Fraud can scuttle nonprofits, but the bigger and older ones fare better
Fraud has organizational consequences and can doom an NPO
After a director of the Fairmont-Marion County Food Pantry embezzled more than US$50,000, it had to close for two months in 2009 — leaving 1,200 West Virginians who depended on it in a temporary lurch.
The effects of this kind of malfeasance may appear straightforward. Charities caught committing fraud become untrustworthy in their donors’ eyes. Without money, they no longer can serve the public.
That food pantry overcame that crisis and reopened. But as scholars who research nonprofit fraud, we wanted to discover what long-term consequences befall organizations that are supposed to do good things when some of their staff are caught doing bad things.
The frequency of fraud
First, we identified charities that had committed a publicized act of fraud. Then we scoured public filings, news stories and social media for evidence of life after the fraud.
We found that 1 in 4 of these nonprofits closed down for good within three years. That is significantly higher than the overall 4 to 16 percent rate at which nonprofits became defunct during the same time period — the years 2000 to 2012.
Once we saw the big picture, we investigated the factors driving this outcome. We wanted to know if it had to do with the structure of the organizations, the people who commit fraud or the type of fraud Continue reading: Fraud can scuttle nonprofits, but the bigger and older ones fare better | Salon.com
