Accountability - The Role of NFP Annual Reports

Comprehensive and comparable information about Australian charities and their accountability is not available to consumers or governments due to the current regulatory environment, according to new research.

And annual reporting may be one means by which charities can improve stakeholders’ perceptions of their accountability.

The research has been published as a Doctoral Thesis by researcher and academic, Dr Ted Flack at QUT’s Centre for Philanthropy and Nonprofit Studies.

Generally charity regulators in Australian state and territories have required most charities to lodge annual returns and summaries of their financial position and basic information about office bearers. However the research says the approach taken in each jurisdiction varies and there are no current provisions in the annual returns of any regulators that require disclosure about the program activities of these charities in their annual returns. As well each state and territory has different arrangements for public access to the annual returns.

As a result comprehensive and comparable information about charities in Australia is not available.

The major findings of the research are that annual reports have both functional and symbolic roles in the system of accountability of public fundraising charities.

Researcher Dr Ted Flack carried out a survey of charities in Queensland to understand the organisational environments in which decisions about annual reports are made.

The survey found that large charities that have a legal form based on membership and an elected board, with paid administrative staff and dependent on a relatively narrow range of resource providers were more likely to publish an annual report.

Just under 60% of charities in Queensland published annual reports.

The research also revealed a number of paradoxes about the published annual reports: many stakeholders were concerned about the cost of annual reports, and while many report they like to receive them, few say they read them and despite all this preparers of annual reports still want to produce ‘best practice’ reports.

Perhaps more interestingly, government regulators and government funding bodies showed little interest in annual reports and nor did the charities have in mind their regulators when writing the annual reports. But charities were likely to send copies to government departments as a courtesy.

Flack says the major findings of this research are that annual reports have both functional and symbolic roles in the system of accountability of public fundraising charities. Functionally, annual reports he says are a useful and generally valued means by which public fundraising charities communicate a wide range of types of information about their activities and their performance to interested parties.

Symbolically, annual reports also serve as an important signal of assurance to those who receive them.
He says annual reports serve as useful signals of managerial and governance competence to those whose opinion is salient to the charities. Annual reports also have a role in the system of accountability for the maintenance of the mission of these organisations, in ways that statutory reports and returns do not.

Flack says the research makes three original contributions to the literature. First, it provides for the first time a detailed analysis of the role of annual reports in a system of accountability for public fundraising charities in Australia. Second, a new theoretical lens is proposed and tested for its descriptive and explanatory power in the examination the accountability of Not for Profit organisations. Third, it makes an original contribution to accountability theory by identifying the importance of the annual report as a quality signalling device.

The Director of the Centre of Philanthropy and Nonprofit Studies, Professor Myles McGregor-Lowndes says the results of this research will be of use to public fundraising charities, regulators and policy makers, as they respond to the calls for charities to demonstrate that they are accountable.
He says charities are purpose driven and while accounts tell their through-put it is important that charities use the narrative in annual reports to explain how they intend to reach or how they have reached their goals.

Ted Flack’s thesis is called “The Role of Annual Reports in a System of Accountability for Public Fundraising Charities”. The direct link to Dr Flack’s thesis is at adt.library.qut.edu.au/adt-qut/public/adt-QUT20070726.123513/"