Do Employee Fraud Reporting Intentions Differ between For-Profit and Nonprofit Organizations?

Abstract

Scant coverage of fraud in nonprofit organizations and smaller firms exists despite surveys and headlines indicating fraud prevalence is at greater levels among these firms than at for-profit and larger firms. Applying a combination of stakeholder salience theory and whistleblowing theory, this paper establishes a background for such comparisons. Results of a survey of 153 fulltime employees uncover differences in whistleblowing between for-profit and nonprofit organization types. We find those who work at for-profit organizations are more likely to whistleblow than those who work for nonprofit organizations. The results and supplemental analysis suggest whistleblowing intention for fraud is significantly more likely for larger organizations (measured by number of employees) regardless of organization type. Further, as geographic reach increases, for-profit employees are increasingly likely to report.

Removing Barriers to Whistleblowing at Nonprofit Organizations through Employee Empowerment*

“…Whistleblowing benefits nonprofits by increasing transparency and by enabling them to stop the wrongdoing of their employees directly, in its early stages, rather than waiting until the media or law enforcement gets wind of the fraud. However, ACFE (2022) and Scheetz et al (2020) contend that there is less fraud reporting at NPOs than at for-profit organizations mainly because NPOs are less regulated, organized, and financed to support a whistleblowing process.…”

“…Recently, Sheetz et al (2020) find that NPO employees are less likely to report a case of wrongdoing than their counterparts at for‐profit organizations. The authors ascribe this gap to stakeholder differences, less stringent regulation, and fewer whistleblowing resources at NPOs.…”

Perception of Internal Controls Helps Explain Whistleblowing

“…Overall, Rothschild (2013) concludes that whistleblowing is much more prevalent among public sector employees than among nonprofit employees. Scheetz, Smalls, Wall, and Wilson (2020) examined organization size and type to find that nonprofit employees are significantly less likely to whistleblow than for-profit employees, especially those nonprofit employees in international organizations where inconsistency in policies (such as whistleblowing or internal control implementation) between regions may be an issue.…”

“…Given the lack of literature specifically examining the influence of internal controls on whistleblowing intentions, we believe strength will beget strength. Given the findings of Scheetz et al (2020) that organization type significantly influences whistleblowing intentions, we expect that the perception of internal controls will help explain the path between organization type and whistleblowing intention. Prior research suggests whistleblowing intention is high in the for-profit community.…”

Fraud in Nonprofit Organizations: How to Mitigate it?

“…According to the Association of Certified Fraud Examiners (ACFE) Report of 2016, financial fraud in nonprofit organizations is estimated at 10% of all occupational fraud cases every year with an average cost per incident of $100,000 [7]. Scheetz, et al [8] argued that nonprofit organizations contribute $837 billion to the economy and provide more than 11 million jobs. According to Scheetz et al, these numbers may decline because of the increasing number of fraudulent cases.…”