, Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations1,
8e
INTRODUCTION
Chapter 1 TO
FINANCIAL
MANAGEMENT
Questions for Discussion
1-1. Financial management is the subset of management that focuses on generating financial information that can
improve decisions. The decisions are oriented toward achieving the various goals of the organization while
maintaining a satisfactory financial situation. Financial management encompasses the broad areas of
accounting and finance.
1-2. In proprietary, or for-profit, organizations, an underlying goal is to maximize the wealth of the owners of
the organization.
1-3. In public service organizations, decisions are oriented toward achieving the various goals of the
organization while maintaining a satisfactory financial situation.
1-4. Accounting is a system for keeping track of the financial status of an organization and the financial results of
its activities. It has often been referred to as the language of business. The vocabulary used by
accounting is the language of nonbusiness organizations as well.
1-5. Accounting is subdivided into two major areas: managerial accounting and financial accounting. Managerial
accounting relates to generating any financial information that managers can use to improve the future
results of the organization. This includes techniques designed to generate any financial data that might help
managers make more effective decisions. Major aspects of managerial accounting relate to making financial
plans for the organization, implementing those plans, and then working to ensure that the plans are
achieved. Some examples of managerial accounting include preparing annual operating budgets,
generating information for use in making major investment decisions, and providing the data needed to
decide whether to buy or lease a major piece of equipment. Financial accounting provides retrospective
information. As events that have financial implications occur they are recorded by the financial accounting
system. From time to time (usually monthly, quarterly, or annually), the recorded data are summarized and
reported to interested users. The users include both internal managers and people outside the
organization. Those outsiders include those who have lent or might lend money to the organization
(creditors), those who might sell things to the organization (called suppliers or vendors), and other
interested parties. These interested parties may include those with a particular interest in public service
organizations, such as regulators, legislators, and citizens. Financial reports provide information on the
financial status of the organization at a specific point in time, as well as reporting the past results of the
organization‘s operations (i.e., how well it has done from a financial viewpoint).
,Chapter 3: Additional Budgeting Concepts 3-2
1-6. Finance focuses on the alternative sources and uses of the organization‘s financial resources. Obtaining
funds when needed from appropriate sources and the deployment of resources within the organization fall
under this heading. In addition, finance involves the financial markets (such as stock and bond markets)
that provide a means to generating funds for organizations.
1-7. Yes. Achieving the goals of the organization requires financial planning. Financial management provides
information for managers to use in making their decisions. It helps managers by providing information on
the likely financial impact of each proposed alternative. It also provides information about financial stability,
efficiency, and effectiveness.
1-8. Clearly, we might expect some public service organizations that are proprietary, such as some hospitals,
to earn profits. But what about other public service organizations such as charities? They should make a
profit as well. Profits provide a safety margin against unexpected costs, provide resources to replace
buildings and equipment, and to expand and improve services.
1-9. Federal government (see text Figure 1-1)
Individual income taxes
Social insurance taxes
Corporate income tax
State and local government (see text Figure 1-4)
Sales and gross receipts tax
Federal government
Property taxes
Individual income taxes
Health sector (see text Figure 1-6)
Private insurance
Medicare
Medicaid
Other government programs
Not-for-profit sector (see text)
Private payments for goods and services
Government payments for goods and services
Donations
1-10. Federal government spending exceeded $6 trillion in 2020 and state and local government spending was more
than $3 trillion in 2018. In contrast, the GDP was $21 trillion in 2020. For more up to date information,
examine the statistical tables of the most recent Economic Report of the President, which is available online.
1-11. The reported surplus includes both on and off budget items. Social security taxes represent an off budget
item that until recently raised more revenue than was spent on social security payments.
, Finkler, Financial Management for Public, Health, and Not-for-Profit Organizations 7e
© CQ Press, 2023
The surplus in this area offset other government losses, and even resulted in an overall surplus for the
federal government. This is no longer the case, and, over time, trust fund resources will be used up to provide
benefits. As the federal government will not have access to the excess resources from social security, it will
have to borrow and increase the total level of federal debt, unless revenues or spending are changed.
1-12. Sometimes gifts come with strings attached. If the conditions of the gift create a burden that the
organization does not want to accept, or somehow requires the organization to work in opposition to its
mission, it might turn down the gift.
1-13. The World Bank has defined NGOs as "private organizations that pursue activities to relieve suffering,
promote the interests of the poor, protect the environment, provide basic social services, or undertake
community development" (World Bank Operational Directive 14.70). NGOs are quite similar to the not-for-
profit organizations. They are primarily mission-focused rather than profit- focused. NGOs fall into three
main categories: community-based, national, and international.
PLANNING
Chapter 2 FOR
SUCCESS:
BUDGETING
Questions for Discussion
2-1. Planning helps the organization by causing its employees to think ahead and anticipate change. This is
done by establishing specific goals and objectives, communicating those objectives to the individuals who
must achieve them, forecasting future events, developing alternatives, selecting from among alternatives,
and coordinating activities. The activities are summarized in a document called a budget. The budget
describes what we hope to achieve and the resources that will be used to carry out the organization‘s
activities.
2-2. The organization‘s mission represents its reason for existence. For public, health, and not-for- profit
organizations, finances often become a means to an end, rather than the end itself. This mission
cannot solely be making profits. Financial management must help balance the focus on profit with the
public service elements of the organization‘s mission.
