Operations of Voluntary Health and Welfare Organizations

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I. Definition and description of nature and operations of VHWO’s and the different funds used by them. * VHWOs
a.) It encompasses a diverse group of not-for-profit entities that are supported by and provide voluntary services to the public. Examples include charities such as March of Dimes or the American Cancer Society, Girl Scouts, Boy Scouts. VHWOs follow FASB (Financial Accounting Standards Board) standards, and the 2007 AICPA Audit and Accounting Guide: for Not-for-profit Organizations provides additional guidance for accounting and reporting for all nongovernmental voluntary health and welfare organizations. * Distinguishing Features of VHWOs:

b.) Purpose– to meet a community health, welfare, or other social service need. c.) Voluntary nature– no fee is charged, or only a very small fee in proportion to the service provided is charged. d.) Relationship to resource providers– not the primary recipients of services or benefits. * Provide a variety of social services:

* They solicit funds from the community at large.
* VHWOs are typically audited.
* The federal government normally provides them tax-exempt status. * Different funds used:
a.) Unrestricted Funds
* Are used in administering current assets whose uses are the discretion of their boards of director. b.) Restricted Funds
* Are used in administering current assets whose uses are subject to donor or grantor restrictions. c.) The Land, Building, and Equipment funds
* Are used in accounting \for their fixed assets, liabilities incurred in acquiring these assets, and current assets restricted by donors or grantors for fixed asset acquisitions or replacements. d.) Endowment Funds

* Are used in accounting for endowment that must be kept intact indefinitely of until some contingent event occurs.

e.) Custodian Funds
* Encompass assets which can be used only in accordance with the instructions of the individuals or groups making the assets available. * Accounting for VHWOs:
* There are Special Financial Statements that report on the important aspects of VHWOs. * The accrual basis of accounting is required.
* VHWOs have been free to use fund accounting in their accounting and reporting processes. * Classes of Net Assets
* Unrestricted Net Assets
* Temporarily Restricted Net Assets
* Permanently Restricted Net Assets
* Contributions
* Significant source of revenue for most NPOs
* An unconditional transfer of cash or other assets to an entity or a settlement or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as owner * Key Features of Contributions

a. Unconditional
b. Nonreciprocal
c. Voluntary
d. Not an ownership investment
* Recognizing Contribution Revenue
* In period received or unconditionally promised
* Must analyze grants, memberships dues, & sponsorships - Part may be contributions
- Part may be exchange transaction
* Reported in appropriate net asset category
* Financial statements for a VHWO:
* Statement of financial position - No specific format required; Fund reporting not prohibited; Aggregated totals for assets, liabilities, and net assets is required, as is reporting the three classes of net assets; Some accounts do have specific requirements. * Pledges from donors

* Investments
* Land, buildings, and equipment
* Liabilities
* Net assets

* Statement of activities
* Public support - the primary source of funds is likely to be contributions from individuals or organizations that do not derive any direct benefit from the VHWO for their gifts. * Revenues - Funds received in exchange for services...
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