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The Causes and Consequences of Internal Control Problems in Nonprofit Organizations
Christine Petrovits, New York University
Catherine Shakespeare, University of Michigan
Aimee Shih, New York University
ABSTRACT: This study examines the causes and consequences of internal control deficiencies in the nonprofit sector using a sample of 26,106 public charities from 1997 to 2004. We document that the likelihood of reporting an internal control problem increases for nonprofit organizations which are small, in poor financial health, growing, complex and/or less reliant on federal funding. In addition, we investigate the effect of internal control deficiencies on concurrent and subsequent operating efficiency, accounting quality, and financing. Our preliminary results suggests that organizations with internal control problems spend less on program and more on administrative expenses, pay relatively higher executive compensation, report zero fundraising costs more frequently, use more aggressive joint cost allocations, pay higher interest rates on long-term debt, and have lower growth in federal grants than organizations without internal control problems.
Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.
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