Fraud Risk in Governmental and Not-for-Profit Organizations

Chapter 2 THE GOVERNMENTAL AND NOT-FOR-PROFIT ENVIRONMENTS

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

• Identify the characteristics and situations that exist in governmental and not-for-profit entities that differentiate them from entities in the private sector.
• Determine how objectives of financial reporting and the users of financial statements of governments and not-for-profit entities differ from those in the private sector.
• Determine how to incorporate the unique financial reporting objectives of governmental and not-for-profit entities in planning and performing audits of these organizations.

Unique Characteristics of the Governmental Environment

Public sector governmental organizations are very different from their private sector counterparts in a number of ways, despite current rhetoric to run government like a business. Similarly, not-for-profit entities differ from private sector entities for various reasons; most notably, they do not operate for purposes of generating a profit. Both governmental and not-for-profit entities primarily operate to provide services to the public; however, they are quite different from each other.

Governmental Organizations

The unique characteristics of governmental organizations are generally as illustrated here.

Unique Characteristics of Governmental Organizations

Government in the Sunshine	Public Goods and Services	Political Process	Lack of a Profit Motive
They are public ...