Accounting Errors in Nonprofit Organizations
Jeffrey J. Burks
University of Notre Dame
November 26, 2013
This study examines the accounting errors committed by public charities. The picture that emerges from the findings is consistent with concerns about nonprofits’ fragile infrastructures. Public charities report errors at a rate that is 60 percent higher than that of corporations, and almost twice as high as that of similar-sized corporations. Most of the errors appear to involve basic mistakes rather than technical errors or intentional manipulations, and are commonly errors of omission (i.e., failing to recognize items that should be recognized). The error rate varies little with organization size, type, or portion of the budget devoted to administrative activities. It does vary considerably by auditor type, with Big 4 and second tier auditors having significantly lower error rates. The error corrections often have low visibility in the financial reports issued by public charities, in apparent violation of auditing standards and IRS reporting rules. The study may help improve nonprofit financial reporting by helping nonprofit managers and auditors understand what types of errors are most commonly committed, and thus what activities to monitor more closely. The study also contributes to the academic literature by comparing the errors of nonprofits to those of corporations and by improving understanding of discrepancies between audited and unaudited financial reports.
Number of Pages in PDF File: 31
Keywords: nonprofit, public charity, financial reporting, accounting errors, restatements
JEL Classification: M40working papers series
Date posted: November 22, 2012 ; Last revised: January 28, 2014
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