Fraud risk, governance, and crisis: reassessing internal controls in nonprofits during the COVID-19 pandemic

This study examines the impact of internal control systems on nonprofit vulnerability to fraud during the COVID-19 pandemic, utilizing Internal Revenue Service (IRS) Form 990 data from 2020 to 2022. Findings show that organizations with stronger governance policies and financial audit systems are significantly less likely to report asset misappropriation. Transparent compensation processes, policy monitoring, and independent audits reduce the probability of fraud. Conversely, high debt ratios and the presence of family ties within leadership structures increase the risk of fraud, underscoring the role of financial pressure and governance challenges in shaping organizational integrity. These findings extend governance theory by situating fraud prevention in a crisis context and suggest that policy interventions—such as pairing emergency funding with strict governance and audit requirements—are essential to strengthen nonprofit resilience and sustain stakeholder trust during systemic disruptions.