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Financial Risk Management Practices of Private Schools and Universities in Cabanatuan City Rommel T. Cruz Ronnel T. Cruz Rain Christian Miguel M. Suansing Schools and universities play a vital role in society by providing the necessary learning needed by each and every one to traverse life’s journey. However, schools and universities face risk regarding their uncollectible accounts which may threaten these institutions in the future. The main objectives of this study are: 1) to identify the ways schools manage financial risk regarding their uncollectible account by looking into the school profile and their financial risk management practices; and 2) to indicate the methods and ways that cover the financial risk management of higher educational institutions in Cabanatuan City.

Financial Risk Management Practices  Written Agreements  Collection of Account Balances  Sanctions for non-payment  Documenting procedure  Write-off procedure

Profile of the school

Proposed financial risk management practices to provide better and faster ways of cash collection and formulate techniques to lessen the risk of the schools on having uncollectible accounts.

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Questionnaire Data Gathering Data Analysis Data Interpretation Statistical Treatment

Figure 1. Research Paradigm

Summary of Findings 1. Profile of the schools in terms of: 1.1 Type of school  All of the schools surveyed are non-sectarian. 1.2 Number of College Enrollees  Five of the schools have an enrolment in the college level ranging from 1200 and above, followed by two school-respondents college enrollees ranging from 300 to 599 in the college level. 1.3 Courses offered by the school  All of the schools offer BS in Hotel and Restaurant Management topping the others, six schools offer BS in Information Technology and BS in Secondary Education, five schools are offering BS in Elementary Education, BS in Accountancy and BS in Nursing. 1.4 Years of existence  42.85% or three schools have existed for over 50 years, followed by two schools that existed from 11 to 20 years. 1.5 

Method used in estimating doubtful accounts Four out of seven schools use the aging method in estimating doubtful accounts, followed by percentage of accounts receivable method used by three schools.

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Treatment of bad debt expense Six schools are using allowance method as treatment of bad debt expenses.

2. Financial risk management practices of schools in terms of: 2.1 Written Agreements  The schools highly practice accepting written agreement/promissory note in extending credit and requiring the students to submit written agreement/promissory note with the parent’s signature before extending credit, with an average weighted mean of 3.41 and 3.30, respectively, verbally described as “highly practiced”.  Described to be slightly practiced by the schools are: allowing the student to use written agreements/promissory notes only once in every semester (2.23), allowing all the students a chance to use written agreements/ promissory notes instead of payment (2.16), and requiring the students to submit written agreement/promissory note even without the parent’s signature before extending credit (1.90).

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Modes of Payment Accepting cash in pursuing collection of balances in terms of modes of payment is highly practiced by all the schools surveyed (4.00). The practice of accepting checks is described as “practiced” (2.99), accepting ePayment is described as slightly practiced (1.87),and accepting debit card and credit card, both described as “not practiced” (1.13 and 1.00), respectively. Ways of Improving Collections Practices such as requiring down payment and allowing students to pay on installment are highly practiced by the schools, both with 3.96 average weighted mean. Accepting checks is also described as highly practiced with an average weighted mean of 3.46. Practices such as providing discounts is fairly observed or practiced by the schools (3.18), followed by having an agreement with bank to accept payment for them and providing grace period for students to pay both described as “slightly practiced” with an average weighted means of 2.48 and 2.29, respectively. Sanctions for Non-Payment Schools and universities fairly practice providing sanctions for non-payment of accounts especially when it is due for a long period of time. Providing sanction like holding the grades of students (i.e. transcript of records, diploma, etc., especially the graduating students) being the highest, has an average weighted mean of 3.20, verbally described as “practiced”. Moreover, providing sanction like no permit, no exam is also described as “practiced” (2.63). The practice of providing sanction like inability to graduate or denying enrollment for the succeeding semesters is verbally described as “slightly practiced” (2.34) and practices such as providing sanctions like penalties (surcharge) (1.72), interest (1.72), loss of privilege to access student’s information system (1.61) and loss of access to library borrowing and other services (1.57) are verbally described as “not practiced”. Recording Accounts Receivable The practice of recording accounts receivable by requiring the name of the student and the student’s ID number, both obtained the highest average weighted mean of 3.45, verbally described as “highly practiced”. The findings also show the schools’ other ways to record

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accounts receivable by providing the student’s invoice number (2.41), the date of invoice (2.41), and the invoice due date (2.31), verbally described as “slightly practiced”. Past Due Accounts Requesting immediate payment of the outstanding balance and notifying the student of additional actions which may be taken if the debt is not paid are practices of schools with an average weighted mean of 2.90, verbally described as “practiced”. When student is nowhere to be found, the school makes additional efforts, e.g., contact number (2.84), verbally described as “practiced”. Furthermore, the school issues a minimum of two reminder notices between 30 and 90 days after the bill becomes past due (2.23), the school treats accounts which are still unpaid on the due date and should be given another 90 days as past due (2.11), and after the given period of 90 days if still unpaid, the school considers this as delinquent and subjects to intensive collection efforts (1.76), all verbally described as “slightly practiced”. Recording Accounts Receivable The practice of recording accounts receivable by requiring the name of the student and the student’s ID number, both obtained the highest average weighted mean of 3.45, verbally described as “highly practiced”. The findings also show the schools’ other ways to record accounts receivable by providing the student’s invoice number (2.41), the date of invoice (2.41), and the invoice due date (2.31), verbally described as “slightly practiced”. Uncollectible Accounts Receivable Finding ways in recognizing uncollectible accounts when the past-due notices were already sent to the student, obtained the highest average weighted mean of 2.42, verbally described as “slightly practiced”. Other ways the schools consider are when the account of the student is 90 days or more past due (1.98), verbally described as “slightly practiced”. Moreover, the schools consider the accounts receivable uncollected when the amount unpaid is at least P2,000 (1.64); when it is forced to exert intensive effort to collect the unpaid amount (1.63), when the student’s presence and location is unknown (1.53), all verbally described as “not practiced”. Write-off Procedures

