The effect of fraud on risk management in not-for-profit organizations

Abstract

Not-for-Profit (NFP) organizations have specific organizational characteristics as their objectives are ethically motivated and trust is indispensable. Additionally, NFP organizations are often small sized and do not have the expertise to prevent fraud. As a result, an effective risk management is of substantial importance. We use survey data from NFP organizations in Australia and New Zealand (N = 652) to identify factors that influence fraud prevention strategies. Our findings indicate that organizations that have not experienced fraud rely partially on ineffective prevention measures. The occurrence of fraud seems to trigger a learning process that leads to a more sophisticated understanding of internal controls and a more suitable risk management. Our results are applicable to support fraud prevention strategies and are highly relevant for practitioners

Fraud Diamond Factors, Risk Management Practices and the Likelihood of Fraud among Financially Distressed Companies Listed on the Malaysian Stock Exchange

“…The result for risk management was significantly negative which highlighted the role of risk management to reduce the likelihood of fraud (-0.192, z=-2.656, p<0.01) and therefore support our H5. The result is consistent with previous studies which stated that risk disclosures reduce the likelihood of fraud through accurately assessing risks and identifying potential problems in the organizations and hence reduce the likelihood of fraud (Koutopis et al, 2020) and mitigate fraud (Kummer et al, 2014). In this model, the result for the fraud diamond factors are all insignificant except for capability which had a significant negative relationship (-0.1654, z=-2.656, p<0.01).…”

Nonprofit Scandals: A Systematic Review and Conceptual Framework

“…The news is not all bad. Experiencing fraud can serve as a catalyst for nonprofits to improve internal processes: Organizations that had experienced fraud reported greater importance of fraud prevention, improved governance, and adoption of new codes of ethics (Bothwell, 2001; Bromley & Orchard, 2016; Harris et al, 2018; Kummer et al, 2014; Stephenson & Chaves, 2006). Also, organizational qualities can help buffer nonprofits from the damaging effects of scandals.…”

Organisational culture and enterprise risk management: The Australian not‐for‐profit context

“…To demonstrate NFP organisations’ accountability and ability to achieve results, Power (, p. 180) emphasises the important role of mature risk management practices, stating that ‘risk management is no longer a private matter for experts, but is increasingly publicly certifiable and visible because of its role in defining organisational virtue and legitimacy’. Failure to manage risk may be seen by stakeholders (particularly funders and donors) as a symptom of lack of ability to achieve goals and objectives which may have detrimental effects on NFP organisations’ social legitimacy and their lifeline, that is government funding and public donations (Cain, ; Kummer et al., ).…”

“…With respect to social risk, Lurtz and Kreutzer () argue that the lack of mature risk management practices has contributed to NFP organisations investing in projects that do not have positive impacts on beneficiaries/clients over the longer term. With respect to financial risk, the tightening of the funding environment, coupled with scandals involving financial mismanagement and mistreatment of beneficiaries/clients in Australia and elsewhere, has threatened public trust, adversely affected sector legitimacy and heightened demands for accountability and management of risk in NFP organisations (Dhanani & Connolly, ; Kummer, Singh, & Best, ).…”

“…In particular, there has, to date, been no empirical study or evidence on whether and how organisational culture affects risk management/ERM practices in NFP organisations. Indeed, research on NFP risk management in general is, itself, very limited (Benjamin, ; Kummer et al., ; Young, ). Therefore, addressing Chenhall's () calls for both more contingency‐based studies for NFP organisations generally, and examination of organisational culture specifically, our study contributes to the ongoing discussion on the relation between organisational culture and ERM practices, and provides much‐needed empirical evidence for this relation in the NFP context.…”