Resources For Accountability and Financial Management in the Voluntary Sector

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The Trend Towards Accountability and Financial Management

In the voluntary sector

In general, the public has incredibly high trust in the voluntary sector. Nearly 80% of respondents to a survey conduced by the Institute for Social Research at York University said they trust people who work for charities and 84% agreed that charities are generally honest about the way they use donations ¹. This level of trust is higher than the trust that people have in the public or private sector. To maintain this level of trust, voluntary sector organizations continue to improve service delivery, efficiency, and accountability to their stakeholders.

However, Canadians also see some areas of concern in the voluntary sector. This may be due in part to a 1997 Maclean's Magazine article that criticized the way in which 20 health-related charities handled their finances, particularly the percentage of revenues apparently spent on administration and salaries. Voluntary sector organizations are interested in being able to explain their expenses and results in a way that shows how they are achieving their missions. For example, those not familiar with the voluntary sector may think that all the work can be done by volunteers, and see salaries as "administration." By being able to explain the importance of paid staff in achieving a charity's goals, the position of the organization is strengthened in the long run.

In addition, there is a new trend towards "social entrepreneurship" or "venture philanthropy." Here, major donors are not content to simply write cheques and trust that their money will be spent wisely. They look for accountability in a wider sense - not only the absence of fraud, but also concrete assurances and proof that their donation will see results. These donors can be more "hands-on" than traditional donors; for example, wanting to be actively involved in the organization or directing their donation to a particular fund. In fact, some foundations, publications and training programs for venture philanthropists counsel the donor or investor on how to look for "Social Return on Investment." Voluntary sector organizations that understand this and can work effectively with the social entrepreneur have much to gain from this new trend.

One study identified donors as either entrepreneurs or non-entrepreneurs, and asked them to rank their top five motivators for their next gift (see text box). In both groups, accountability of the charity ranked in the top five motivators for giving, along with more traditional reasons for choosing a charity². This sends a clear message of the need for accountability to voluntary sector organizations that rely on the public for financial support.

Over the past decade, the above trends and events have resulted in stakeholders having higher expectations of voluntary sector organizations; wanting them not only to use their funds responsibly, but to be able to demonstrate this in concrete results. Organizations are challenged to respond to the increasing and complex needs in their communities while facing greater expectations related to accountability and administration. These processes are made easier if the organization has the basics of financial management in place, including codes of ethics and values, governance practices, financial controls and reporting structures, and evaluation mechanisms.

In the private sector

Company scandals have been on the front page of newspapers around the world. Investors are becoming more aware and wary of how corporations work and how they report earnings. To gain the confidence of customers and investors, the corporate sector in both Canada and the US created task forces and committees to recommend ways to reduce fraud and improve corporate accountability. One recommendation was the formation of audit committees in which independent directors with expertise in finance work with an external auditor to review the financial controls and performance of the company.

Another movement in the private sector is towards "corporate social responsibility"; that is, being accountable for the overall relationship between the corporation and its stakeholders, including customers, employees, communities, owners, investors, government, suppliers and competitors. Elements of corporate social responsibility include community outreach, employee relations, environmental practices and accountability for financial performance.

¹ The telephone survey was conducted between May and July 2000 by the Institute for Social Research at York University, and directed by the Canadian Centre for Philanthropy, which wrote and issued the report (at http://www.muttart.org/). A total of 3,863 Canadians completed the survey.

² See Nyp (2001); Charity Village 2000, and Myers and Mallabone (2000) for more detail on this study.

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