Expense Misreporting in Nonprofit Organizations
45 Pages Posted: 15 Sep 2004
There are 2 versions of this paper
Expense Misreporting in Nonprofit Organizations
Expense Misreporting in Nonprofit Organizations
Date Written: September 8, 2005
Abstract
We examine whether nonprofit organizations understate fundraising expenses in their publicly available financial statements. A large body of anecdotal evidence notes that an inexplicable number of nonprofits report zero fundraising expenses. We provide empirical evidence that the zero fundraising expense phenomenon is at least partly due to inappropriate reporting. We then examine to what extent these misreported expenses are the result of managerial incentives. Prior research finds an association between reported expenses and managerial compensation as well as the level of donations received. Using these findings we construct two incentive variables and find a positive association between misreporting behavior and managerial incentives. Our results also suggest that the use of an outside accountant reduces the probability that a nonprofit will misreport expenses, consistent with the use of an outside paid accountant increasing the reliability and usefulness of nonprofit financial reports. Finally, we find that SOP 98-2 reduced the probability that a nonprofit will misreport fundraising expenses.
Keywords: Nonprofit organizations cost shifting, agency problems
JEL Classification: M4, L3
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Causes and Consequences of Internal Control Problems in Nonprofit Organizations
By Christine Petrovits, Catherine Shakespeare, ...
-
Web Disclosure and the Market for Charitable Contributions
By Gregory D. Saxton, Daniel Neely, ...
-
What's Good for the Goose is Not Good for the Gander: Sarbanes-Oxley-Style Nonprofit Reforms
-
Economic Consequences of Going Concern Audit Opinions in Nonprofit Charitable Organizations
-
Nonprofit Resource Allocation Decisions: A Study of Marginal versus Average Spending
By Karen A. Kitching, Andrea Alston Roberts, ...