Snapshot Document: A Tool to Develop Trust and Confidence
3 April 2018 at 8:22 am
Dr Ushi Ghoorah from Western Sydney University makes the case for Australian not for profits to produce a one page document to help demonstrate financial transparency and build trust and confidence around their brand.
The Australian not-for-profit (NFP) sector is a cash intensive sector which is heavily dependent on external funds. The key sources of revenue of this sector are donations, bequests, government grants, service revenue and membership fees.
There are around 600,000 NFPs operating in Australia, including over 54,000 charities.
Last year, these charities received an annual revenue of almost $143 billion, and employed 1.2 million staff, representing around 10 per cent of the Australian labour force and making the sector the second largest employer sector, after the property sector having about 1.4 million employees.
Charities also received the invaluable support of nearly 3 million volunteers, and spent over $122 billion on charitable causes, with the largest being social and community welfare.
The reliance of Australian NFPs on external providers and the size of their revenue flows attract media attention.
NFPs frequently deal with negative media coverage concerning administration and fundraising costs incurred by the sector. This has led to allegations of a disproportionate amount of money going to collection companies rather than those in need; eventually adversely impacting trust in individual NFPs as well as of the sector as a whole.
NFPs can retain trust and confidence in their brand by demonstrating financial transparency, in terms of their revenue inflows and outflows.
NFPs publishing financial statements are likely to be providing this transparency. However, financial reports represent a form of disclosure with a very specific and prescriptive format; and are often of limited interest to stakeholder groups.
Therefore I recommend Australian NFPs produce a “snapshot document”, namely, a one page document with the following three criteria.
Criterion 1: Present financial information in a more accessible manner
This criterion suggests presenting financial information differently, such as through the use of graphs, charts, colour and pictures.
To many people, financial reports represent a list of items with figures next to them.
Communicating financial statement disclosures in a different format from just listing numbers would make such information more accessible to a wider range of stakeholder groups rather than mainly those with an interest in financial reports.
Criterion 2: Cater for most stakeholders’ information needs
Use the one-page snapshot document to address the most common information needs of stakeholder groups.
- The effective use of donated resources. Resource providers invest their money and time in a NFP in exchange for the assurance that the NFP allocates most of its funding to a particular social cause. Such assurance can be discharged, for example, via a pie chart illustrating the proportion of revenue to the social mission, administration and fundraising expenses of the NFP.
- How the currently donated resources would be used. Resource providers like to know how their donated money and time will be used. A NFP can cater for this information need by outlining its future plans and expected achievements, its funding requirements, and the proportion of revenue to competing activities necessary to achieve these plans.
- Past performance can be considered a predictor of future performance. The NFP needs to showcase its achievements. This would include non-financial variables in its snapshot document such as the number of beneficiaries it has served. The NFP could also include one or two pictures to demonstrate the great work it has been doing on the ground.
Criterion 3: Make sure the snapshot document contains decision useful information
A NFP might design a snapshot document in the most accessible manner possible and may cater for most stakeholders’ information needs. But unless the disclosures made in the document have some enhancing qualitative characteristics (as per the Financial Reporting Conceptual Framework), they would have limited usefulness.
These characteristics require the disclosures to be:
- provided in a timely manner, such as publish the snapshot document on a monthly or quarterly basis;
- presented in an understandable manner, that is, in a format which is simple to understand and which grabs people’s attention as well as interest (this is where the first two criteria fit in);
- comparable, by producing its snapshot document on a regular basis, a NFP allows stakeholders to compare and hence, better understand its achievements overtime; and
- verifiable, information provided in the snapshot document can be made verifiable by referring readers to the full financial statements, annual reports and/or other information published on the NFP’s website.
History dictates negative media coverage and scandals are inevitable in the multi-billion dollar NFP sector.
As a result, to protect themselves against potential damage to their reputation, NFPs are encouraged to build trust and confidence around their brand by demonstrating financial transparency in a more accessible manner such as the snapshot document.
About the author: Dr Ushi Ghoorah is an associate lecturer in accounting at Western Sydney University. Her main research interests encompass financial statement disclosures, transparency, accountability and governance in the not-for-profit context. Ushi has presented her research at international conferences and research seminars held at Australian universities.