Government and Not-For-Profit Accounting
Alleviating Fiscal Problems
A city imposes an overhead charge on one of its departments to alleviate its fiscal problems.
A city's visitors' bureau, which promotes tourism and conventions, is funded by an 8 percent local hotel occupancy tax (a tax on the cost of a stay in a hotel). Because the visitors' bureau is supported entirely by the occupancy tax, it is accounted for in a restricted fund.
You recently received a call from the Director of the Visitors' Bureau. She complained that the city manager is about to impose an overhead charge of a specified dollar amount on her department. Yet the statue creating the hotel occupancy tax specifies that the revenues can be used only to satisfy "direct expenditures" incurred to promote tourism and bookings at the city's convention center. The manager says that she understands that the city is having difficulty balancing its budget, but she fails to see how the charge to her department will do much to allelviate the city's ficscal problems.
Write a 1000 word, APA style paper entitled, "Fiscal Problems".
In your paper explain the problem/situation and answer the following questions:
1. In light of the city's fiscal problems, what is the most likely motivation for the new charge? Will the new overhead charge achieve its objective?
2. What would be the impact of the new charge on the city's annual fund financial statements, prepared in accordance with GAAP (which requires that the city account for its governmental funds on a modified accrual basis)? Would the impact be the same if the city accounted for its governmental funds on a cash basis?
3. What woud be the impact of the new charge on the city's government-wide statements, in which all governmental funds are consolidated? Would it have an impact on reported net position?
4. In what way might the charge have a substantive impact on the city's edonomic condition?
5. Assuming that they city provided accounting, legal and purchasing services to the visitors' bureau, do you thing the charge would be consistent with the statutory requirement that the hotel occupancy tacx be used to meet only "direct expenditures" related to tourism and use of the convention center (an issue not addressed in the text)?
6. How would you respond to the Director of the Visitor's Bureau?