Managerial Power,Employee Sophistication And Foundation Fraud

This paper examines the influence of the managerial power and employee sophistication on the fraud practices of public welfare foundations.As the continuous scandals of the non-profit organizations are more and more exploding in recent years,the fraud practices of the non-profit organizations have attracted a lot of public attention around here and there.However,the fraud practices which is related to the non-profit organizations have seldom been studied by scholars both at home and abroad.This paper believes that the management,as the main body who is in charge of and familiar with the daily business operation and process,its managerial power is very likely to directly affect the fraud practices of the non-profit organizations,which is not conductive to the long-term stable operation and development of the non-profit organizations.Therefore,the consequences of managerial power are worthy of in-depth and detailed study in this paper.At the same time,in order to explore some potential factors that can inhibit the power of the management which might result in fraud practices of the non-profit organizations,this paper also examines the moderating effect of the employee sophistication form a new point of view.To illustrate,this paper extends the managerial power which has been widely studied in public companies to the study of the non-profit organizations,and in the meantime uses three direct measures in the foundation: the CEO serves as the board chairman or the vice-chairman;the CEO tenure;and whether the CEO is a retired cadre of the Communist Party or state-owned enterprises and institutions to measure the managerial power,and whether the foundation hires sophisticated staff to measure the employee sophistication.From a sample of foundation data published by the public service platform of Chinese Social Organizations from 2013 to 2018,the paper finds that: First,the CEO as a board chairman or vice chairman does result in foundation frauds,the risk of frauds when the CEO serves as a chairman is even higher,extending the scope that sophisticated staff can restrain.However,the risk of foundation frauds of the CEO as a vice chairman can be reduced in the foundations that employ sophisticated staff-the degree of employee sophistication is relatively high.Secondly,the longer the CEO tenure,he or she will deal with more business activities and uncertain situations in the foundation,which indeed results in more frauds as well.However,the fraud risk of the CEO tenure is relatively lower than the CEO as a board chairman or vice chairman,so the sophisticated staff might bear a certain kind of tolerance to this kind of managerial power and does not have significant negative moderating effect on it.Thirdly,whether the CEO is a retired cadre of the Communist Party or state-owned enterprises and institutions has no impact on the fraud practices of the foundation.However,once he or she commits fraud,it will increase the degree of fraud severity,hiring sophisticated staff can mitigate this impact and lower the risk of over malpractice.Finally,in the robustness test,first of all,considering that the foundation board chairman also has a say in the day to day operation,this paper uses the board chairman's power as a substitute index of the managerial power for regression,and finds that the chairman's tenure and political power(the board chairman is a retired cadre of the Communist Party or state-owned enterprises and institutions)will as well lead to foundation frauds;Secondly,this paper divides the annual test conclusions of the dependent variables into different grades,and uses the ordered logit model to verify the conclusions of the main test again;Finally,this paper uses different employee salary levels to measure the employee sophistication,and finds that the higher the employee sophistication is,the more obvious the restraining effect on managerial power,which strongly supports the conclusion in the main test.Compared to the public company research,few studies have investigated nonprofit organizations in China,my findings contribute new evidence in the fields which relate to the managerial power and the employee sophistication of the non-profit organizations.Combined with prior research,my findings show that the managerial power will affect the fraud practices of the foundation,which increases the risk of fraud and unsustainable operation,and employee sophistication can effectively restrain managerial power to a certain degree,lowering the risk of foundation frauds.The Ministry of Civil Affairs should pay more attention to the managerial power structure and the staff composition of the foundation,and formulate more detailed measures to deal with frauds to increase the illegal cost of the foundation frauds.On the one hand,this kind of detailed regulations can effectively protect the stable and long-term charity operation of non-profit organizations,on the other hand,a good donation environment for donors can be created and maintained from a certain degree.