Understandability and Transparency of the Financial Statements of ...

This research seeks to identify if there is clarity in reporting, material amounts of the
charities‟ monies being used, or coming from, nefarious acts will be highlighted. Next,
the role monitoring by charities‟ regulatory bodies, taxation agencies, funders and rating
agencies, plays in ensuring compliance with regulatory and compliance frameworks is
reviewed.
2.6 Monitoring
Andreoni (1990) talks about the „warm glow‟ donors feel from giving, or as one donor
said “I gave money away almost for selfish reasons – you get a lot of pleasure from
doing it” (Collins, 2009, p. A2). This pleasure potentially vanishes upon the revelation
of fraud within the organisation.
Although, there is an assumption that people involved in charities are altruists this is not
always the case and the media is full of articles on fraud in charities. For example, a
charity finance man receiving thirty-three months imprisonment for stealing from a
cerebral palsy charity in England (Anonymous, 2008a). Also the Methodist Mission in
New Zealand discovered NZD160,000 had been stolen from the social welfare benefits
of their beneficiaries (Cordery & Baskerville, 2005).
The media exacerbates the concerns about misappropriation by using emotive language
and headlines that gain high media coverage, such as that seen in the Exempt
Organization Tax Review „Pillaging of Charitable Assets: Embezzlement and Fraud‟
(Fremont-Smith, 2004), and by appealing to the readers directly „Charities missing out
on your donations‟ (Television New Zealand, 2009).
Fisher (2006b) comments that fraud is more prevalent in charities than in for-profit
organisations. This was supported by the Organisation for Economic Co-operation and
Development (OECD) who found that “some countries estimate that the abuse of
charities costs their treasury many hundreds of millions of dollars and is becoming
more prevalent” (Organisation for Economic Co-operation and Development, 2008, p.
2). Palmer and Randall (2002) consider that this is due to the fact that charities depend
on trust rather than the internal controls usually prevalent in commercial operations.
However, BDO International‟s latest NFP fraud survey of 384 respondents from NFPs,
including charities, in Australia and New Zealand contradicts this (BDO International,
2008). Whilst, two-thirds of respondents considered that fraud was a problem in the
NFP sector only 16% had suffered a fraud in the previous two years, indicating that the
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