Nonprofit organization fraud reporting: does governance matter?

Abstract

PurposeThis paper aims to contribute to the extant literature in this field by examining nonprofit organizations’ fraud reporting compliance using logistic regression and decision tree induction algorithms.Design/methodology/approachThis study used the data from 428 nonprofit organizations during 2009-2015 period, and analyzed 21 individual measures (obtained from these organizations’ Internal Revenue Service Form990 filings) using logistic regression and decision tree induction algorithms, to study the governance characteristics and fraud reporting.FindingsThe study found evidence that compliance with the law, board of directors’ independence, federal audit and using independent accountants to compile and review financial statements are the most prevailing factors affecting the odds of nonprofit organizations experiencing fraud reported as an asset diversion.Originality/valueThe argument associated with using governance to reduce the chances of fraud has been a popular topic in industry and academia but unfortunately has limited empirical evidence in the literature, especially when it relates to nonprofits. This study contributes to the literature in this respect.