Failures In Accounting And Auditing Systems: Lessons From Cancer Fund Of America Inc

This paper will allow you to explore how failures in accounting and auditing systems can lead to catastrophic results for a governmental or non-profit entity. 
The paper should address the following topics:
Summarize the situation in the organization you selected
Identify the specific failures in accounting and auditing procedures as they relate to what we've discussed in class (textbook, procedures manual,etc.).
Provide a series of specific recommendations that would prevent this from occurring again.Paper is not understandable.

The organizations that are functioning in the current business environment makes use of various extensive technique to produce innovative products that will be beneficial for the society. The organizations functioning in the business environment concentrate on making profit. In order to maintain profit and a healthy business operation, there is a need for the organizations to maintain a proper book of accounts (Zadek et al., 2013). The accounting and the auditing system of a firm acts as the nervous system of an organization as it aids the functioning of all the departments of a firm.

There are various types of business organizations that are functioning in an economy. The Non-Profit Organizations and the Government entities are the business or the firms that operate in the market with the aim of improving the standard of living of the people of the society and motivating them to lead a normal life. These organizations initiate various developmental strategies to enhance the welfare of the society. Non-profit organizations focus on various attributes that affects the lifestyle of the society and aim to cure individuals living in the economy (DRURY 2013).

The current paper concentrates on a Non-Profit Organization functioning in United States of America named Cancer Fund of America Inc, who are concerned in providing treatment to the individuals who are affected by Cancer. The organization provides treatment to infants and poor who are suffering from cancer and tries to cure them to bring them back to normal life. However, there have been issues related to the accounting and the auditing system failure within the organization thathas led to catastrophic results due to which they had to pay settlements to the concerned parties. The current paper will therefore discuss the about the organization and the various issues that have led to the downfall of the organization along with various recommendations that will restrict them from making the same mistake.  

Cancer Fund of America was established in the year 1984 with the aim to fight a mighty war against cancer and eradicate the disease from the face of the world. The organization does not concentrate on investing on any researches and studies that are related to cancer or treating cancer to the patients. However, the firm collects charity like donated goods and delivers them to various patients from different parts of the country. They usually provide material goods like shampoo clothes, food grains etc to the patients and their families who have suffered hardship and have gone broke trying to save their patient.

The cancer patients gets aid from this firm to make their life smoother and better and thereby making them feel that they are not neglected by the society. The organization raises charities from various renowned organizations and use that fund to purchase necessary material goods that are beneficial for the society (Butler & Wilson 2015). However, the business process of the organization is not as fair as it looks from outside. The organization has been receiving millions of dollars as charities and has been using only a fraction of the amount for enhancing the life of the cancer patients. The charities that are received by the organization is mainly sued up by the families of that are involved with the Cancer Fund of America Inc. it is seen that nearly a dozen of the members who are involved with the organization earn a sum total of $1 million as salaries. Only $1 million out of the $98 million are given as a direct aid to the patients over the last 10 years as published by IRS.

The CEO and the founder of Cancer Fund of America Inc, James T. Reynolds Sr has announced that he would decrease the fundraising cost of the charity, but even after his announcement, it is seen that more than 83 cents out of a dollar are consumed by fundraising (Zainon, et al., 2014).

The organization when started had the mission to aid direct financial assistance and other services and support to mentally and financially help the needy cancer patients; distribution of the information that concerns the early discovery and restriction of cancer; to aid gifts and grants in cash or kind to the patients and other healthcare providers to different non-profit societal services. Cancer Fund of America Inc initially became a well known charitable institution in US, but with time it was discovered that they were making use of fraudulent accounting and auditing system to cheat the donors and utilize the money for their own desire (Golini et al., 2015). Cancer Fund of America Inc was lastly accused of embezzlement with the money and the Federal Trade Commission and the members from all the states of US and the Columbia District declared that the Commission had reached a negotiation with Cancer Fund of America Inc and accused them of misdirecting the donors and making use of the money for their own luxuries.

It was decided that according to the negotiation, the firm needs to dissolve their assets in order to liquidate them to pay the penalty to the donors for their fraudulent activities. The CEO of the firm James Reynold Sr will be suspended from doing any work with respect to any charity and non-profitable work. There was case filed last year in the District Court of U.S where the District of Arizona accused the charity of misusing charitable amount of over $187 million. The complaint was filed stating that the charity had shown a false face to the donors by convincing them that their money will be well utilized by helping the patients by paying for their treatments of chemotherapy, hospital care, transportation etc. However, in practical the money was laundered by the management and the employees to fulfill their desires.

A joint investigation was undertaken to evaluate the business function of Cancer Fund of America Inc and it was discovered that less than two cents of every dollar were transferred to provide direct cash help for the patients and their families. The organization had therefore cheated the patients along with the donors and had kept the money away from the various other charities who are really trying to aid the society and the patients. Cancer Fund of America was accused of making use of an accounting mechanism that revealed the shipments of pharmaceutical equipments and making them larger and more active than their true form. The floppy record of finance within the organization had led to the downfall of the charity as well (Vermeer et al., 2014).

