Using an Intranet Portal, Uniform Accounting Charts and Activity Based Accounting to Assist Entrepreneurial Nonprofit Program Management

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Using an Intranet Portal, Uniform Accounting Charts and Activity Based Accounting to Assist Entrepreneurial Nonprofit Program Management John Sacco George Mason University, USA Elizabeth Strait MPA Candidate, George Mason University, USA

EXECUTIVE SUMMARY A youth oriented environmental nonprofit organization that has pursued an entrepreneurial path, which includes adding earned income to traditional donations, is studied in order to explore some of the information technology (IT) gaps occurring in such aggressive undertakings. To address these IT gaps, the study notes the broad issues of intranet portals, including traditional business processing, coordination and the interest in knowledge creation. However, this case study explores, in-depth, the accounting issue of operating a geographically dispersed organization by managing the main facets of its environmental programs via an intranet portal, uniform accounting charts and activity based accounting. To its credit the nonprofit entity has a strong strategic plan and vision in place. It needs to have a common intranet accounting system Copyright © 2004, Idea Inc.Annals Copying distributing in print Technology or electronic2004, forms without This chapter appears in Group the book, of or Cases on Information Volume 6, written edited by permission of Idea Group Inc. is prohibited. Mehdi Khosrow-Pour. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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to better facilitate coordination of funding, program activities and auditing. Because of resource limitation a more exhaustive intranet system is still on the horizon.

ORGANIZATIONAL BACKGROUND This particular nonprofit organization focuses on environmental programs. The mission has been to involve youth (ages 10-14) in civic education and environmental action. For the purposes of this paper the organization is called The Youth Environmental Nonprofit (TYENP). The nonprofit has been in operation since1993. The primary genesis of funding came from a private foundation that provided, over time, a multimillion dollar grant. As of 2003, this nonprofit still has monetary resources amounting to about 15% from the original grant. The organizational approach of The Youth Environmental Nonprofit for addressing environmental problems rests on a common strategy for all its environmental programs. This is a multi-step approach that starts with an inventory of community environmental problems, then moves to training and implementation and ends with evaluation and feedback. The common program strategy ought to be a plus for the intranet portal, since one function of the portal is to provide a picture of organization milieu and vision (Scott, 1998). Originally, the organization started with a single program — a hands-on environmental improvement program for youth in participating communities. The nonprofit eventually added two more programs, one directed toward watershed guardianship and one directed toward applying school curriculum to environmental projects. While each of three programs has a different environmental focus, all try to go through the same multi-step approach. Given that all programs are youth-oriented, the nonprofit has a Youth Advisory Board, thus making one of the target audiences a stakeholder. As with many nonprofit organizations, this one has kept to its basic mission, and multi-step approach for achieving that mission, but has evolved considerably in terms of organizational structure and funding. The evolution, as has been the trend in the nonprofit world, is to become more entrepreneurial as defined by adding more earned income to traditional philanthropic support. Initially, the entity had a headquarters office and field offices, with all the field offices operating under the same charter. Now, in addition to the field offices, the entity has affiliates and partners to carry out the three programs. Indicative of the entrepreneurial approach, affiliates are franchises. These affiliates pay a franchise fee and purchase products from the headquarters as well as training manuals. A franchise gets started with their own financing, paying an annual fee to headquarters. Partners are more dependent than affiliates. The partners receive initial funding from headquarters and they purchase products (e.g., water quality testing kits) from headquarters at cost. The partners also receive a sales commission from headquarters on the sale of certain products. Along these entrepreneurial lines, the factories that make the products for headquarters pay the main office a royalty and use the nonprofit endorsement on products the company sells to other customers. Other than regular email, no econnection exists among the various parties mentioned. The organizational chart, Figure 1, shows relationship between headquarters and its affiliates, its partners and its field offices. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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Figure 1. The Youth Environmental Nonprofit

Financially, the organization has grown and changed since 1993. Total revenue went from $1,534,394 in 1993, the initial year, to $3,790,725 in 2001. As might be expected, the initial years showed a negative change in net assets (a loss), while more recent years have been more productive. Earned income, in the form of product sales ($57,859 in 1999 and $155,447 in 2001), started in 1999 and has continued since then. Product sales show the entrepreneurial side of this nonprofit. Table 1, “Finance and Spending Patterns, Selected Years,” shows revenue and expenses and annual change in net assets for selected years. The nonprofit, as the organizational structure and revenue evidence indicates, has been entrepreneurial in its strategic planning. Such an entrepreneurial approach can create gaps with some aspects of the organization moving faster than other aspects. One of gaps being addressed by the nonprofit is its dispersed computer and manual information system. Currently, the major part of the computer information system is accounting and financial reporting. While the information system for accounting and finance meets Internal Revenue Service (IRS), Generally Accepted Accounting Principles (GAAP) and audit requirements, it is not an integrated data, decision and knowledge system. The nonprofit has applied for a grant to develop and implement an integrated data and decision system to go beyond financial compliance and control reporting. In essence, this case study is part of the effort to develop and implement that integrated data, decision and knowledge system via an intranet. While not forgetting the overall plan, the focus here is on integrating accounting and reporting for the various sites via an intranet, generating common reports and integrating this financial side more closely with the major facets of program and knowledge management, namely, using activities based accounting (ABC) with the common program steps and vision for the environmental programs.