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The schools practice writing off procedures when the student has died and there is no guarantor or successor, obtaining the highest average weighted mean of 2.27, verbally described as “slightly practiced”. Other than that, the schools also rated procedures that might have helped them in considering if the account is to be written off like when the student’s debt remains unpaid for the whole semester (2.13); when neither the student nor the student’s residence can be located (2.01), when the amount is insufficient to justify additional collection efforts (1.98), each verbally described as “slightly practiced”. Furthermore, the school considers writing-off an account when the debt is disputed and the school has insufficient documentation to pursue collection efforts (1.72) and when the student or his family becomes insolvent (1.60), both verbally described as “not practiced”.

Significant Relationship Schools’ Profile and Schools’ Financial Risk Management * The number of enrollees is positively correlated to written agreements and diligence by having Pearson correlations of .413 and .452 respectively with corresponding p-values of .036 and .020. *Number of programs is directly correlated to written agreements by having Pearson correlation of .404 with pvalue of .041. *The method used in estimating doubtful accounts is inversely correlated to diligence and documenting by having Pearson correlations of -.557 and -.430 respectively with corresponding p-values of .003 and .029. *The overall findings have shown that there is minimal correlation between the profile of the schools and their financial risk management practices. Therefore, the null hypothesis “There is no significant relationship between the profile of the schools and their financial risk management practices” is not rejected. It can be concluded that the profile of the schools does not define their risk management practices.

4 Significant Difference Assessments of Accountants, Treasurers and Accounting Staff As shown in table 20, the F-values for financial risk management practices ranging from 0.032 to 0.743 are all less than the critical value 3.422. Therefore, the null hypothesis

“There is no significant difference among the responses of the accountants, treasurers and staff on the financial risk management practices of their schools” is not rejected. Conclusions and Recommendations Conclusions 1.School Profile The schools surveyed are non-sectarian with an average number of students ranging from 1200 and above enrolled in BS in Hotel and Restaurant Management course. They exist for more than 50 years, use aging method in estimating doubtful accounts and allowance method as a treatment of bad debt expense. 2.Financial Risk Management Practices 2.1. The schools highly practice accepting written agreement/promissory note in extending credit. 2.2 In terms of increased diligence in pursuing collection of balances: 2.2.1 Accepting cash is most practiced in pursuing collection of balances in terms of modes of payment. 2.2.2 Requiring down payment and allowing students to pay on installment is highly practiced 2.2.3 Providing sanction like holding the grades of students (i.e. transcript of records, Diploma, etc., especially the graduating students) is mostly practiced by the schools in Cabanatuan City.

Recommendations

1. The researchers recommend that *the schools should assign a staff looking into their account receivables to lessen the risk of being uncollected with the aid of their recorded invoices’ due dates. * lessening the grace period given to students to help decrease written off accounts and suggest that instead of a 90 day period, a 60 day grace period would be enough to generate payment for their debts. 2.

The researchers also recommend *that the practice of financial management of schools may also be utilized by the students because the students can easily view their balances

2.3.In terms of documenting procedures for accounts receivable: 2.3.1. Higher educational institutions mostly practice recording accounts receivable by requiring the name of the student and the student’s ID number. 2.3.2. Requesting immediate payment of the outstanding balance and notifying the student of additional actions which may be taken if the debt is not paid are the necessary actions practiced by the schools and are fairly practiced by college schools. 2.3.3. The schools give much of their attention to the ways in recognizing uncollectible accounts like when the past-due notices was already sent to the student. 2.4. The schools consider write-off of an account when the student has died and there is no guarantor or successor.

due to the school’s efficient access to their accounts with the use of their student numbers. *to initially notify them about their credits and they are given grace periods in paying their said credits. *The need for the parents’ signature before extending the students credit to notify the parents that their child/children have an existing credit and should be paid immediately. *to identify who are the parents that need notices and take necessary actions if the credit is not paid within the grace period. *that schools should consider the insolvency of its students in determining the chances of collecting their credit. *a survey that includes a question about the parents’ monthly income to determine the capability of the parents in paying their child or children’s credit. *writing off the missing students’ account means adjusting the books to represent the real amounts of the current accounts and the capability of the school in paying its own debts. Moreover, the school can efficiently run its affairs because they know their current cash and cash equivalents. school profile and financial

1. Significant Relationship between risk management practices There is minimal correlation between the profile of the schools and their financial risk management practices. The profile of the schools does not define their risk management

practices. 2. Significant Difference among the responses of the accountants, treasurers and staff on the financial risk management practices of schools There is no significant difference among the responses of the accountants, treasurers and staff on the financial risk management practices of their schools. It implies that accountants, treasurers and staff look at their schools’ financial risk management practices almost the same way.