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.