An Examination of U.S. Nonprofit Organizations’ Investment in Internal Auditing

• In Event: Social Inquiry Models and Repurchase Disclosures

Abstract

To our knowledge, this is the first paper to examine the extent of investment in internal auditing in U.S. nonprofit organizations. Given the significance of the nonprofit sector to the U.S. economy and the increasing call for nonprofit accountability, it is important to consider the sector’s commitment to organizational governance as evidenced through its investment in the internal audit function. Our results, based on responses from 112 nonprofit participants in the Common Body of Knowledge (CBOK) 2015 Global Internal Auditor Practitioner Survey administered by the Institute of Internal Auditors Research Foundation (IIARF), indicate that several factors related to organizational characteristics, internal audit characteristics, and risk are associated with a nonprofit’s investment in internal auditing as measured by the extent of its use of sophisticated audit technology. Specifically, we find that a nonprofit organization’s investment in audit technology is positively associated with: (1) larger internal audit departments, (2) more established internal audit departments, (3) organizations classified as educational institutions, (4) organizations classified as healthcare institutions, (5) greater internal audit function responsibility related to risk, (6) level of inherent risk related to information technology, (7) extent of use of the International Standards for the Professional Practice of Internal Auditing (Standards), (8) adoption of written internal audit function policies addressing the purpose, authority, and responsibility of the internal audit function, and (9) degree of self-regulation within the internal audit function. This study contributes to prior literature on internal auditing by examining a research setting that has not been previously explored and, as such, can serve as a baseline for future nonprofit internal audit research.

Authors

• Sarah Garven, Middle Tennessee State University

• Audrey Nicole Scarlata, Middle Tennessee State University