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Table 1. Finance and Spending Patterns, Selected Years The Youth Environmental Nonprofit Finance and Spending Patterns, Selected Years 1993 1994 1999 2001 Revenue: Foundation grant 1,508,503 Product Sales Other Grants In-kind 18,913 Interest & Investment Income 6,978 Unrealized Gains on Investments Other Income Contributions Total 1,534,394 Expenses: Programs Management and General 152,496 Fund Raising Total 152,496 Change in net assets 1,381,898

1,750,000 1,350,000 57,859 155,447 490,000 39,000 14,269 42,951 32,661 20,276 47,001 5,224 15,969 67,874 11,014 716,507 3,477,452 2,322,675 2,180,104 3,790,725 2,004,343 1,558,719 2,478,486 428,384 182,052 146,707 64,904 268,494 255,201 2,497,631 2,009,265 2,880,394 -174,956 170,839 910,331

SETTING THE STAGE While the study focuses mainly on the accounting and financial reporting function, an overall picture of the entry portal is also given. It shows the general strategy or vision and important intertwining of fundraising and program activities. In particular, this case study explores in-depth the issue of setting up an accounting and report system via an intranet data management system, a portal, uniform accounting charts and activity based accounting. In such a system, object-oriented transaction data (such as supplies and their cost centers, not objects as in IT) would be entered into one intranet portal from all sites. Managers would view reports and then participate in an activities based accounting (ABC) fashion, in assigning object costs to program facets (for example, what amount of supplies should be allocated to conducting an environmental inventory). It is these tools, the intranet portal and ABC that go beyond cost and coordination and assist in knowledge management and creation (Alavi & Leider, 2001). Traditionally, objectoriented, off-the-shelf chart of accounts software is used by a single person or small team to assign costs to items such as salary and inventory. Managers see periodic reports Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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based on budgeted to actual for objects, making for a compliance oriented, more so than for an information program, decision and knowledge system. Notwithstanding the expectations for more cost effective accounting, better coordination and knowledge Table 2. Budgeted v. Actual for Year to date (YTD), 9/02 (Only subtotals and Net Surplus or Deficit Shown)

Name Income Statement Summary for 9/02 and FY02 Variance YTD YTD Actual vs. Actual Budgeted Budget Earned income: Individual donations Corporations Foundations Grants Bad debt Groups Education fees Others Fees for services Program income Subtotal Earned Income 354,244 265,128 Expenses: Salaries Taxes & benefits Training Office rent Others Subtotal expenses 298,012 264,027 Net surplus (deficit)

56,232

1,101

89,116

33,985 55,131

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management and creation, numerous barriers stand in the way of these aspirations. On the organizational side, Orton & Weick (1990) have been leaders in arguing that planning is over-rated and organizations stumble toward goals. On the IT side, Wastell (1999) puts forward the notion that complex information system development (ISD) is slowed by poor cooperation that arises from anxiety about ISD failure and any change resulting from ISD. A solution framework has been suggested by several writers, including Sambarmurthy & Kirsch (2000) that revolves around identifying the factor, such as adequate resources, and the process, including involvement of stakeholder, as necessary to successful ISD. Boardman (1997) enters this ISD framework by emphasizing the system engineering aspect. In the current system, headquarters uses Blackbaud software largely to keep track of budget to actual revenues and expenses via an income statement (sometimes called the statement of activities for nonprofit entities) on a monthly basis. Budget to actual can be generated on a consolidated basis to include the one operation that is independent (see the organizational chart for the Field Office 1, separately incorporated). The budget to actual can also be done by individual offices as well as by the major programs in each office. Potentially, an office can have all three environmental programs. The more detailed reports, for example, those showing all three programs for an individual field office, may require an estimated allocation among the programs since not all the offices follow the same chart of accounts and a detailed allocation by program. Headquarters’ information, with the headquarters running its own environmental programs, is on a transaction basis. As individual transactions occur (a contribution from an individual, for example), the data is entered. Data from the field can come via spreadsheet and occasionally hard copies or summaries of transactions. However, in some cases, headquarters coordinates decisions on where to place a field office transaction in the Chart of Accounts (COA) by corresponding with the field office over the phone or by email. Two sample financial reports show the type of information available currently. In Table 2, “Budgeted v. Actual for Year to date (YTD), 9/02,” only subtotals and surplus or deficits are shown. While the actual tables are too large to present, the selected account names under revenue and expenses provide some idea of the sources and uses of money. This report, Budgeted v. Actual for Year to date (YTD), 9/02, not only shows compliance at a general level (net surplus/(deficit)) but it would also show variances for chart of account (COA) objects such as individual donations and salaries. While the actual exceeded the budget for both income and expenses, the actual income was greater than the actual expenses resulting in a surplus for FY 2002. As a result, analysis can be done to get a picture of where strong and weak points might be vis à vis net surplus/ (deficit) and where strong and weak points might be within each object code. Table 3, “Budgeted v. Actual for Year to date (YTD), 9/02, with Breakdowns for Programs” is more detailed. The program breakout shows that is the largest program (program A in this case), the nature of the revenues and expenses and the net surplus or deficit for each program.

