Monday, April 26, 2010
Christine Petrovits (New York University, Leonard N. Stern School of Business), Catherine Shakespeare (University of Michigan, Stephen M. Ross School of Business) and Aimee Shih (Ph.D. candidate, New York University, Leonard N. Stern School of Business) have posted The Causes and Consequences of Internal Control Problems in Nonprofit Organizations on SSRN. Here is the abstract:
This study examines the causes and consequences of internal control deficiencies in the nonprofit sector using a sample of 27,495 public charities from 1999 to 2007. We first document that the likelihood of reporting an internal control problem increases for nonprofit organizations which are in poor financial health, growing, more complex, and/or smaller. We then present evidence that the disclosure of weak internal controls over financial reporting is negatively associated with subsequent donor support received after controlling for the current level of donor support and other factors influencing donations. We likewise report a negative association between internal control problems and subsequent government grants. Our results suggest that donors and government agencies, important sources of capital for nonprofit organizations, react either directly or indirectly to internal control information.