Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210853 
Year of Publication: 
2019
Series/Report no.: 
CREDIT Research Paper No. 19/02
Publisher: 
The University of Nottingham, Centre for Research in Economic Development and International Trade (CREDIT), Nottingham
Abstract: 
Recent high-profile scandals related to misuse of funding and donations have raised the demand for scrutiny over financial transparency and operational activities of non-profit organizations in developed countries. Our analysis challenges the common practice in the sector of using programme ratios and overhead costs as indicators for non-profit accountability. Using Benford's Law to measure irregularities in financial data for a large sample of public charities we estimate that 25% of the sample potentially misreport their financial information. We show theoretically and empirically that charities with a higher programme ratio (their level of spending on charitable activities), will be less likely to misreport their financial information only when their overhead costs (spending on governing activities) are also sufficiently high. Tighter monitoring becomes ineffective in increasing the sectoral transparency and accountability unless accompanied by a sufficiently high charitable spending.
Subjects: 
non-profits
misinformation
public provision of financial reports
Benford's Law
heteroskedasticity-based instruments
JEL: 
L31
L44
D82
H83
H49
Document Type: 
Working Paper

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