This is true. But in non-profit organizations especially there is a
tendency for middle management to grow unwieldy. It usually takes
some sort of crisis for senior management (often at the direction of
the board of directors) to take painful steps towards efficiency.
Which is not to say the downsizing can't be overdone, and it is of of
course painful. In the present case, I have no idea if income on the
endowment (or liquidating some of it) could be used to continue
paying salaries until the crisis is over. That would be the only
conceivable alternative, wouldn't it? I wonder if there are legal
other restrictions against it. The synagogue I belonged to at one
time owed me about $2,000 for expenses I had incurred on its behalf
and I owed about the same amount on a building fund pledge. I
suggested canceling out one against the other and was told it was
illegal; that operating expenses could not be mixed with capital
expenses. I have no idea if that's true. Maybe something like that
is going on here.
From an accounting point of view it's bad.
There's no recorded outlay of the expenses, and no recorded income
from the pledge. It's all about follow the money, and, in this
example, the money doesn't pass through the books, it looks like it's
expensing the capital improvement. Since expenses are deducted every
year, but improvements are depreciated, this is the kind of thing that
rings bells with auditors.
who has a degree in Accounting but hasn't used it since 1976.
I'm sure you're right, but it seems to me all you would need is
appropriately descriptive entries in the balance and income statements.
Consider the two scenarios for an auditor about to review the books:
1) An invoice for expenses, marked as paid, with cancelled check
evidence to support that, and a deposit made in a bank account for a
capital improvement, with bank statement evidence, and the cash in the
right donation account.
2) A non-cash transfer attempting to expense receipts to a capital
account. No cash has passed hands, no third party evidence, merely a
descriptive general journal entry. It looks as if some of the capital
that was raised to construct the building has been diverted to an
individual for purely expenses. Red flags all over. So, the auditor
must hunt down and verify the amounts before he/she can verify the books
are correct, which means contacting you and the person who made the
entry and verifying what took place, given that both people are still
around and can be contacted.
The first scenario is concise, documented, easy to verify, and the
complete story is told with the accounted for transactions in a money
trail. The second is a lot harder, and may be impossible under easily