Fraud survival in nonprofit organizations: Empirical evidence

Abstract

This study examines the survival of nonprofit organizations after the discovery of a fraud. Literature on nonprofit fraud claims that fraud has a destructive impact on nonprofit organizations. This study is the first to provide empirical evidence of the impact of fraud on a nonprofit organization's survival, and to analyze the significance of underlying organizational and fraud factors. An analysis of 115 nonprofit organizations experiencing a fraud shows that over one fourth of these organizations did not survive at least 3 years beyond the publication of the fraud, a rate considerably higher than the typical nonprofit failure rate. This article investigates the characteristics of surviving organizations and finds that older and larger organizations are more likely to survive, indicating the liabilities of newness and smallness hold in fraud survival situations. In cases where an executive‐level perpetrator committed the fraud, or where the organization victimized the public, the organization was less likely to survive. These findings suggest nonprofit organizations, particularly those that are new or small, could benefit by implementing governance policies and procedures that are consistent with those employed by more established organizations.

The antecedents of charity trust and its influence on charity supportive behavior

“…Besides its relevance for research, our study also has managerial implications. Nonprofit organizations are increasingly confronted with more intensive competitive environments in a context of highly‐publicized scandals that effect public confidence the whole sector (Archambeault & Webber, 2018; Slatten et al, 2011). Such challenges require innovative approaches for cultivating and retaining public support.…”

Nonprofit governance and outside corruption: The role of accountability, stakeholder participation, and management systems

“…Some studies depend on information provided by anonymous respondents. Archambeault & Webber (2018, p. 3), using information from the Association of Certified Fraud Examiners (ACFE), recognize that this database is likely to be biased toward large frauds or frauds occurring in organizations that have the resources to engage the ACFE in the investigation. Greenlee et al (2007) also note that these databases usually combine information about different types of organizations, which can cause bias in the conclusions obtained.…”

“…In both circumstances, the result is criminal behavior, using the organizational structure as a legal common agent, promoted by a conflict between principals' interests and little participation of the manager, who could even be unconscious of the criminal consequences related to his/her decisions. Despite the relevance that outside corruption has in the nonprofit context, the previous literature has revealed several limitations related to the methodology and sources of information for analyzing such corruption (Gibelman & Gelman, 2004, p. 359; Archambeault et al, 2015; Archambeault & Webber, 2018). Moreover, previous studies do not focus on countries where outside corruption is considered an organizational crime.…”

“…These scandals are some of the most challenging hurdles for nonprofit organizations, as such organizations need an atmosphere of trust and transparency to conduct their activities (Ni & Zhan, 2017, p. 730). These corruption scandals can occur in two ways: within or outside an organization (Archambeault & Webber, 2018). The former occurs when an individual within a nonprofit organization victimizes the entity (e.g., the misappropriation of funds by a member of the organization), while the latter occurs when a nonprofit organization victimizes the public (e.g., the embezzlement of public funds in projects not related to the nonprofit organization's activities).…”

Putting Humpty Together Again: How Reputation Regulation Fails the Charitable Sector

“…A final complication is that reputations tend to be path dependent and durable, particularly for large organizations (Mishina, Block, and Mannor 2012;Mitchell and Stroup 2017;Archambeault and Webber 2018;Scurlock, Dolsak, and Prakash 2019), and the formation and influence of trust is not as linear and rational as most models of reputation regulation presume. Social trust based on shared social identities and cause-based solidarities often predisposes people to have affinities for particular nonprofits without much of an evidentiary base (Rousseau et al 1998; Keating and Thrandardottir 2017).…”