Financial Disclosures and Calls for Greater Transparency in the Australian NFP Sector

In an environment of financial scandals and concerns it is important that not for profits pay attention to not only providing more financial information but to presenting it in a way that is understood, write Ushi Ghoorah, Dr Aila Khan and Professor Nigel Garrow from Western Sydney University.

Over the past few years, media coverage of financial scandals associated with the not-for-profit sector has rocked some people’s trust in the honesty and credibility of NFP organisations.

Following media coverage of NFP-related scandals, concerns have been raised about how many cents in every dollar donated to NFP organisations go towards achieving their social mission. Also, questions have been asked about the high non-mission related costs incurred by NFP organisations, in the form of administration, fundraising, marketing, and salary expenses.

These scandals and concerns have led to calls for NFP organisations to increase disclosures around their funds received and amounts spent. Many Australian NFP organisations respond to these calls for greater transparency and disclosures by regularly publishing their financial statements on their websites.

To explore people’s perceptions of the financial statement disclosures made by NFP organisations in Australia, a research project was conducted by Western Sydney University.

The project included a cross-section survey of 400 people from all states of Australia. Over a quarter of the respondents belonged to the 18 to 24 year age-group. Four out of 10 of the respondents had a degree from a higher education provider. More than 50 per cent of those surveyed worked full-time or part-time.

One of the objectives of the survey was to examine respondents’ level of understanding of financial statements. The survey questionnaire involved 10 multiple-choice questions which were based around every-day concepts relating to, for example, the balance sheet, revenue, expenses and depreciation. Each correct answer was awarded one point. So as to not influence respondents’ views on the other survey questions, the final quiz scores were not revealed.

The average score on the 10-question quiz was 3.85. The quiz median score was 4. No one from the group was able to get a perfect score of 10. There were nine respondents (just over 2 per cent) who answered eight questions correctly. On the other hand, 4 per cent were not able to score at all.

Besides information on people’s ability to comprehend publicly available financial statements, research by Western Sydney University revealed some other interesting findings:

• In spite of respondents’ low scores in the accounting knowledge test, a majority of them agreed with statements like “financial transparency is key to fighting fraud by not-for-profit organisations”, and “it is important to be able to get any financial statement information you want from a not-for-profit organisation”.
• Australians’ intentions to support NFPs were significantly higher among those who had a greater level of financial accounting knowledge.
• There was a strong link between Australians’ image of NFP organisations and their intentions to support these organisations.

In an environment of NFP-related financial scandals and concerns, it is important that NFP

organisations pay attention to not only providing more financial information on their performance, but also to presenting this information in such a way that it is more easily understood by people in general, considering the observed limited understanding of financial reporting concepts.

Conversely, in response to calls for greater accountability and transparency, it is suggested that NFP organisations use financial statement disclosures as a marketing tool to demarcate themselves from organisations which have been associated with fund embezzlements and to signal the good governance of their organisation.

About the authors: Ushi Ghoorah is an associate lecturer in accounting at Western Sydney University and has completed a PhD on the financial statement disclosures of Australian not-for-profit organisations. Her main research interests encompass financial statement disclosures, transparency, accountability and governance in the not-for-profit context. She has presented her research at international conferences and research seminars held at Australian universities.

Dr Aila Khan is a lecturer in marketing at the Western Sydney University. Her research interests cover a range of disciplines including social marketing and consumer wellbeing. She collaborates with researchers in New Zealand, Sweden and Vietnam. While Khan mainly uses quantitative research methods, she is equally passionate about employing a range of qualitative data analysis tools such as Leximancer and NVivo. So far, Khan has successfully supervised four PhD students to completion.

Professor Nigel Garrow has a unique background that is a blend of extensive senior level business experience in both small and large international businesses, together with a fairly rapid progress in academia including both an MBA and PhD. He has held senior positions in Europe, North America and Australia and is highly skilled in developing high quality teamwork, with enthusiasm and engagement. Garrow is currently the deputy dean (international, accreditation and launch pad) at the Western Sydney University’s School of Business. Prior to becoming an academic Garrow had more than 30 years of international business experience, with over half of that as a managing director or CEO in food or fast moving consumer goods (FMCG) firms.