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Table 3. Budgeted v. Actual for Year to date (YTD), 9/02, with Breakdowns for Programs (Only subtotals and Net Surplus or Deficit Shown) Name Income Statement Summary for 9/02 and FY02, with Program Break Out Variance YTD YTD Actual vs. Program Program Actual Actual Budgeted Budget A B Total Earned income: Individual donations Corporations Foundations Grants Bad debt Groups Education fees Others Fees for services Program income Subtotal income 354,244

265,128

89,116 194,834

88,561 354,243

Expenses: Salaries Taxes & benefits Training Office rent Others Subtotal expenses 298,012

264,027

33,985 163,907

74,503 298,011

Net surplus/(deficit) 56,232

1,101

55,131

14,058 56,232

30,927

CASE DESCRIPTION The Youth Environmental Nonprofit has a number of IT issues to address as it deals with tradition business processing and entrepreneurship challenges. These include: 1. Developing a common intranet interface and portal for all sites that is parsimonious in nature, meaning the important goals are captured. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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Exploring the interrelationship between the nonprofit’s current Internet design and a proposed intranet. Selecting chart of accounts such the Unified Chart of Accounts (UCOA). Examining the nature of the database and the material to store. Deciding on types of forms to put online. Understanding how to go beyond automating the accounting business processing and adding coordination and knowledge creation. Determining the amount of flexibility to give the various sites to add their own information.

This paper focuses primarily on the accounting and financial side of this overall IT task. Thus, for item one, “Developing a common intranet interface and portal for all sites that is parsimonious in nature, meaning the important goals are captured,” only the accounting element will be explored in detail. While it is preferable to create a full scheme, time, criticality and resources often force limitations on scope; however, a broader framework will be sketched before the intranet accounting system is implemented. As a result, the relationship between the accounting system and other systems will be outlined with the accounting system being among the first implemented. Although this is not the best systems engineering approach (Broardman, 1997), such a compromise is necessitated by limited resources. In addition, to provide a greater sense of the system, links between accounting and program management will be examined here by way of outlining how an activity based cost (ABC) system can be related to revenue and spending objects for improved program management. In ABC, specific costs are assigned to steps or activities in a program in order to determine what drives activity and program costs. With such information, better knowledge about high and low costs aspects of program delivery can be distilled. Adding evaluation and a sense of value added about the program can suggest where to trim or add to the cost stream that goes into the program (Cooper 1992; Thomas & Kaplan, 1991). One definition of an intranet from Dernovsek (2002, p.16A) is that it is “a private network that uses Internet software and standards to deliver information to an internal audience.” Scott (1998), citing work by C. Kotlas (1996) notes that intranets are “powerful tools for institution wide communications, collaborative projects and establishing a sense of community…” Detlor (2000) views the portal as sitting atop the intranet and defines the portal as “[A] single point browser interfaced with organizations to promote the gathering, sharing, and dissemination of information throughout the enterprise.” In this case study the main audience is the employees of the environmental nonprofit at all sites; however, a focus on the employees does not mean that they cannot use the intranet to train teachers or students or demonstrate products. The intranet can be used for training people in various environmental programs either by direct use of the intranet or by spinning off software from the intranet to market to those involved in the environmental programs. Even the factory suppliers can be given appropriate access to the intranet. As the intranet begins to allow selected outsiders to become users it moves to what can be called an extranet. Use of the intranet can also help employees feel more comfortable with the Internet since the two often use similar navigation and search skills. While the intranet logic, as well as the various tools included, can cut across different organizations, organization culture can play a role. For instance, if units within the organization

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are accustomed to some independence, then the intranet needs to allow for that independence in the form of allowing units to add their own material. Begbie & Churdy (2002) even argue that a certain amount of chaos is needed for an intranet to develop and support users. The remainder of the case description is divided into several parts. The initial part explores the outline of the nonprofit portal for the entire nonprofit. Attention is then given to a variant of an Information System Development (ISD) framework that has been based on factors (such as adequacy of resources) and process (actions taken). The framework used here is simpler; it looks at factors as “the hard” resources, such as equipment, and “soft” resources, such as the role of stakeholders. The next element looks at features of the portal and other intranet aspects for the proposed accounting and reporting system. The other part lists general ideas for material to include on the intranet beyond those associated with the accounting system. The last part returns to the accounting system and explores how the accounting system can be linked more closely to program management via use of activity based accounting (ABC).

