My compliments to World Help. They have revised their financial statements to disclose the 2011 numbers were revised again.
My hat is off to them for the courage to revise the report.
The newest report can be found at their website here.
Note 12 is new. It is titled Comparative Statements and addresses the second revision of 2011 information.
The note says management restated the 12-31-11 financial statements.
The reason is provided. Quoting, the report says: (more…)
There are some accounting concepts in the most recent financial statements released by World Help that warrant discussion. This post will walk through those items I noticed.
This will be a long post. You might want to get a fresh cup of coffee and settle in.
Efforts to reach out to World Help
I have been asking World Help for their comment for a week and a half. The only reply I have received was when the president’s assistant gave me the e-mail contact for the organization’s outside media consultant. I have sent e-mails to the president’s assistant and the contract media consultant several times and received no replies.
Proper accounting is a broader issue in the R&D community than has been discussed
The focus of conversation on accounting in the relief & development community has been variance power and the valuation of medicine, particularly 500 mg mebendazole.
I perceive there are issues involved in disclosures that haven’t yet been discussed.
In accounting shorthand, the matters I see that have not yet been addressed are disclosures of concentration of contributions, concentration of donors, and estimates with a reasonable possibility of change in the near-term.
(Cross-post from my other blog, Attestation Update.)
We know the price Mr. Scott London, former partner of KPMG, is accused of setting for his integrity, honor, and reputation. The entrance price tag was several thousand dollars and added up to under $100,000.
Cumulative amount is allegedly $50,000 cash plus a watch with claimed value of $12,000 plus some concert tickets for his family, with asserted total around $70,000 or $90,000.
That total allegation isn’t the real measure of his price. The starting point was a few thousand dollars in the first deal. If the story outlined in the criminal indictment is correct, that is the point his integrity was sold.
An old joke about your price
There is an old joke with many variations that goes something like this:
Man to woman in a social setting: “would you sleep with me for a million dollars?”
She indicated she would be willing to do so.
Him: “How about for $20?”
With great indignation, she said “Of course not! What kind of woman do you think I am?”
In a major embarrassment for one particular CPA firm and all CPAs in general, last week a partner from one of the Big 4 firms was indicted for conspiracy to commit insider trading.
Mr. Scott London, formerly a partner with KPMG, was indicted by the US government and charged with insider trading by the SEC in the context of allegedly passing information about his clients to a buddy who allegedly traded on the info. He obtained that information as a part of his role as a senior level audit partner.
Several posts at my other blog, Attestation Update, talk about the story as it developed during the week. Here’s the posts in chronological order: (more…)
Chronicle of Philanthropy has a major article out on joint cost allocation, written by Suzanne Perry – Watchdog Cracks Down on Misleading Statements on Fundraising Costs (behind paywall).
The issue is that under certain circumstances, the accounting rules allow allocating fundraising costs into the program category on the functional allocation of expenses. The million dollar question is whether the particular fundraising cost meets very specific conditions.
Here is the crux of the issue in four sentences:
“Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned” describes the tragic consequences from fraud.
There are ripple effects that spread out to harm innocent bystanders. The perpetrator draws a wide range of well-deserved wages that will be paid in full.
The book looks at two fraud incidents to learn what happens after a fraud is discovered. One took place in a local megachurch and the other in the mayor’s office of a small city.
The book closes with a discussion of the fraud triangle. That’s the idea that three components need to be present for a fraud to take place – opportunity, motivation, and rationalization. There are steps an organization can take to reduce those factors.
You can find the book at Amazon here.
This book is a compilation of blogs posts that have been previously published at Nonprofit Update and Attestation Update. The posts have been edited slightly and reorganized for easier reading.
Major sections of the book: (more…)
There are three different levels of services you could obtain from a certified public accountant. These are referred to as compilation, review, and audit.
Financial statements are presented on the basis of some set of accounting rules. This is referred to as the financial reporting framework.
The vast majority of the time, this would be a large body of knowledge that is called generally accepted accounting principles, or GAAP. Imperfect in implementation though it may be, the concept is that similar transactions will be recorded by all organizations in the same way. In addition, financial statements of similar organizations will actually look similar.
If there is some unique reason to do so, the financial statements could be presented on another basis of accounting.
Compilation
Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned will be released soon in Kindle format. This is a compilation of blog posts about the damage caused by fraud. It will also discuss the fraud triangle.
The sections of the book are: (more…)
I recently enjoyed the 1968 version of The Producers. Wonderful stuff. Lots of laugh lines I’d forgotten about since I watched it last.
While watching, I realized there was a great illustration of a fraud triangle developed in about 5 minutes or so. For an edifying, educational exercise, let’s review the sequence to illustrate the concept of fraud triangles.
Well, maybe the release of the draft Not-for-Profit Entities Audit and Accounting Guide isn’t quite as exciting as those ancient commercials announcing the release of the new phone book by showing people running around celebrating that it arrived. (The line was also in the movie The Jerk, starring Steve Martin.) For auditors of NPOs, the arrival of the long-expected audit guide is far better than what the old commercials would have you think about a new phone book.
The draft guide can be found here. The AICPA’s page for the draft is at Overhaul of the Not For Profit Entities Audit and Accounting Guide.
The AICPA’s announcement can be downloaded here. Some highlights, as described in their announcement: (more…)
The 7-26-12 edition of CPA Letter Daily says a working draft is expected soon:
The AICPA’s Financial Reporting Executive Committee is expected to issue a working draft of the accounting content of a proposed Audit and Accounting Guide, Not-for-Profit Entities, on Aug. 15
If you work in the financial area of the NPO world, this would be something to watch for. The revised guide has been in development for a number of years.
…will be this next Friday, June 12 15, 2012, from 2:00 pm until 4:00 pm Eastern time. Two hour update for auditors of nonprofits. Cost is fairly steep for CPE at $89 but worthwhile if you concentrate on NPOs.
Course is Non For Profit Organization … Are You Ready for Audit Season?
Product # WBC12173I
You could figure out how good a car is by looking at it from across the street.
Or you could look inside & drive it around the block.
Or you could take the car to your mechanic for a couple of hours to get it really checked out .
We can use that as an analogy of the differences between a compilation, a review, and an audit.
Caroline Preston, from The Chronicle of Philanthropy, reports in Watchdogs Zero In on Charity Drug Valuations, that Charity Navigator is floating the idea of asking some charities to restate the last four years of financial statements.
Many NPOs that applied SFAS #157 saw their revenue drop dramatically because of using lower valuation for medicine, especially deworming meds, most specifically mebendazole. (I know, I know, it’s actually ASC 820-10, but my brain still thinks in terms of SFAS numbers when it comes to pre-ASC rules.)
The rating methodology used by Charity Navigator, according to Ms. Preston’s article, penalizes NPOs whose income drops. That means a lot of relief & development NPOs will take a big hit on their ratings.
I don’t have any information beyond the article, so I don’t know what reaction they are getting.
It’s just my guess, but I think they will not get a very good response to their idea. I don’t think NPOs will be at all amused to take this approach.
A: No way.
This is the conclusion of Saundra Schimmelpfennig in her e-book, Lies, White Lies, and Accounting Practices; Why nonprofit overhead doesn’t mean what you think it means
Many people believe that the ratio of supporting services to total expenses is the ideal way to measure the efficiency of a nonprofit organization.
Even at a conceptual level, that is a flawed idea.
At a practical level, Ms. Schimmelpfennig explains it is so easy to play games with the functional allocation that the overhead ratios should be viewed skeptically.
