Good Case Study About Finance Case Study

Steps that the CAI took prior to Three Cups of Tea’s publication

Organized an effort to publish a book about CAI and its mission
Funded the writing and publication of the book
Pooled the funds from the sales of the book to finance future projects
Steps that the CAI took after the first book’s publication
Organized additional effort to publish another book about CAI and its mission
Funded the writing and publication of the book
Pooled the funds from the sales of the book to finance future projects

Funded projects in Pakistan and other parts of Central Asia to build schools and help communities

Issues Identified
Mortenson did not surrender the royalties he received from the total sales of the book to CAI.
Mortenson has been criticized for numerous occasions of violating the organization’s policies on expense reimbursement
Mortenson and the board directors did not really make any real step to control the outflow of finances and establish sound fiscal control policies

Question 1

What steps were taken prior to the success of Three Cups of Tea to establish sound fiscal management in the organization?
This financial management case study that features the Central Asia Institute (CAI) and its founder Greg Mortenson revolves around the issue on how to nonprofit organizations must be managed financially. Before attempting to answer this question, it is important to list some important facts and assumptions about nonprofit organizations such as the CAI first. Firstly, nonprofit organizations exist often to support an advocacy or alleviate and contribute to the process of solving a social issue. In the case of CAI, they exist, at least based on their claims about their existence, to raise funds to rebuild, expand, grow, and create new schools and support communities in central Asian countries like Pakistan.
In the current case, some of the projects featured were the schools they allegedly build or helped establish in different locations in Pakistan. Secondly, nonprofit organizations do not exist to make profits, although it is a generally accepted fact that they behave and must behave and be operated just like how for profit organization does—that is, they have to be guided by a sound financial management framework because after all, they are not a business and their sources of income are only fairly limited to donations from philanthropists and grants from government and non-government organizations. Without a nonprofit organization’s leader who has the ability, transparency, and the knowhow to be a good steward of the donations and all income generated and provided to the organization (i.e. CAI) by whomever, then all the donations and grants can easily be considered as a waste. Thirdly and lastly, nonprofit organizations greatly benefit from tax exemptions and even incentives from the government, in exchange of their fulfillment of the expectation that they will fulfill their mission transparently and with integrity.
In this case, it is clear that Greg Mortenson, the founder of CAI, is being ridiculed for the apparently anomalous financial management and auditing system that is being implemented at CAI. Notice that it all started when CAI started out as a small and underfunded nonprofit organization with only a measly 1 million USD worth of donation at its disposal. For a regional organization such as CAI, that amount would reach nowhere and accomplish nothing, especially when placed under the control of someone who does not know how to financially manage such amount in accordance to the real mission of the organization and the real purpose of the fund that was donated.

Were they unsuccessful or inadequate? Explain.

That was the only step, if one may even consider that as a real step, that was aimed at improving the prevalent financial management system and or framework at CAI, prior to the development and release of the book Three Cups of Tea. In terms of effectiveness, one could easily say that it was a highly successful effort or step because it was this book project that led to the growth of the organization’s financial assets. After successfully selling more than four million copies, CAI’s popularity among donors, majority of which are philanthropists, and the government, grew immensely, leading to a growth in total donations from 868,148 USD in 2005 to 12.4 million USD in 2008. It is important to note that this excludes the supposed revenues generated from the sales of the first book Three Cups of Tea. The purpose of the release of the company’s first book was to raise funds for the company’s future projects. Basically, it was a jumpstart project and it successfully accomplished that purpose.

What steps were taken after the book’s release to enhance fiscal controls and procedures?

What really matters are the steps that the company, especially its founder which apparently had majority of the control over CAI’s financial management processes, took after the first and the subsequent books have been published; or after the organizational finally had the means to fund its proposed projects in Central Asia.

Were they successful or inadequate? Explain.

Apart from the commencement of the community and school building projects in Pakistan and other areas in Central Asia, CAI’s leaders did nothing to enhance their fiscal controls and procedures. So to summarize, the steps that the CAI’s leaders did after the first book was published were inadequate mainly because they simply carried over the strategies they used before the Three Cups of Tea was published and actually spent in on a project with no real changes made on their fiscal control policies.
In fact, they did the opposite of that. Its founder has been continuously caught and rebuked by external auditing companies for his apparent lack of concern about the way how the organization’s already fat finances were being spent and managed. He was even caught adding to the financial mismanagement efforts ongoing in the organization, for which he has been criticized. To give Mortenson some credit, however, he paid the total amount of his personal expenses which apparently was initially charged to CAI, using his own personal money. However, as the official author of the books published and funded by CAI, he received huge amounts of money in royalties and grants—amount which apparently dwarfs the amount that his critics said he stole from the organization.
If anything, he was one of the luckiest persons who benefited from the publishing of the book. This created a cycle where the thief gets caught and gets forced by the public to pay for what he apparently stole within CAI without any real changes. This may be due to the fact that the board of directors has failed to enforce strict internal auditing policies and have failed to support the idea of allowing external auditing organizations to take charge so that a higher level of intra-organizational transparency may be achieved.

Question 2

What more could have been done by the organization to compel Greg Mortenson to comply with the procedures for expense reimbursement?
After reading the case study and identifying the key problems surrounding Central Asian Institute’s financial mismanagement case, there appears to be one direct and simple solution to the organization’s problem of compelling Greg Mortenson to comply with the procedures for expense reimbursement. That is, penalization. The board of directors of the organization normally has the power or authority to penalize anyone, even the acting chairman or the founder of the organization, for not abiding with the established rules and policies, especially when it comes to issues related to financial management such as expense reimbursement.
If true, what Mortenson has been perpetrating for the past couple of years can be considered as a form of corruption. Specifically, he is trying to use the organization to forward his personal agenda—which appears to be to generate revenue for himself, something which directly contrasts the reasons of existence of nonprofit organizations. Penalties would most likely force him to comply with the expense reimbursement policies. However, the board of directors must have a backup or contingency plan.
For example, they can make an agreement with Mortenson that states that systemic violation of the rules and policies even after the application of administrative and financial penalties would lead to his termination as the acting chairman of the organization despite his status as the founder. This would most likely solve the problem. In fact, it would solve it so effectively that no other people within the organization would dare to violate the company’s policy because they knew that the rules and policies inside the organization have teeth and claws—meaning they get fully enforced regardless whether the perpetrator is the founder, a member of the board of directors, or whoever.

Why did the organization not go to greater lengths to enforce compliance?

Now, the only logical reason why the organization would not go to greater lengths to enforce the compliance would be because they are co-conspirators of Mortenson’s money-making scheme within CAI’s organizational framework. In the case, there was some information that one can see as evidence that this is indeed the case. Examples of such information were the decision of the board to limit the access of external auditing bodies to CAI’s books and financial records, which is the opposite of what they should have done if they really wanted to ultimately solve CAI’s problem in financial management and putting in place fiscal controls and procedures.