The Youth Environmental Nonprofit Portal Outline Although in practice the accounting and financial part of the intranet portal will be developed first, The Youth Environmental Nonprofit Portal is displayed below. The display includes the major goals expected to be pursued in the overall TYENP portal. The common strategy that the nonprofit has carefully developed will stand as an element of the portal. This common strategy fits the vision aspect suggested by Scott (1998). It — Vision — is located prominently in the center of the portal. First among these critical factors under Vision for the portal is fundraising. Fundraising information would be entered (research on prospective donors and grantors and amount received or awarded) so that complete donor files would be centrally organized with all historical information, letters of support, copies of proposals, awards and records of interaction between offices and donors. The information would be entered into a temporary file that is reviewed prior to uploading to the master database to ensure accuracy and reduce duplication. Program activity information is the second main factor on the overall portal. It would be collected and stored so that educator information is captured with demographic information (pertinent to or connected with fundraising), training certification, number of students involved, funding source and project information (impact, evaluation, results). As with fundraising, the program information would be entered into a temporary file that is reviewed before uploading to the master database to ensure accuracy and reduce redundancy. By sharing information for these two main factors, fundraising and program activities, reports could be generated that match funders with program activities and increase the fundraising capabilities. For instance, a query could be generated that listed how many training sessions and students in Denver, Colorado were held in order to persuade a donor to make a contribution or substantiate support from the state or local governments. The evaluations would document the benefits received through the programs and substantiate the benefit of funding a program or supporting the participants through grants or stipends.

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Along the lines of program data, customized program materials developed by field offices would be centrally stored and accessible in PDF formats. This portal button is called “Materials Library.” Allowing access to a centralized “library” of materials used by the different offices would encourage offices to try using different techniques that have been successful in other regions or with other audiences. This would provide professional development for staff through sharing of different training styles or methods not previously used at a location or office. A calendar feature on the overall portal would track all trainings, summits and activities at the location and allow transfer to the Internet for public interest. In keeping with the idea that intranets can have an extension to clients or the public, this feature would be accessible through the public website to allow interested parties to locate a training or summit in their area and become involved with our programs and publicize our events through Internet postings and links through targeted bulk emails. Alongside the Calendar is Communications. Communications can assist in whether to adopt and how to configure any strategy modified from the multi-step approach. Means for knowledge creation is significant too. The nonprofit has contracted for an evaluation of one of its programs; such evaluation information can add knowledge for those in the field and at headquarters. The Accounting Administration button is the traditional automation of business processes, with accounting being critical. For compliance purposes and substantive decision-making, as well as cost savings, it is critical to have standard accounting data and reporting. The overall TYENP Intranet Portal is shown below:

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Framework for Intranet Development The nonprofit is not rich in resources (sometimes called factors) and will have to make do with current resources for grant applications. The current situation for IT resources is that all offices have independently operated PCs with various types of software, most of which is accounting software. The nonprofit also has a public website, which means they are familiar with using HTML (hypertext markup language) to produce the pages and with converting and displaying document in PDF format (portable document format). What lies ahead is the system engineering that will include making a choice between an off-the-shelf intranet or building one in-house. The latter will mean working with operating systems, TCP/IP, hosts, routers, leasing optical fiber, firewall issues and the like. In all likelihood this choice and implementation will be contracted out; as a result, the hard resources are only touched upon here. More attention is given to the stakeholders and the role they will play in the content design of the intranet and the portal. The nonprofit has not yet decided whether to purchase an off-the-shelf intranet package or try to assemble one. Nevertheless, they are moving ahead with the content and nature of the portal. With respect to other design issues, such as stakeholders, the stakeholders range from those in the field, to donors, clients, the CEO and the Board. While the Board has its fiduciary responsibility to those who fund the nonprofit and to regulators such as the IRS, design issue will need attention from a variety of stakeholders. The common multiple step program strategy should provide a basis from which the stakeholders can begin discussion. Notwithstanding the use of this multiple step program strategy for a number of years, barriers and defense mechanisms are likely to slow agreement of intranet content and portal design. The various types of field offices have been relatively independent in data collection and summarization as well as funding sources and knowledge creation. Wastell (1999) approaches barriers from a psychological standpoint and Nonaka (1994) lists things such as autonomy and requisite variety as elements of knowledge creation. These issues from Wastell (1999) and Nonaka (1994) raise the question about the extent to which an intranet and its design can be a coordination and bottom up tool at the same time. For now the next point is the portal screen for the accounting and financial reporting system. A look at that aspect of the intranet and portal may provide insight to an array of design issues.

