Nonprofit and Government Accounting. Nature Conservancy and Government

Non-Profit and Government Accounting
Introduction
In this write-up, the financial statements of two organizations- The Nature Conservancy and the State of Illinois are analyzed using their annual reports for the year ended on June 30th, 2018.
Takeaways from the annual report of The Nature Conservancy
Five key financial takeaways from the annual report (The Nature Conservancy, 2018) are discussed below:
The first key takeaway is related to revenues and support sources for the organization- contributions contributed goods and services, land and easements contributed to conservation, and government grants and contracts. Of the above, the most significant source is the dues and contribution, which accounts for 61.7% of the total revenue in 2018. Whilst the overall revenue and support grew by 12.5% from 2017 to 2018, the dues and contribution increased by 26% which is a positive sign for the organization. The difference in the growth can be explained by analyzing the other sources of revenue: Whilst the government grants and contracts increased marginally, the revenue from other sourced decreased.
The second key takeaway is related to the expenses: From 2017 to 2018, the expenses as a percentage of revenue decreased from 73.24% to 70.7% which is a good sign. However, there is a need to understand the expenses in a detailed manner: The most significant expense is the program expense which increased from 66.48% in 2017 to 68.29% in 2018, as a percentage of total expenses. However, as per benchmarking practices, it must be above 75% for the program to be considered efficient. Thus, the organization must focus on increasing the contribution of program expenses. Another related aspect is fundraising efficiency which is calculated by fundraising expense/contribution revenue: The fundraising efficiency was 0.199 in 2017 which reduced to 0.158 in 2018, which is a good sign as it shows that organize was able to raise funds cheaply in 2018. However, it must be improved further to bring it to the acceptable benchmark range of 0.10 to 0.15.
The third key takeaway is related to the liquidity of the organization. The most common method is to look at the current ratio, however, given the fact that there are several restrictions on the use of funds in a non-profit organization so this ratio does not suffice. Instead, the focus is on two aspects- cash management and flexibility. The first aspect, cash management is crucial as it is the most liquid form of an asset. The organization holds cash in bank accounts in the US and 39 other countries. However, the cash holdings in the US are uninsured, which is a concern for the management, to which the management has responded by limiting the amount in each bank to the amount that it is not material for the organization. Apart from the cash holdings with the bank, the organization has an investment policy for excess cash: As per the policy, the organization invests in cash equivalents (short-term and highly liquid investments which have a maturity of below three months), restricted cash (held in trusts as per the requirement of conservation projects), and restricted short-term investments (certificate of deposits in trusts as per the requirement of conservation projects). These investments are ...