Call for More Practical Not for Profit Reporting Framework

A clear reporting structure will bring big gains to the Not for Profit sector, especially from corporate benefactors according to Social Ventures Australia CEO Michael Traill in a recent opinion piece for the Australian Financial Review.

Traill described Senator Ursula Stephens’s call for suggestions on ways to improve disclosure and transparency in the Not for Profit sector as ‘right and timely’.

He says the sector struggles to consistently and clearly convey Not for Profit performance indicators; in part because it lacks a framework with which to do so. He says it now needs one.

SVA was set up six years ago by Traill, a former Macquarie Bank venture capital specialist, to help fund, mentor and lend expertise to small Not for Profit groups working with young people, indigenous communities, the elderly, the unemployed and the environment.

He says in the corporate sector, a publicly listed company’s annual report is considered a meaty and meaningful document. Most people with basic business understanding can use it to quickly develop a feel for how the business is travelling.

But sadly, Traill says investors in the Not for Profit sector have little hope of doing similarly.

He says this could change once the Senate standing committee on economics reports its findings into Not for Profit disclosure regimes in November. At that point, the Rudd government can start putting in place a practical, regulatory framework that ensures the sector reports consistently in ways that catch key performance indicators.

Traill says is will go a long way to helping the sector attract and retain financial support.

He points out that while it is easy to call for such a regulatory framework, it is important to recognise that Not for Profit objectives are about much more than generating shareholder value and profits. So a reporting framework mirroring the corporate world is not the best starting point.

He says well-structured, No for Profit annual report should first outline an organisation’s purpose and provide a clear statement of what it is trying to achieve, including a definition of successful outcomes. It should explain why the organisation exists and what problem it is trying to address or solve.

Next, evidence of program activity creating outcomes that connect to purpose is critical. So descriptions of the organisation’s programs and demonstration of their success over time should be included.

He says many NFP annual reports are dominated by "busyness" indicators, which demonstrate activity but fail to show what outcomes and impact are being generated.

Traill says a survey of the environment in which the NFP is operating would be instructive. This is the equivalent of the market-and-competitor analysis any half-decent for-profit annual report will have. It might show where the NFP fits in providing services relative to others working in a similar area, and highlight what it does well, who it partners with and what differentiates its service offering.

Showing how the organisation is resourced, including information about the management team and board, is important. Analysis and commentary on the funding and revenue mix – existing and proposed – are critical to understanding the financial foundations of the Not for Profit.

Traill says the key uses of funding should be outlined, and clear reporting of the funding direction is critical. A concise explanation of the mix of program and infrastructure funding is important, especially in clarifying the often significantly underestimated need by funders for non-profits to have quality organisational infrastructure (including appropriately compensated management talent).

He says that by creating a practical reporting framework, the government will help the overwhelming majority of Not for Profit organisations.

Traill says it is the experience of Social Ventures Australia that prospective social investors want to see information from the Not for Profit world that has consistency, depth and transparency and is more akin to that of corporate Australia.

He says SVAs experience is that those who report in such a way tend to have a greater proportion of long-term donors – creating a win-win situation for all.

Michael Traill is chief executive of Social Ventures Australia, an independent, non-profit organisation that seeks to address some of Australia’s most pressing community challenges.

For more information go to www.socialventures.com.au