Portal Screen for Accounting and Financial Reporting This screen, Intranet Accounting Portal, is the early development of what headquarters and the field offices will see when they click on the Accounting Administration button from the main portal. Those involved in accounting and financial reporting will have a Login ID, with different levels of privilege. Levels of privilege will go from being able to enter data to being able to view all the data. Some data, such as all the personnel data, will only be available to chief officers. Changing the system will be reserved to programmers at headquarters. The accounting system will have internal controls, such as segregation of duties for ordering, payment and deposits. These internal controls can also be built into the levels or types of privileges on the intranet. In the Accounting Portal, the department number (Enter Dept #) is for each cost center and each cost center is a field office, affiliate or partner. The department number is part of the chart of accounts to record financial transactions. No common chart of Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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accounts exits. At this point, for coordination and commonality, the Unified Chart of Accounts (UCOA) is expected to be the COA for the accounting system. The UCOA (Sumariwalla & Lewis, 2000) can be briefly described using the accounting equation (Assets = Liabilities + Net Assets [revenues –expenses]) for a nonprofit. Here is a simple outline of the UCOA for coding nonprofit transactions. 1xxx where 1= assets and the Xs specify different type of assets 2xxx where 2= liabilities 3xxx where 3=net assets 4xxx-xxx to 6xxx-xxx = revenues and associated activities 7xxx-xxx to 9xxx-xxx = expenses and associated activities The three Xs for assets, liabilities and net assets detail specific types of each element. 1010 can be cash in the bank, operating. 2010 can be accounts payable. 3010 can be net assets, unrestricted and available for general activities. The extra 3xs for the revenues and expenses are for programs and operations. The account numbers 7xxx-100 might be an expense for an adoption program. Following the same format the account number 7710-100 would be supplies expense for the adoption program, indicated by the 100. These identifications or assignments of revenue and costs to programs and operations are integral to assessment and evaluation of mission effort. When placed in an intranet, a UCOA is rendered more powerful in that dispersed offices speak the same accounting and presumably a similar interpretive language. The rest of the intranet accounting portal has, in essence, the accounts payable with its disbursements (shown as “enter invoice” and “enter check,”) accounts receivable and deposits (“enter deposits’), bank reconciliation and a button for reports available. The accounts payable function includes the stream of entering the invoice (Enter Invoice) for

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the purchase and its associated liability. When the invoice and goods or services are accepted, payment is made with the “Enter Check” button. When revenue comes in from cash or the completion of the accounts receivable cycle, the “Enter Deposit” button is used. Reconciliation would be done periodically as bank statements (Bank Reconciliation) become available. Some of the reports are displayed later. Most of the following screens appear once an option is taken from the Intranet Accounting Portal. While these are of the business processing nature, they can form one of the bases for coordination and knowledge creation.

Account Assignment for Transactions – Direct Disbursement When a new invoice (a bill) arrives, the end user would select “Enter Invoice” on the Intranet Accounting Portal and the “Add a Direct Disbursement” screen would be used. Shown is a blank screen for a given field office and “account No.” that field office uses for payment. It includes information for eventual payment (unique account #, account description and amount) as well as how to assign the cost to a program project. Project Description is the last field in this screen, “Add a Direct Disbursement.” Since each of the three programs can have more than one project, it is important to keep track of the cost by project in order to get a full cost for particular projects. Eventually, Budget to Actual will be available to management not only at the program level but also at the level of projects. In the table “Budgeted v. Actual for Year to date (YTD), 9/02, with Breakdowns for Programs” only program level data are covered and then sometimes with estimates for the allocations among the three programs. As more of the transaction process is automated, more database management can be done, including project tracking; now, the computer and manual system can only report at the program level.

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Assignment of Accounts – Specific Disbursement This screen, “Direct Disbursement 599 for Sally Carey,” provides the details for disbursement of check #559. This data entry table shows the various objects paid for in check #559. The first field, “account No.” displays information on the object, “Travel, Meals & Lodging,” for one of the offices and the program. From a table such as this, the total for objects by cost center and program can be summed. The account number would have to contain a code for cost center and program. In this example, the “08” in the “account No.” refers to cost center (i.e., a field office). Again, with all the sites using the same screens, summarization and more detailed reports can be done. The expectation is better and more up-to-date management of objects of expense, programs and field offices.

