Financial Risk Management Practices of Private Schools

and Universities in Cabanatuan City

Rommel T. Cruz
Ronnel T. Cruz
Rain Christian Miguel M. Suansing

Introduction
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
Profile of the school
 Sanctions for non-payment
 Documenting procedure
 Write-off procedure

Proposed financial
risk management
practices to provide
better and faster ways  Questionnaire
of cash collection and
 Data Gathering
formulate techniques
to lessen the risk of
 Data Analysis
the schools on having  Data Interpretation
uncollectible  Statistical Treatment
accounts.
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.

1.6 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  Described to be slightly
practice accepting practiced by the schools
written are: allowing the student to
agreement/promissory note use written
in extending credit and agreements/promissory notes
requiring the students to only once in every semester
submit written (2.23), allowing all the
agreement/promissory note students a chance to use
with the parent’s written agreements/
signature before promissory notes instead of
extending credit, with an payment (2.16), and
average weighted mean of requiring the students to
3.41 and 3.30, submit written
respectively, verbally agreement/promissory note
described as “highly even without the parent’s
practiced”. signature before extending
credit (1.90).
2.2 Modes of Payment
 Accepting cash in pursuing  The practice of accepting
collection of balances in checks is described as
terms of modes of payment “practiced” (2.99),
is highly practiced by all accepting ePayment is
the schools surveyed described as slightly
(4.00). practiced (1.87),and
accepting debit card and
credit card, both described
as “not practiced” (1.13 and
1.00), respectively.
2.3 Ways of Improving Collections
 Practices such as  Practices such as providing
requiring down payment and discounts is fairly observed
allowing students to pay or practiced by the schools
on installment are highly (3.18), followed by having an
practiced by the schools, agreement with bank to accept
both with 3.96 average payment for them and providing
weighted mean. Accepting grace period for students to
checks is also described pay both described as
as highly practiced with “slightly practiced” with an
an average weighted mean average weighted means of 2.48
of 3.46. and 2.29, respectively.

2.4 Sanctions for Non-Payment

 Schools and universities  The practice of providing
fairly practice providing sanction like inability to
sanctions for non-payment graduate or denying enrollment
of accounts especially when for the succeeding semesters
it is due for a long period is verbally described as
of time. Providing sanction “slightly practiced” (2.34)
like holding the grades of and practices such as
students (i.e. transcript providing sanctions like
of records, diploma, etc., penalties (surcharge) (1.72),
especially the graduating interest (1.72), loss of
students) being the privilege to access student’s
highest, has an average information system (1.61) and
weighted mean of 3.20, loss of access to library
verbally described as borrowing and other services
“practiced”. Moreover, (1.57) are verbally described
providing sanction like no as “not practiced”.
permit, no exam is also
described as “practiced”
(2.63).
2.5 Recording Accounts Receivable
 The practice of recording  The findings also show the
 accounts receivable by schools’ other ways to record
requiring the name of the accounts receivable by
student and the student’s providing the student’s
ID number, both obtained invoice number (2.41), the
the highest average date of invoice (2.41), and
weighted mean of 3.45, the invoice due date (2.31),
verbally described as verbally described as
“highly practiced”. “slightly practiced”.

2.6 Past Due Accounts

 Requesting immediate When student is nowhere to be
payment of the found, the school makes
outstanding balance and additional efforts, e.g.,
notifying the student of contact number (2.84),
additional actions which verbally described as
may be taken if the debt “practiced”. Furthermore, the
is not paid are practices school issues a minimum of two
of schools with an reminder notices between 30
average weighted mean of and 90 days after the bill
2.90, verbally described becomes past due (2.23), the
as “practiced”. 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”.
2.7 Uncollectible Accounts Receivable
 Finding ways in  Other ways the schools
recognizing uncollectible consider are when the account
accounts when the past-due of the student is 90 days or
notices were already sent more past due (1.98), verbally
to the student, obtained described as “slightly
the highest average practiced”. Moreover, the
weighted mean of 2.42, schools consider the accounts
verbally described as receivable uncollected when
“slightly practiced”. 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”.
2.8 Write-off Procedures
 The schools practice  Other than that, the schools
writing off procedures also rated procedures that
when the student has died might have helped them in
and there is no guarantor considering if the account is
or successor, obtaining to be written off like when
the highest average the student’s debt remains
weighted mean of 2.27, unpaid for the whole semester
verbally described as (2.13); when neither the
“slightly practiced”. 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”.

3. 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 p-
value 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 Recommendations

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 1. The researchers recommend
accepting written that
agreement/promissory note in *the schools should assign a
extending credit. staff looking into their
account receivables to lessen
2.2 In terms of increased the risk of being uncollected
diligence in pursuing collection with the aid of their recorded
of balances: invoices’ due dates.
2.2.1 Accepting cash is most * lessening the grace period
practiced in pursuing collection given to students to help
of balances in terms of modes of decrease written off accounts
payment. and suggest that instead of a
2.2.2 Requiring down payment and 90 day period, a 60 day grace
allowing students to pay on period would be enough to
installment is highly practiced generate payment for their
2.2.3 Providing sanction like debts.
holding the grades of students
(i.e. transcript of records, 2. The researchers also
Diploma, etc., especially the recommend
graduating students) is mostly *that the practice of
practiced by the schools in financial management of schools
Cabanatuan City. may also be utilized by the
students because the students
2.3.In terms of documenting can easily view their balances
procedures for accounts due to the school’s efficient
receivable: access to their accounts with
2.3.1. Higher educational the use of their student
institutions mostly practice numbers.
recording accounts receivable *to initially notify them
by requiring the name of the about their credits and they
student and the student’s ID are given grace periods in
number. paying their said credits.
2.3.2. Requesting immediate *The need for the parents’
payment of the outstanding signature before extending the
balance and notifying the students credit to notify the
student of additional actions parents that their
which may be taken if the debt child/children have an existing
is not paid are the necessary credit and should be paid
actions practiced by the immediately.
schools and are fairly *to identify who are the
practiced by college schools. parents that need notices and
2.3.3. The schools take necessary actions if the
give much of their attention to credit is not paid within the
the ways in recognizing grace period.
uncollectible accounts like *that schools should
when the past-due notices was consider the insolvency of its
already sent to the student. students in determining the
chances of collecting their
2.4. The schools consider credit.
write-off of an account when *a survey that includes a
the student has died and there question about the parents’
is no guarantor or successor. 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.

1. Significant Relationship between school profile and financial

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.