IDEAS home Printed from https://ideas.repec.org/a/kap/jbuset/v146y2017i1d10.1007_s10551-015-2921-9.html
   My bibliography  Save this article

Why Bad Things Happen to Good Organizations: The Link Between Governance and Asset Diversions in Public Charities

Author

Listed:
  • Erica Harris

    (Villanova University)

  • Christine Petrovits

    (The College of William and Mary)

  • Michelle H. Yetman

    (University of California, Davis)

Abstract

In the United States, the IRS now requires charities to publicly disclose any significant asset diversion, which is the theft or unauthorized use of assets, that the charity identifies during the year. We use this new disclosure to investigate whether strong governance reduces the likelihood of a charitable asset diversion. Specifically, for a sample of 1528 charities from 2008 to 2012, we simultaneously examine eleven measures of governance that capture four broad governance constructs: board monitoring, independence of key individuals, tone at the top, and capital provider oversight. We find consistent evidence that good governance across all four constructs is negatively associated with the probability of an asset diversion. Of the eleven governance measures, our results indicate that monitoring by debt holders and government grantors, audits, and keeping managerial duties in-house are most strongly associated with lower incidence of fraud. Our results also indicate that the likelihood of a fraud is negatively associated with a board review of the Form 990, the existence of a conflict of interest policy, and the presence of restricted donations. In addition, we document that the likelihood of an asset diversion is negatively associated with program efficiency and positively associated with growth and organizational complexity.