Reports 1099 Vendor Report Another report, in Table 4, is the 1099 Activity Report. Form 1099 is important since nonprofit organizations and companies have an Internal Revenue Service (IRS) requirement for reporting to the person (often a consultant) getting paid and the IRS. This report not only provides the vendor name and ID but also the IRS Form 1099 Box used. At the bottom of the report, the grand totals are provided as well as necessary notations for interpreting the report.

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Table 4. The Youth Environmental Nonprofit Partial 1099 Activity Report Vendor Box 1 Box 2 Box 4 Box 5 Box 6 Total 1099 ID Box 7 Box 8 Box 13 Box 14 Box 16 Amount 3763 $400.00 $400.00 Alberta Robinson 3607 $200.00 $200.00 Jose Amaya 3764 $400.00 $400.00 Bill Bartlett 3850 $50.00 $50.00 Julie Breene 3765 $400.00 $400.00 Joshua Britt 3766 $400.00 $400.00 Nancy Brockmon 3757 $1,375.00 $1,375.00

Vendor Name Amanda Achille

Vendor Payment Report The next report displayed (Table 5) is the “Cash Disbursement Journal” for the nonprofit. In this report, one company is selected and all the disbursements plus the total for that company is shown. In the intranet environment, given the proper privilege, the responsible field office and headquarters can view this report and discuss it via the communication facilities built into the intranet. Such reports, when input under a common chart of accounts and made available at the field and headquarters level, facilitate internal and external audit work.

Table 5. The Youth Environmental Nonprofit Cash Disbursements Journal Vendor

Pay Type Pay Date Account No.

Account Description Debit

ABC, Inc. Check 10/1/02 01-100-00-0-00 Operating Cash 10726 01-205-00-0-00 Accounts Payable

$850.00

Check 11/1/02 01-100-00-0-00 Operating Cash 10819 01-205-00-0-00 Accounts Payable

$850.00

Check 12/1/02 01-100-00-0-00 Operating Cash 10898 01-205-00-0-00 Accounts Payable

$850.00

3 payment(s) listed for ABC Properties:

Credit $850.00

$850.00

$850.00

$2,550.00 $2,550.00

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Table 6. The Youth Environmental Nonprofit Statement of Functional Expenses YTD Summary/Breakdown of Program Expenses by Functional Category Category Description

Programs

0

General

1

Program 1

372,294.58

2 3

G&A

Fundraising

TOTAL

441,052.72

441,052.72

43,258.94

415,553.52

Program 2

146,466.24 165,934.32

312,400.56

Program 3

255,249.62

255,249.62

Fundraising

181,814.30

181,814.30

GRAND TOTAL 774,010.44 650,245.98

181,814.30 1,606,070.72

Program Expenses by Category Report This report, statement of functional expenses (Table 6), is important for a variety of reasons. The data from this report needs to be sent to the IRS on an annual basis in IRS form 990 (Return of Organizations Exempt from Income Tax). The IRS may look at the cost of fundraising relative to program expenses. When an organization receives taxexempt status, the IRS is interested in how much money is going directly to support the mission. It is the amount going to the programs that provides insight to the support of the social mission. This information also goes into the financial statements that can be audited for adherence to GAAP.

Specific Details for the General Portal In addition to the accounting and financial reporting aspect of the intranet for The Youth Environmental Nonprofit, here are some other ideas of material to include in the general portal. The Youth Environmental Nonprofit has a variety of training programs and has created manuals to go with these training programs. These can be re-examined and placed on the intranet in the Materials Library shown on the YENP portal. The reason for rethinking the nature and content of manuals is that computerizing material opens avenues for greater flexibility and interactivity. Glossaries present another set of information that can be made more easily accessible with an intranet. Within the Materials Library, buttons can be inserted so the reader can go directly to a glossary or search for a particular term and definition. This particular nonprofit also has a number of products that the participating units can purchase. Information about the function of products in environmental studies, as well all types of purchase information can be placed on the overall intranet under Program Activities. For instance, both headquarters and the field offices can look at the inventory for particular products. Pricing would also be essential information for the field offices. Regardless of whether it is manuals or product information that is placed on the intranet, data can be kept on how often users look at material or how often an employee accesses a certain tool. Such data can provide insights about the material or products most desired. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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While the intranet is often thought of as a device for employees to have more information about programs or products, the intranet can also be used for employees to keep track of personal pay, retirement and leave information. Such information can reduce the burden on the human resources (HR) office. A high profile use of the intranet is to introduce it for use at meetings, including board meetings. The Calendar of Events and Communications buttons on the general portal can facilitate meetings and negotiations. In some intranet arrangements, notes from previous meetings can be stored, calendars can be made accessible and agenda items with relevant data can be included on the intranet. As most of this nonprofit’s meetings are via conference call, the participants can be logged onto the intranet during the meeting. These Calendars of Events and Communications can play an important role in knowledge creation by sharing and debating funding and program ideas.

