A nonprofit organizations' endeavor is the public benefit. It is very important to have a pristine image to the outside; otherwise, there will be no donors donating money in order to support the organization's programs. These programs may relate to environmental, social or educational issues. In order to acquire plenty of contributions, nonprofits have to be financially very transparent and have to ensure that there are no internal control problems. Incidents like fraud and other financial scams can have a greatly negative impact on the firm's reputation and might result in tremendous losses on the fundraising side. But also short dated savings on administrative expenditures can entail huge deficits on the donor support (Greenlee, Fischer, Gordon, & Keating, 2007; Petrovits, Shakespeare, & Shih, 2011).
Nonprofit organizations are often pressured by donors and watchdog groups to increase their expenditures on the services and programs. Increasing the amount of money spent for the programs in the beginning can have deep negative consequences in the future. As a result of the limitation of administrative expenses, internal control weaknesses may occur and donors may also react negatively. The risk of financial inequalities rises and fraud becomes a more likely scenario. Donors' support and even governmental support decline noticeable and with that the ability to support the programs is not given anymore. It is the organization's purpose to meet the donors' wishes by maximizing support of the mission- related programs and also maximize accountability in order to give the donors a confident feeling about spending money to support the organizations services (Hager, Pollak, Wing, & Rooney, 2004; Petrovits et al., 2011).
Disclosures can also harm the organizations. By revealing internal control issues donors' and government support are directly affected and the nonprofit firms have less money at disposal.