Suggested Citation

  • Erica Harris & Christine Petrovits & Michelle H. Yetman, 2017. "Why Bad Things Happen to Good Organizations: The Link Between Governance and Asset Diversions in Public Charities," Journal of Business Ethics, Springer, vol. 146(1), pages 149-166, November.
    • Handle: RePEc:kap:jbuset:v:146:y:2017:i:1:d:10.1007_s10551-015-2921-9
    DOI: 10.1007/s10551-015-2921-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10551-015-2921-9
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10551-015-2921-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    2. Murray Weidenbaum, 2009. "Who will Guard the Guardians? The Social Responsibility of NGOs," Journal of Business Ethics, Springer, vol. 87(1), pages 147-155, April.
    3. James Agarwal & David Malloy & Ken Rasmussen, 2010. "Erratum to: Ethical Climate in Government and Nonprofit Sectors: Public Policy Implications for Service Delivery," Journal of Business Ethics, Springer, vol. 94(1), pages 1-2, June.
    4. Gladys Lee & Neil Fargher, 2013. "Companies’ Use of Whistle-Blowing to Detect Fraud: An Examination of Corporate Whistle-Blowing Policies," Journal of Business Ethics, Springer, vol. 114(2), pages 283-295, May.
    5. Leone, Andrew J. & Van Horn, R. Lawrence, 2005. "How do nonprofit hospitals manage earnings?," Journal of Health Economics, Elsevier, vol. 24(4), pages 815-837, July.
    6. Marcia Miceli & Janet Near & Terry Dworkin, 2009. "A Word to the Wise: How Managers and Policy-Makers can Encourage Employees to Report Wrongdoing," Journal of Business Ethics, Springer, vol. 86(3), pages 379-396, May.
    7. David Malloy & James Agarwal, 2010. "Ethical Climate in Government and Nonprofit Sectors: Public Policy Implications for Service Delivery," Journal of Business Ethics, Springer, vol. 94(1), pages 3-21, June.
    8. Tinkelman, Daniel, 2009. "Unintended consequences of expense ratio guidelines: The Avon breast cancer walks," Journal of Accounting and Public Policy, Elsevier, vol. 28(6), pages 485-494, November.
    9. Michelle H. Yetman & Robert J. Yetman, 2012. "The Effects of Governance on the Accuracy of Charitable Expenses Reported by Nonprofit Organizations," Contemporary Accounting Research, John Wiley & Sons, vol. 29(3), pages 738-767, September.
    10. Kitching, Karen, 2009. "Audit value and charitable organizations," Journal of Accounting and Public Policy, Elsevier, vol. 28(6), pages 510-524, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jeroen Veldman & Tanusree Jain & Christian Hauser, 2023. "Virtual Special Issue on Corporate Governance and Ethics: What’s Next?," Journal of Business Ethics, Springer, vol. 183(2), pages 329-331, March.
    2. Keval Amin & Erica Harris, 2022. "The Effect of Investor Sentiment on Nonprofit Donations," Journal of Business Ethics, Springer, vol. 175(2), pages 427-450, January.
    3. Gregory D. Saxton & Daniel G. Neely, 2019. "The Relationship Between Sarbanes–Oxley Policies and Donor Advisories in Nonprofit Organizations," Journal of Business Ethics, Springer, vol. 158(2), pages 333-351, August.
    4. Rajeev K. Goel & Michael A. Nelson, 2023. "Ending Covid-19 Vaccine Apartheid through Vaccine Donations: The Influence of Supply Chains," CESifo Working Paper Series 10723, CESifo.
    5. Gianni Onesti & Riccardo Palumbo, 2023. "Tone at the Top for Sustainable Corporate Governance to Prevent Fraud," Sustainability, MDPI, vol. 15(3), pages 1-16, January.
    6. Rajeev K. Goel, 2020. "Uncharitable Acts in Charity: Socioeconomic Drivers of Charity‐Related Fraud," Social Science Quarterly, Southwestern Social Science Association, vol. 101(4), pages 1397-1412, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dominic Cyr & Suzanne Landry & Anne Fortin, 2023. "Financial Disclosure Management by Charitable Organisations: A Conceptual and Operational Framework," Australian Accounting Review, CPA Australia, vol. 33(1), pages 46-65, March.
    2. Carolyn J. Cordery & Dalice Sim & Tony Zijl & Gary Monroe, 2017. "Differentiated regulation: the case of charities," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(1), pages 131-164, March.
    3. Steven Balsam & Erica E. Harris, 2018. "Nonprofit executive incentive pay," Review of Accounting Studies, Springer, vol. 23(4), pages 1665-1714, December.
    4. Gregory D. Saxton & Daniel G. Neely, 2019. "The Relationship Between Sarbanes–Oxley Policies and Donor Advisories in Nonprofit Organizations," Journal of Business Ethics, Springer, vol. 158(2), pages 333-351, August.
    5. Hofmann, Mary Ann & McSwain, Dwayne, 2013. "Financial disclosure management in the nonprofit sector: A framework for past and future research," Journal of Accounting Literature, Elsevier, vol. 32(1), pages 61-87.
    6. Dominic Cyr & Suzanne Landry & Anne Fortin, 2022. "Management of Charitable Program Expense Ratios in the Charity Sector," Australian Accounting Review, CPA Australia, vol. 32(1), pages 106-123, March.
    7. Ge Bai, 2013. "How Do Board Size and Occupational Background of Directors Influence Social Performance in For-profit and Non-profit Organizations? Evidence from California Hospitals," Journal of Business Ethics, Springer, vol. 118(1), pages 171-187, November.
    8. Javier Garcia-Lacalle & Lourdes Torres, 2021. "Financial Reporting Quality and Online Disclosure Practices in Spanish Governmental Agencies," Sustainability, MDPI, vol. 13(5), pages 1-21, February.
    9. Ivan Bozhikin & Nikolay Dentchev, 2018. "Discovering a Wilderness of Regulatory Mechanisms for Corporate Social Responsibility: Literature Review," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 145-174, June.
    10. Lin, Xiaowei & Ding, Zijun & Chen, Aihua & Shi, Huaizhi, 2022. "Internal whistleblowing and stock price crash risk," International Review of Financial Analysis, Elsevier, vol. 84(C).
    11. Raphael Duguay & Michael Minnis & Andrew Sutherland, 2020. "Regulatory Spillovers in Common Audit Markets," Management Science, INFORMS, vol. 66(8), pages 3389-3411, August.
    12. Marc Jegers, 2010. "The effect of board‐manager agency conflicts on non‐profit organisations’ earnings and cost allocation manipulations," Accounting and Business Research, Taylor & Francis Journals, vol. 40(5), pages 407-419.
    13. Lee, Gladys & Xiao, Xinning, 2018. "Whistleblowing on accounting-related misconduct: A synthesis of the literature," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 22-46.
    14. Elka Johansson & Peter Carey & George Tanewski & Iliyas Yusoff, 2022. "The effect of members on charities’ annual reporting: evidence from companies limited by guarantee in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1851-1886, April.
    15. Eugene Soltes, 2020. "Paper Versus Practice: A Field Investigation of Integrity Hotlines," Journal of Accounting Research, Wiley Blackwell, vol. 58(2), pages 429-472, May.
    16. Orly Benjamin & Sarit Nisim & Galit Segev, 2015. "Corporate Social Responsibility as Shaped by Managers’ Role Dissonance: Cleaning Services Procurement in Israel," Journal of Business Ethics, Springer, vol. 130(1), pages 209-221, August.
    17. Benjamin Florian Siggelkow & Jan Trockel & Oliver Dieterle, 2018. "An inspection game of internal audit and the influence of whistle-blowing," Journal of Business Economics, Springer, vol. 88(7), pages 883-914, September.
    18. Cardinaels, Eddy, 2009. "Governance in non-for-profit hospitals: Effects of board members' remuneration and expertise on CEO compensation," Health Policy, Elsevier, vol. 93(1), pages 64-75, November.
    19. van der Heijden, Hans, 2013. "Small is beautiful? Financial efficiency of small fundraising charities," The British Accounting Review, Elsevier, vol. 45(1), pages 50-57.
    20. Matthew J. Hornsey & Cassandra M. Chapman & Heidi Mangan & Stephen Macchia & Nicole Gillespie, 2021. "The Moral Disillusionment Model of Organizational Transgressions: Ethical Transgressions Trigger More Negative Reactions from Consumers When Committed by Nonprofits," Journal of Business Ethics, Springer, vol. 172(4), pages 653-671, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jbuset:v:146:y:2017:i:1:d:10.1007_s10551-015-2921-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.