The analysis of the downfall of Cancer Fund of America Inc revealed that their accounting and auditing mechanism was faulty and they did not make use of the guidelines and the regulations that are stated for maintaining the books of accounts. The general guidelines of that are stated in order to construct a true and fair financial statement involved the use of the various techniques.

Internal controls in a firm refer to the protection of all the resources and the assets from any waste, inefficiency and misappropriation. It makes sure the appropriateness, reliability and timeliness in the operating and the accounting information. Internal controls maintains the compliance with respect to the applicable regulations and laws that are implied by the Federal,, State and the Local bodies (Messner 2016). The process even analyzes the degree of performance of the employees and the various departments.

The financial policies of a firm are even a significant factor as it regulates the proceedings of an organization and thereby reveals the financial condition of the firm (Bai 2013). The best practices involve the purchasing policy, ethical policy, budget policies, and reimbursement policies that direct a flow to the firm.

The maintenance of an accurate investment and bank accounts and keeping the cash in separate accounts and reviewing the bank reconciliations periodically helps the financial department to understand the proceedings of the business and thereby undertaking appropriate steps (Christiaens et al., 2014).

The procedure of cash receipt for any transaction that are undertaken by an organization is helpful in keeping records that can be used for future references and during time of discrepancies.

The cash disbursement procedure along with the cash receipting mechanism makes the accounting and the auditing system proper and well defined. The procedure of cash disbursement provides the proper approval of any payment by scrutinizing the reason of payment (Hall et al., 2015). If the reason is valid only then will the payment be approved. This eliminates the chances of any fraud.

There should be a proper maintenance of the payroll and any liabilities that are related to them in order to avoid any dispute with regards to the wages and salaries from the employees. A proper maintenance of the liabilities that are liable to paid if kept accurately reduces the chances of any loss (Andreaus et al., 2014).

The preparation of journal and ledger is the most important step towards accounting as it is the primary step for recoding any financial transaction in the books of accounts. The financial transactions that are undertaken in an organization require being prepared in a journal.

Internal and external accounting and annual financial reporting is essential to be prepared so that the firm can easily have knowledge about their advantage and disadvantages and make necessary steps to improve their business functions (Jinno et al., 2017). External reporting provides the financial reports to the external stakeholders so that they may be able to understand the proceedings of the business and where their money is used up for.

The tax facilities and the analysis of the capital assets by an organization is influential for proper functioning of the business.

These are the main accounting and the auditing practices that are essential for appropriate performance and activities of the business. With respect to Cancer Fund of America Inc, it is seen that they have not made use of any of these practices in recording their transactions that has led to fraudulent activities and misrepresentation to the donors. It is seen that Cancer Fund of America Inc does not have an effective internal control and therefore, the level of risk management and the cost control activities were not present and therefore the employee made use of these faults to fulfill their own desire (Martello et al., 2016).

The charity did not have good financial policies and therefore, policies with respect to ethics and distribution of the items was not ideal and therefore the charity did not utilize the money for the welfare of the patients but were mostly used by the employees and the management (Vangala et al., 2017).

The maintenance of a proper and accurate bank and investment account is essential so that all the transactions are recorded properly and the assets stay at designated places. The proper recording of the bank accounts restricts fraudulent activities. Fund Cancer of America Inc was functioning in the business with a motive to cheat the donor and therefore, it was seen that they did not have proper knowledge about the various accounts where the money was deposit (Hiebl 2014).

There was an inaccurate cash disbursement procedure in the firm as the management and the employees debited money from the firm according to their wish. There was no scrutinizing of the reason of payment and therefore, the concerned parties of the charity utilized the money as and when they desired (Simons 2013). This led to the external shareholders to have a doubt in the functioning of the charity.

The most important problem that Cancer Fund of America Inc had was misrepresenting their financial statement to the external stakeholders. They did not provide the original statements and revealed that they used the money for the benefit for the cancer patients whereas the charity only gave 2 cents out of a dollar to the welfare of the patients. The identification of this matter led to disputes from which a case was filed. Therefore, the judgment of the District Court liquidated the assets of the firm and termination of the services of Cancer Fund of America Inc.

The evaluation of the above case study reveals that Cancer Fund of America has made use of fraudulent activities and therefore, it is essential that every firm and any firm that will be established by James T. Reynold Sr in future should look at the accounting and auditing practices in accordance with the Accounting principles so that all the actions of the business can be maintained and handled with ease without any fault. The process of accounting and auditing system requires be supervising and monitoring periodically so that any fraudulent activities can be restricted. The Government should even drastic steps to improve the legislations so that such activities can be restricted. 

The above case study reveals that the Cancer Fund of America has made use of fraudulent activities and thereby has cheated the society as well as the donors. This has led to the liquidation of the firm. Therefore, it is essential that the Government and the Federal Commission takes drastic step to make it mandatory to review the accounting system and reduce the level of fraud and thereby improving the welfare of the society.

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