We examine whether nonprofit organizations understate fundraising expenses in their publicly available financial statements. A large body of anecdotal evidence notes that an inexplicable number of nonprofits report zero fundraising expenses. We provide empirical evidence that the zero fundraising expense phenomenon is at least partly due to inappropriate reporting. We then examine to what extent these misreported expenses are the result of managerial incentives. Prior research finds an association between reported expenses and managerial compensation as well as the level of donations received. Using these findings we construct two incentive variables and find a positive association between misreporting behavior and managerial incentives. Our results also suggest that the use of an outside accountant reduces the probability that a nonprofit will misreport expenses, consistent with the use of an outside paid accountant increasing the reliability and usefulness of nonprofit financial reports. Finally, we find that SOP 98‐2 reduced the probability that a nonprofit will misreport fundraising expenses.
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Research Article| March 01 2006
Expense Misreporting in Nonprofit Organizations
Michelle H. Yetman;
Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
The Accounting Review (2006) 81 (2): 399–420.
Ranjani Krishnan, Michelle H. Yetman, Robert J. Yetman; Expense Misreporting in Nonprofit Organizations. The Accounting Review 1 March 2006; 81 (2): 399–420. https://doi.org/10.2308/accr.2006.81.2.399
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