Using ABC to Better Link Object Data to Program Management The last item discussed in the case description goes back to accounting and reporting issues and how to make accounting and reporting information more relevant to managing the common steps in these environmental programs. In some respects this is part of the knowledge base or knowledge creation aspect. The intranet provides the Table 7. Allocating Object Expenses to Program Steps by Management

Objects Salary Training Taxes Supplies Rent Phone Services Total $2,000 $400 $100 $1,300 $400 $100 $500 $4,800 Program Management Steps Recruiting Total 30% 0% 30% 0% 30% 50% 20% 600 0 $30 0 $120 50 $100 $900 Aiding teachers 30% 40% 30% 10% 40% 20% 20% 600 160 30 130 160 20 100 $1,200 Investigating 20% 20% 20% 10% 10% 10% 20% 400 80 20 130 40 10 100 $780 Implementing 10% 30% 10% 70% 10% 10% 20% 200 120 10 910 40 10 100 $1,390 Learning laws 10% 10% 10% 10% 10% 10% 20% 200 40 10 130 40 10 100 $530 Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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potential for communication links among managers and staff. In this proposed intranet design for adding activity based accounting (ABC), managers will look at the UCOA object expense data and decide how to allocate the object expense to the environmental program steps. Several scholars (Cooper 1992; Thomas & Kaplan, 1991) have been leaders in ABC, wherein costs are assigned to program activities, added and summed to a total cost for a program. Eventually, the assignment can be done with a good job or process-tracking piece of software. In the case, the initial suggestion is for mangers to examine, on a monthly basis, how to allocate object expenses to steps in programs. The Table 7, “Allocating Object Expenses to Program Steps by Management,” provides an example of the allocation and uses of the resulting data. Notice that the object “salary” has $2,000 in it, training, $400 and so forth for all the objects. The $2,000 in salary comes from data entered into the UCOA. That $2,000 is then allocated to the various program steps for a given project. Start with the recruiting step. Reading down the column, examine the step, “recruiting” in Table 7. Recruiting is designed to select schools, teacher and students for a given environmental program. In this scenario (which would ideally be a project in a program), “recruiting” gets 30% or $600 of the $2,000 recorded for salary. Continuing along the “recruiting” row to see the total cost for it, 0% of training object is allocated to the recruiting step. When all seven of the object costs (salary, training, etc.) are allocated to the “recruiting” step, the total cost of “recruiting” is $900 out of the total object expense of $4,800. The same could be done for each step or activity. Allocating all object costs to aiding teachers shows that the total estimated cost for this activity is $1,200.

Unit Cost from the Matrix This amount, $900 for “recruiting” in this project can be compared with amounts for similar projects or programs in that field office, other field offices or with past efforts. The idea of ABC is not only to cost the activity but also to get insight to whether a program step is adding value to the project. Sample studies can be done to compare cost and quality or interest of those recruited. Studies can also be done to see if $900 out of a total of $4,800 for the project provides 18 or 19% (900/4800 = 18.75%) of the benefits of the project. Realistically, the value added step is a difficult one. However, if organizations wish to be entrepreneurial, they need cost and value added information to successfully compete. Another piece of potentially important information that can be derived from this matrix is cost to train the teachers. Assume four (4) teachers were trained. At a total cost of $1200 given in the row for aiding teachers, cost per unit or cost to train one teacher is $300. If such information were done in budget form or a proposal, then that cost could be meaningful to managers and those who fund the program. It could also be done to price any cost to teachers (or schools) not covered by donor money. With this matrix in place, the so-called value added chain link might detect which tasks or steps to increase, decrease or eliminate. Eliminating a step or activity that adds little or no value would be an important development by saving money and reaching the same mission objectives. Initially, management or staff review can do the value-added approach subjectively. Later, job-cost software can be used to get better estimates. Under the step, “learning the law,” in Table 7, a total of $530 has been allocated. Is that amount too much or too little? Initially that would be a subjective question, but the Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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communication over the intranet on selected steps (especially cost outliers when similar programs are compared) could be productive in eliminating or reducing minimally productive activities. ABC is an important addition to the intranet portal and management tools; generally, it must be used in light of its limitations. Often, the allocations and assessments are based at least in part on subjective judgments. One criterion for judging this subjective allocation is to see if different stakeholders come to the same or similar conclusions about the value of a given step.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION A danger of intranets and intranet portals is failure to make a careful selection of what content and what display to design and implement. The academic literature cautions against only developing business-processing functions. Coordination and knowledge creation need to be added. In addition, each organization can have or identify one or more central functions for success. In this nonprofit, the centerpiece seems to be using the same multiple step strategy for all environmental programs. Such a common point of reference provides an idea of the vision of the nonprofit. The other central points are fundraising and program activities and the coordination of the two. If the strategy or vision is widely agreed on then issues of negotiation and coordination among stakeholders are reduced. If fundraising can be bolstered by program endeavors and success, the fundraising, with donation or earned income, is facilitated. Within this larger logic of vision, fundraising and programs on the drawing board, one of the main challenges in developing the intranet for this Youth Environmental Nonprofit is that the current information system is dispersed not only geographically but also by function. As is often the case, accounting, human resources, strategic planning and evaluation are relatively separate and at different stages of automation. Resources are not adequate to look at all the integration issues. The organization does intend to develop an overall logic in which to place and integrate individual aspect of strategy and management. A snapshot of that was given in the overall portal; however, implementation of an integrated intranet will depend on successful grantsmanship. For now the focus is on getting the accounting and financial reporting automated via an intranet. Another design and implementation challenge is that the field offices are at different degrees of automation and readiness for an intranet. Some of the field offices would be able to move quickly to the intranet while others would need training as well as computer and telecommunication upgrades. The hardware/software of the intranet portal presents a significant challenge. Selecting hosts, internal wiring (5E copper or above), going wireless, leasing fiber optics, routers, firewall, TCP/IP, Ethernet v. Token ring, and operating systems present difficult choices even if off-the-shelf systems are selected. Conversion of paper to files, decisions on relational databases, and design of forms are among the software challenges. Not to be forgotten is the cost of maintaining and upgrading any intranet system that is deployed. A grant may be sufficient to get the design and partial implementation done but then the nonprofit has to find resources for the maintenance. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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The nonprofit is pressed to make progress with the intranet, especially the accounting and financial reporting, because of its entrepreneurial drive to add more earned income. Once the nonprofit enters the competitive world of selling products, it must keep up with for-profit business that can have more advanced IT systems.

