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Instructor’s Manual for Financial Management for Public,
Health, and Not-for-Profit Organizations1 A+
Chapter 1: INTRODUCTION 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
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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).
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
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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.
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,
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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.
Chapter 2: PLANNING 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.
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Instructor’s Manual for Financial Management for Public,
Health, and Not-for-Profit Organizations1 A+
Chapter 1: INTRODUCTION 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
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,Created By: A Solution
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).
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
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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.
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,
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, Created By: A Solution
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.
Chapter 2: PLANNING 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.
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