee. The schedule
of events for the 2003 AAA-MW annual meeting is shown in Exhibit 2.
Immediately after the meeting, during the Saturday steering committee luncheon meeting, the new AAA-MW
president (the 2003 program chair) presided over the meeting. As normal, the event coordinator attended and
reported the final attendance numbers. The attendance was 185, which was higher than the previous year’s
attendance of 170, but still lower than the 200 or more expected. The steering committee, not yet having any
financial figures from the meeting, did not consider that the low attendance might result in a loss. Therefore,
the remainder of the meeting was spent discussing the plans for the 2004 meeting in Kansas City and the plan
for the 2005 meeting, which would be back in St. Louis.
The steering committee met again in August 2003 at the AAA national meeting and received from AAA headquarters’ staff the financial information about the March 2003 meeting. (See Exhibit 3.) The committee was
shocked to find that the spring meeting had resulted in a loss that was almost twice the loss incurred in 2002.
If this pattern continued, the Midwest region would be bankrupt within a couple of years. Concerned, the comPage 4 of 6
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mittee decided to appoint a treasurer. The official duties of the treasurer would be to receive monthly financial
reports of the AAA-MW from the AAA and report on the AAA-MW region’s financial situation at steering committee meetings and the annual meeting. First, however, the treasurer would need to investigate the 2003
loss.
Required
1. Analyze the information and prepare a report for the steering committee explaining the losses.
10-8.5
8.49-8
7.9-7
of changes the
Clearly explains
Clearly explains
cash
flow
Causes
of
Causes
of
situation
with
changes
the
changes
the
reference
to
cash
flow
cash
flow
Incomes, costs.
situation
with
situation
with
Planning
and
reference
to
reference
to
changes
in
Incomes,
costs
Incomes
and
operations
and
Clearly
6.9-6
5.9-1
and
explicitly
explains Causes
its
impact
costs
of
Failure
and Planning.
costs.
to
Explains Causes
adequately
of changes the
explain
cash
flow
of changes the
situation
with
cash
flow
reference
to
situation
with
Incomes
and
reference
to
Incomes
and
costs.
Causes
costs.
or
revenues.
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SM9115 Advanced Finance and Budgeting resit project
2. Provide suggestions to the steering committee on how to avoid future meeting losses.
10-8.5
Identify
8.49-8
7.9-7
6.9-6
5.9-1
options
available
Identify
Including
available
increasing
reducing
the
significant
and
costs.
Improved
Including
revenues
reducing
the
significant
and
costs.
Improved
through
and
product
options
available
increasing
lesser
management
negotiation
Identify
Including
revenues
lesser
options
management
increasing
revenues
reducing
the
costs. Improved
management.
Failure to Identify
Identify
options
options available
available
Including
Including
increasing
increasing
revenues
revenues
reducing
reducing
costs.
the
the
costs, or identify
ways to Improve
management.
action.
development.
About IMA®
IMA, the association of accountants and financial professionals in business, is one of the largest and most
respected associations focused exclusively on advancing the management accounting profession. Globally,
IMA supports the profession through research, the CMA® (Certified Management Accountant) program, continuing education, networking, and advocacy of the highest ethical business practices. IMA has a global network of more than 80,000 members in 140 countries and 300 professional and student chapters. Headquartered in Montvale, N.J., USA, IMA provides localized services through its four global regions: The Americas,
Asia/Pacific, Europe, and Middle East/Africa.
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