“Accounting” and “accountability” have become important watchwords for nonprofit organizations in recent years. The accounting scandals that have scorched the corporate sector have undermined trust in all public organizations and threaten to intensify scrutiny of nonprofits as well. Financial scandals that have tinged important nonprofit organizations, and calls by government, foundations and community federations, for greater documentation and measurement of the impacts of increasingly limited public and charitable funds, only serve to magnify the nervousness that nonprofit organizations feel in these times. Yet, nonprofits are not particularly well served by the conventional frameworks in use to account for their behavior and performance. In particular, conventional accounting frameworks largely miss the social contributions and volunteers efforts that make nonprofit work so important and distinctive.
In What Counts, Prof. Jack Quarter and his colleagues at the University of Toronto have made an important and practical contribution to helping nonprofits rectify this situation. The subject of this compact and very readable book is “social accounting”, defined as “a systematic analysis of the effects of an organization on its communities of interest or stakeholders, with stakeholder input as part of the data that are analyzed for the accounting statement”. As the authors point out, conventional accounting statements are internally focused reports that emphasize financial dimensions of the organization and market-based measures. By contrast, the methodology of social accounting that is developed in this book, casts a wider net, giving a fuller picture of the net contributions, resource usage, liabilities and assets, of an organization. As the authors argue, such an approach is built on work in the corporate sector and applies in principle to all kinds of organizations. However, it is especially relevant to nonprofit organizations, whose missions are explicitly social, which engage multiple important stakeholder groups, and which productively employ large quantities of volunteer effort. The net effect is that social accounting potentially provides a much fuller, more accurate, and very likely a more positive picture of the social and economic contributions that nonprofit organizations make to society.
The authors are realistic in their approach and they do not minimize the challenges to applying the framework of social accounting, including the problems of measuring inputs and impacts that have no readily observable market value, and institutional resistance to deviating from the conventional reports and accounting statements that nonprofits are currently required to prepare. However, the book addresses these issues in very straightforward and practical ways. One chapter of the book, for example, is devoted to a “social accounting toolkit” with templates and survey instruments designed to facilitate collection of the kinds of data nonprofits will need to prepare social accounting statements. As important, the social accounting frameworks offered in this book are developed as extensions of conventional accounting statements, so that nonprofits can build on what they already do, and so that they can see directly how social accounting provides a better picture of their operations.
The book offers four different frameworks that nonprofits can use to display their accounts. The first is the Socio-Economic Impact Statement, which documents the flow of monetary and social resources to and from key stakeholder groups. It is directly comparable to a conventional income statement or Statement of Operations except that it breaks flows of resources down by key groups and sub-sectors, and it includes estimates of volunteer and donor contributions, and value of services received. The second is the Socio-Economic Resource Statement, which is an adaptation of a conventional Balance Sheet, except that it includes estimates of human and social capital, in addition to financial assets. The third is the Expanded Value-added Statement which is an adaptation of a conventional value-added statement but includes social as well as financial value-added. A Community Social Return on Investment Model is also presented which builds on input/output logic of conventional financial accounting. The authors offer these frameworks as alternative and complementary ways in which a nonprofit organization can consider doing its social accounting.
So how might all this actually help a nonprofit organization in its accounting and accountability challenges? The (actual) examples documented in this book make a pretty good case for social accounting. For instance, a conventional Statement of Activities for a Junior Achievement program shows only that it incurred a net financial loss of approximately $3000 in one year, while its Socio-Economic Impact Statement demonstrated that it contributed almost $1 million in value of services to the local public school system. For that same organization, a conventional Balance Sheet showed a net liability of some $90,000 while the Socio-Economic Resource Statement documented net human and social capital assets of almost $600,000. Similar perspectives are offered in other examples. The Expanded Value-added statements for various organizations show that estimates of the ratios of value-added to purchases can increase significantly when financial value added is supplemented by social value added.
There is no denying that conventional accounting measures remain important to nonprofits, which of course must continue to ensure their financial viability in the marketplace. However, the beauty of expanding these statements to include measures of social resources and contributions is that they provide a fuller picture of nonprofits’ value to society and to key stakeholder groups. This in turn should offer a fairer way to hold them accountable, as well as provide a stronger case for their financial support.