New Century Financial Corporation - Book Report/Review Example

New Century Management is one of the principal concepts in businesses and organizations. It is the function that ensures the coordination of peoples’ efforts in order to accomplish objectives and goals with the available resources effectively and efficiently. Management comprises of efficient staffing, organizing, controlling, and planning an initiative or an organization to achieve its objectives. A good management ensures efficient accounting policies and procedures, implementation of corporate strategies, and proper internal controls to ensure proper utilization of technological resources, financial resources, natural resources, and human resources. However, the management team of New Century Financial Corporation has not observed the rules and guidelines of good management (Palepu, Sesia, and Srinivasan 58). The company is experiencing a drop in their capital resources because they have not properly managed and maintained accounting procedures and policies that would enhance their consistency and accountability. Efficient accounting policies and procedures serve as training and assessment tools for the entire staff. Communication is one of the essential components in the internal control model. A good manager ensures that they communicate to their staff the company’s policies and procedures to make sure that the entire staff is “on the same page.” This will enhance understanding between the accounting department and other departments in the companyhowever, the report presented affirmed that lack of collaboration between Senior Management and the Board of Directors of the Company led to the catastrophic exist if the company from the market. (Palepu, Sesia, and Srinivasan 61).A good business requires effective working conditions between all of its departments. It is always healthy for a business whenever all its departments have a mutual understanding. Without efficient communication and proper internal control of resources, a company is sure of dropping in its profits. The first three quarters of 2006 saw New Century Financial Corporation be the second largest originator of subprime residential mortgage loans ((Palepu, Sesia, and Srinivasan 59). The company was increasing its worth and profits. It had generated $367 million in the first year of 1996 to almost $60 billion in 2006. The company had a market capitalization that was over one billion dollars in 2007, and a credit facility of $17.4 billion that it could finance its operations or activities. The company recorded net earnings of $411 million for the year 2005, and net earnings of $276 for the first nine months that ended in September 30th 2006, but all this dropped due to the push and pull forces between the Senior departments and the Board of Governors, leading to the collapse of one of the most successful companies. The examiner appointed by the United States Trustee for region 3 investigated and established that the Senior Officials were responsible for accounting and financial errors, statements, and misstatements (Palepu, Sesia, and Srinivasan 68). The examiner proved that the company had high cases of unauthorized use of their cash. Unauthorized use of cash leads to misinterpretation of financial and accounting statements. When a company has wrong financial statements it cannot present it correct financial position. It will collapse at a high speed, just like New Century Company and its affiliates stopping their operations and some of their affiliates getting absorbed by other larger financial companies. The New Century management had improper financial statements. This is proved by the unaccounted for bonuses that were paid to some former New Century Officials between 2005 and 2006. An efficient financial statement must entail all payments or financial transactions that the company operates. In this case, the management did not record or they incorrectly entered the wrong data in the financial statement of the company (Palepu, Sesia, and Srinivasan 69). This led to the company experiencing financial crisis because they did not have the right data to operate the company. Financial managers must be loyal, have good faith, due care, and must be candid in disclosing financial statements. However, this was not the case with some of the New Century Officials. These Officials recorded incorrect data that did not display the correct position of the company, leading to its downfall (Palepu, Sesia, and Srinivasan 71). The report affirmed that New Century managers engaged in numerous imprudent and improper activities that related to its operations, loan originations, and improper financial and accounting reporting processes (Palepu, Sesia, and Srinivasan 65). Managers of a company have the responsibility of ensuring that their companies engage in operations that will enable the company achieve its goals and objectives. However, when managers engage in improper and imprudent activities that are against the codes and policies of the company, then they are driving their company to fall. The reports of the examiner proved that the senior officials of the company were one of the factors responsible for the company to collapse. Their inability to present and report its actual operations and loan originations led to the collapse of the company. Reports by the Examiner affirmed that KPMG were one of the contributors to the company’s downfall. KPMG contributed to the financial and accounting deficiencies that enabled the company to persist and precipitated the company not following some laid down accounting standards. Accounting standards provide a company with guidelines that will enable them operate efficiently, but New Century Companywas not following some accounting standards making it lose a lot of financial resources ((Palepu, Sesia, and Srinivasan 68). KPMG breached professional standards that cost the New Century its operations. The company’s had a lot of negligence misinterpretation in their internal controls and financial statements. Officials of the company made wrongful moves that affected the company. They underwrote guidelines that enabled borrowers who were not qualified to access loans to get loans. The move led to the company to have deficiencies that affected the company. There are guidelines that provide all companies with the right procedures to follow when handling any activity. The company changed or turned a blind eye to these guidelines and they brought the entire financial crisis to themselves (Palepu, Sesia, and Srinivasan 76). The loans of the company were rejected by several investors and most of their appraisals were rejected because they were having financial crisis and they do not follow the laid accounting guidelines. Officials did not save the company despite the fact that the risks of the company were increasing at an alarming rate. Some of the company officials suggested ways and recommendations that would help the company and save it from deteriorating. Their opinions were rejected and the company lost billions of dollars that drove the company out of the market. The Company had an obsession of increasing their loan originations with assessing the market and establishing the risks that might be associated with investing in the strategy. A good business will have to assess its strategy before settling on the project. The company increased the number of borrowers and more than seventy percent of its loans had “teaser rates” that increased over time. The company did not verify the ability of the borrowers to pay back the money and most (approximately forty percent) of the borrowers loans were underwritten. It was shocking when a Senior Official at the New Century Company said that they could not determine the ability of their borrowers to pay back the money (Palepu, Sesia, and Srinivasan 79). This is unhealthy for the company because a lot of money is going out and the company cannot get money to operate. The report proved that the company failed to have effective internal control systems. An effective and productive company requires a good management system that has an effective internal control framework. The framework will enable auditors and management team to represent and report the correct information on the company’sposition. The company lacked tracking internal controls and their repurchase system was not up-to-date leading to the company’s fallout. These inadequacies in the company resulted to deficiencies in the financial and accounting reporting. When a business has a deficiency in itsfinancial and accounting reports, then the business is not in a position to correctly present its position because the data collected are all wrong (Palepu, Sesia, and Srinivasan 79). The backlog of repurchases that accumulated up to ninety days causes the business to fall out of the market. The backlog made investors to shy away from investing in the company because they had lost faith in the purchasing procedures of the company. Technology is one of the most vital components for a successful business. Modern technology process data faster than processing data manually and a large amount of data can be stored in modern technology. However, the management in New Century did not invest in modern technology. The company could not meet or compete favorably with increasing business challenges and competition (Palepu, Sesia, and Srinivasan 73). The company failures can be traced due to the incompetent technologies. When a company cannot support most of its data and information, and increase its output, then it is evident that it cannot compete favorably with other companies that produce efficient and increased output. The company did not change most of its management. With increased level of competition, each company requires an efficient and productive management. But evidence shows that some of the New Century management was not efficient and productive leading to mismanagement of resources in the company, failure to follow legal standards, applicable accounting rules and business practices (Palepu, Sesia, and Srinivasan 81). The New Century exists contributed greatly to the subprime meltdown. The meltdown contributed to the instability of global equity markets, tightening of various credit markets, fears of recession, and growing number of firms losing billions of dollars (Palepu, Sesia, and Srinivasan 69). Companies must get lessons from the fallout of the New Century Company and adopt measures and strategies that they will use improve or maintain activities that are in their mortgage and financial industries. Works Cited Read More