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Director Monitoring of Expense Misreporting in Nonprofit Organizations: The Effects of Expense Disclosure Transparency, Donor Evaluation Focus and Organization Performance

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  • Qiu Chen

Abstract

This study examines whether three factors—the transparency of expense disclosures, donor evaluation focus, and organization performance—influence how directors monitor management expense misreporting in nonprofit organizations. An experiment with 189 nonprofit directors finds that the enhanced transparency of expense disclosures increases director monitoring by reducing the tendency to accept management expense misreporting. Further, an organization's nonfinancial performance and the perceived fairness of donor evaluation focus interact to influence director monitoring practices. Specifically, when directors know an organization's nonfinancial performance is poor and understand that this performance will negatively influence the willingness of donors to contribute, directors monitor less if they think that donors are adopting a more balanced approach to organizational evaluation that focuses on both financial and nonfinancial performance; that is, there is a reverse fair process effect as this donor approach is perceived as being fairer than if donors focus solely on financial performance. However, monitoring is equally strong regardless of donor evaluation focus when directors know that an organization's nonfinancial performance is good and a donation is forthcoming.L'auteure se demande si trois facteurs — la transparence de l'information relative aux dépenses, l'objet de l’évaluation des donateurs et la performance de l'organisme — influent sur la façon dont les administrateurs contrôlent l'inexactitude de l'information relative aux dépenses produite par les gestionnaires, dans les organismes sans but lucratif (OSBL). Une expérience faisant intervenir 189 administrateurs d’OSBL révèle que la transparence accrue de l'information fournie au sujet des dépenses accroît le contrôle exercé par les administrateurs en réduisant la tendance à accepter les inexactitudes que contient l'information relative aux dépenses produite par les gestionnaires. En outre, la performance non financière d'un organisme et la légitimité perçue de l'objet sur lequel porte l’évaluation des donateurs interagissent de telle sorte qu'elles influent sur les pratiques des administrateurs en matière de contrôle. Plus précisément, lorsque les administrateurs savent que la performance non financière d'un organisme laisse à désirer et comprennent que cette performance aura une incidence négative sur la propension des donateurs à verser des dons, ils exercent un contrôle moins sévère s'ils croient que les donateurs adoptent une approche plus équilibrée en ce qui a trait à l’évaluation de l'organisme en s'appuyant à la fois sur sa performance financière et non financière — en d'autres termes, lorsqu'il existe un effet de légitimation inversée du fait que ce mode d’évaluation qu'adoptent les donateurs est perçu comme étant plus légitime que s'ils ne s'intéressaient qu’à la performance financière. Toutefois, le contrôle est tout aussi rigoureux, peu importe l'objet de l’évaluation des donateurs, lorsque les administrateurs savent que la performance non financière de l'organisme est bonne et qu'un don est prévisible.

Suggested Citation

  • Qiu Chen, 2016. "Director Monitoring of Expense Misreporting in Nonprofit Organizations: The Effects of Expense Disclosure Transparency, Donor Evaluation Focus and Organization Performance," Contemporary Accounting Research, John Wiley & Sons, vol. 33(4), pages 1601-1624, December.
  • Handle: RePEc:wly:coacre:v:33:y:2016:i:4:p:1601-1624
    DOI: 10.1111/1911-3846.12218
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    Cited by:

    1. Ronelle Burger & Canh Thien Dang & Trudy Owens, 2017. "Better performing NGOs do report more accurately: Evidence from investigating Ugandan NGO financial accounts," Discussion Papers 2017-10, University of Nottingham, CREDIT.
    2. Elka Johansson & Peter Carey & George Tanewski & Iliyas Yusoff, 2022. "The effect of members on charities’ annual reporting: evidence from companies limited by guarantee in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1851-1886, April.
    3. Dang, Canh Thien & Owens, Trudy, 2020. "Does transparency come at the cost of charitable services? Evidence from investigating British charities," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 314-343.
    4. Kayas, Oliver G., 2023. "Workplace surveillance: A systematic review, integrative framework, and research agenda," Journal of Business Research, Elsevier, vol. 168(C).
    5. José Miguel Tirado-Beltrán & Iluminada Fuertes-Fuertes & J. David Cabedo, 2020. "Donor Reaction to Non-Financial Information Covering Social Projects in Nonprofits: A Spanish Case," Sustainability, MDPI, vol. 12(23), pages 1-17, December.
    6. Hessou, Hélyoth T.S. & Lensink, Robert & Soumaré, Issouf & Tchakoute Tchuigoua, Hubert, 2021. "Provisioning over the business cycle: Some insights from the microfinance industry," International Review of Financial Analysis, Elsevier, vol. 77(C).
    7. Dominic Cyr & Suzanne Landry & Anne Fortin, 2022. "Management of Charitable Program Expense Ratios in the Charity Sector," Australian Accounting Review, CPA Australia, vol. 32(1), pages 106-123, March.
    8. Ling L. Harris & Scott B. Jackson & Joel Owens & Nicholas Seybert, 2022. "Recruiting Dark Personalities for Earnings Management," Journal of Business Ethics, Springer, vol. 178(1), pages 193-218, June.
    9. Dominic Cyr & Suzanne Landry & Anne Fortin, 2023. "Financial Disclosure Management by Charitable Organisations: A Conceptual and Operational Framework," Australian Accounting Review, CPA Australia, vol. 33(1), pages 46-65, March.

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