New year, new approach to financial information

New research shows the public is seeking increased and more transparent financial disclosures from NFPs. The start of a new financial year is the perfect time to look at whether your reporting could use an upgrade, writes Dr Ushi Ghoorah.

Financial statements provide a range of information about the performance, outcomes, efficiency and sustainability of an organisation. Not-for-profit organisations (NFPs) produce financial reports either in line with diverse disclosure requirements or voluntarily. These reports are all prepared in standardised formats (the usual income statement, balance sheet and cash flow statement formats) to allow consistency and comparability in disclosure practices across the sector.

Despite the range of financial information that is made available on the websites of NFPs, in financial reports, and on websites of regulators (including the ACNC), the general public constantly demand improved financial disclosures and transparency from NFPs. 

To understand the financial information needs of the Australian public, a research project was conducted at Western Sydney University, the full results of which have not yet been published. As part of the project, 400 individuals were surveyed from all states of Australia. The respondents were roughly made up of an equal number of males and females. Over half of them were aged between 18 and 44 years. Four out of 10 respondents had at least a degree, and over 50 per cent of the 400 respondents were employed.

A list of financial disclosure items relating to revenue, expenses, and a few other items was given to the respondents. A five-point Likert scale was used, where one represented “Not important” and five represented “Very important”. They also had the option of “not sure”.

The project found that the majority of the respondents want NFPs to make disclosures about revenue earned from donations, revenue earned from the government, a breakdown of the sources of revenue, and total revenue earned by the organisation.

The majority of the respondents also demonstrated the need for financial disclosures relating to administration expenses, fundraising expenses, marketing expenses, expenses directly associated with the provision of goods/services by an NFP, and expenses associated with the social mission of an NFP.

The research project also found that the Australian public wants financial information about the cash flows of an NFP, transactions with related parties, the financial commitments of the organisation, the salaries of senior staff, and employee expenses.

Most of the information that the Australian public perceive as being important for NFPs to disclose are already available within the organisational financial reports.

Given the direct link between the extent to which the general public perceives an NFP as being financially transparent and the extent of support they provide to the organisation, it is recommended that NFPs present their financial information in a more accessible manner. 

A suggestion is for NFPs to summarise the financial information demanded by the general public in a one-page snapshot document. Information already prepared for the financial reports and/or AIS can be summarised in the snapshot document. Such a document would be an effective way of catering for the public’s financial information needs and highlighting the social impact of an NFP using financial disclosures.