SYNOPSIS: The early 2000s revealed a series of high-profile financial frauds in the
corporate and nonprofit sectors. In response to several of these financial scandals,
California passed the Nonprofit Integrity Act NIA of 2004. This seminal piece of governance
regulation sought to increase financial transparency and mitigate fundraising
abuses by California charitable organizations. This study examines the characteristics
of California charitable organizations before and after the Act to understand the initial
impact the Act had on nonprofit organizations. Key findings from the study include
limited reported improvement in financial reporting quality and an increase in accounting
fees following the implementation of the Act. California nonprofits subject to the
Act’s provisions did exhibit an increase in executive compensation following the implementation
of the Act; however, the increase was less than that exhibited by the population
of nonprofits during the same time period. Overall, the results of this study suggest
that the initial impact of regulations similar to the NIA is greatest for organizations
that did not previously have a financial statement audit.
Data Availability: All data obtained from publicly available sources.
INTRODUCTION