REFERENCES Alavi, M., & Leider, D. E. (2001). Knowledge management and knowledge management systems: Conceptual foundations and research issues. MIS Quarterly, 25 (1), 107136. Begbie, R., & Churdy, F. (2002). The Intranet Chaos Matrix: A conceptual framework for designing an effective knowledge management Intranet. Journal of Database Marketing, 9 (4), 325-338. Boardman, J. (1997). Corporate Intranets and Business Process Management: A challenge for system engineering. The Institute of Electrical Engineers, Savoy Place, London, WC2R OBL, UK. Cooper, R. (1992). Implementing activity based management: Moving from analysis to action. Montvale, NJ: Institute of Management Accountants. Detlor, B. (2000). The corporate portal as information infrastructure: Towards a framework of portal design. International Journal of Information Management, 2, 91101. Dernovsek, D. (2002). Creating an effective Intranet. Credit Union Magazine, 68 (9), 16A-20A. Nonaka, I. (1994). A dynamic theory of knowledge creation. Californian Management Review, 40 (3), 14-37. Orton, J. D., & Weick, K. (1990). Loosely coupled systems: A reconceptualization. Academy of Management Review, 15 (2), 203-223. Sabherwal, R., & Robey, D. (1995). Reconciling variance and process strategies for studying Information System development. Information Systems Research, 6 (4), 303- 327. Sambarmurthy, & Kirsch. (2000). An integrative framework of the Information System development process. Decision Sciences, 31 (2), 391-411. Scott, J. (1998). Organization Knowledge and the Intranet. Decision Support Systems, 23, 3-17. Sumariwalla, R.D., & Lewis, W.C. (2000). Unified financial reporting system for not-forprofit organizations. San Francisco: Jossey-Bass. Thomas, H., & Kaplan, R. (1991). Relevance lost: The rise and fall of managerial accounting. Boston, MA: Harvard School Press. Wastell, D.G. (1999). Learning dysfunctions in Information Systems development: Overcoming the social defense with transitional objects, MIS Quarterly, 23 (4), 581-600.

BIOGRAPHICAL SKETCHES John Sacco is an Associate Professor of Government and Politics in the Department of Public and International Affairs at George Mason University in Fairfax, Virginia. His Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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teaching and research interests include government and nonprofit finance and accounting, information technology management and international political economy. He has been active in developing and delivering online courses. His primary research analyzes the impact of global economic markets on government and nonprofit finance and financial reporting. Professor Sacco has advanced degrees in financial accounting and political science. His Ph.D. in political science is from Penn State University. He also holds a B.S. in data processing. Elizabeth Strait is a graduate student in the Masters of Public Administration program at George Mason University in Fairfax, Virginia, specializing in Finance and Nonprofit Management. She has over six years experience in nonprofit and association administration. She received her B.S. in political science from James Madison University.

Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.