2-3. Strategic plans translate the mission of the organization into an approach or set of approaches that will be
used to accomplish the mission, and a broad set of goals that need to be attained to achieve the
mission. Strategic plans set the organization‘s long-term direction. They often do not
8e
INTRODUCTION
Chapter 1 TO
FINANCIAL
MANAGEMENT
Questions for Discussion
1-1. Financial management is the subset of management that focuses on generating financial information that can
improve decisions. The decisions are oriented toward achieving the various goals of the organization while
maintaining a satisfactory financial situation. Financial management encompasses the broad areas of
accounting and finance.
1-2. In proprietary, or for-profit, organizations, an underlying goal is to maximize the wealth of the owners of
the organization.
1-3. In public service organizations, decisions are oriented toward achieving the various goals of the
organization while maintaining a satisfactory financial situation.
1-4. Accounting is a system for keeping track of the financial status of an organization and the financial results of
its activities. It has often been referred to as the language of business. The vocabulary used by
accounting is the language of nonbusiness organizations as well.
1-5. Accounting is subdivided into two major areas: managerial accounting and financial accounting. Managerial
accounting relates to generating any financial information that managers can use to improve the future
results of the organization. This includes techniques designed to generate any financial data that might help
managers make more effective decisions. Major aspects of managerial accounting relate to making financial
plans for the organization, implementing those plans, and then working to ensure that the plans are
achieved. Some examples of managerial accounting include preparing annual operating budgets,
generating information for use in making major investment decisions, and providing the data needed to
decide whether to buy or lease a major piece of equipment. Financial accounting provides retrospective
information. As events that have financial implications occur they are recorded by the financial accounting
system. From time to time (usually monthly, quarterly, or annually), the recorded data are summarized and
reported to interested users. The users include both internal managers and people outside the
organization. Those outsiders include those who have lent or might lend money to the organization
(creditors), those who might sell things to the organization (called suppliers or vendors), and other
interested parties. These interested parties may include those with a particular interest in public service
organizations, such as regulators, legislators, and citizens. Financial reports provide information on the
financial status of the organization at a specific point in time, as well as reporting the past results of the
organization‘s operations (i.e., how well it has done from a financial viewpoint).
,Chapter 3: Additional Budgeting Concepts 3-2
1-6. Finance focuses on the alternative sources and uses of the organization‘s financial resources. Obtaining
funds when needed from appropriate sources and the deployment of resources within the organization fall
under this heading. In addition, finance involves the financial markets (such as stock and bond markets)
that provide a means to generating funds for organizations.
1-7. Yes. Achieving the goals of the organization requires financial planning. Financial management provides
information for managers to use in making their decisions. It helps managers by providing information on
the likely financial impact of each proposed alternative. It also provides information about financial stability,
efficiency, and effectiveness.
1-8. Clearly, we might expect some public service organizations that are proprietary, such as some hospitals,
to earn profits. But what about other public service organizations such as charities? They should make a
profit as well. Profits provide a safety margin against unexpected costs, provide resources to replace
buildings and equipment, and to expand and improve services.
1-9. Federal government (see text Figure 1-1)
Individual income taxes
Social insurance taxes
Corporate income tax
State and local government (see text Figure 1-4)
Sales and gross receipts tax
Federal government
Property taxes
Individual income taxes
Health sector (see text Figure 1-6)
Private insurance
Medicare
Medicaid
Other government programs
Not-for-profit sector (see text)
Private payments for goods and services
Government payments for goods and services
Donations
1-10. Federal government spending exceeded $6 trillion in 2020 and state and local government spending was more
than $3 trillion in 2018. In contrast, the GDP was $21 trillion in 2020. For more up to date information,
examine the statistical tables of the most recent Economic Report of the President, which is available online.
1-11. The reported surplus includes both on and off budget items. Social security taxes represent an off budget
item that until recently raised more revenue than was spent on social security payments.
, Finkler, Financial Management for Public, Health, and Not-for-Profit Organizations 7e
© CQ Press, 2023
The surplus in this area offset other government losses, and even resulted in an overall surplus for the
federal government. This is no longer the case, and, over time, trust fund resources will be used up to provide
benefits. As the federal government will not have access to the excess resources from social security, it will
have to borrow and increase the total level of federal debt, unless revenues or spending are changed.
1-12. Sometimes gifts come with strings attached. If the conditions of the gift create a burden that the
organization does not want to accept, or somehow requires the organization to work in opposition to its
mission, it might turn down the gift.
1-13. The World Bank has defined NGOs as "private organizations that pursue activities to relieve suffering,
promote the interests of the poor, protect the environment, provide basic social services, or undertake
community development" (World Bank Operational Directive 14.70). NGOs are quite similar to the not-for-
profit organizations. They are primarily mission-focused rather than profit- focused. NGOs fall into three
main categories: community-based, national, and international.
PLANNING
Chapter 2 FOR
SUCCESS:
BUDGETING
Questions for Discussion
2-1. Planning helps the organization by causing its employees to think ahead and anticipate change. This is
done by establishing specific goals and objectives, communicating those objectives to the individuals who
must achieve them, forecasting future events, developing alternatives, selecting from among alternatives,
and coordinating activities. The activities are summarized in a document called a budget. The budget
describes what we hope to achieve and the resources that will be used to carry out the organization‘s
activities.
2-2. The organization‘s mission represents its reason for existence. For public, health, and not-for- profit
organizations, finances often become a means to an end, rather than the end itself. This mission
cannot solely be making profits. Financial management must help balance the focus on profit with the
public service elements of the organization‘s mission.
2-3. Strategic plans translate the mission of the organization into an approach or set of approaches that will be
used to accomplish the mission, and a broad set of goals that need to be attained to achieve the
mission. Strategic plans set the organization‘s long-term direction. They often do not
