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Making sure charities deliver on their dollars

Deakin Accounting academics are recommending a shake up in reporting standards for charities, to make it easier to assess their service performance.

The recent devastating bushfires have highlighted the generosity of Australians. We dug deep and raised hundreds of millions in a short space of time. The crisis also put the focus on the issue of whether there is adequate accountability in the $50b charities’ sector.

Deakin Business School’s Professor George Tanewski is one of the authors of a research report on the NFP and charity sector commissioned by the Australian Government’s accounting standards agency, the Australian Accounting Standards Board (AASB).

The report, A Literature Review of Service Performance Reporting for Private Not-for-Profits, to be released in March 2020, is the precursor to the anticipated introduction of a new accounting standard for charities related to service performance.

While there is likely to be some push-back to the report’s recommendations, Professor Tanewski said reforms were overdue and would ultimately benefit the sector, the economy, and the public’s confidence in charities and the contribution they make.

“In terms of introducing adequate reporting regulations for charities, Australia is behind comparable countries, such as New Zealand and the United Kingdom. Change is definitely needed, so it has been satisfying for my research team to support the AASB by adding to a body of knowledge that will inform its decisions on these important issues.”

Professor Tanewski and fellow researchers from Deakin’s Faculty of Business and Law have well-established links with the AASB, providing the board with advice and reports on a range of subjects over several years.

“We have played an important role in bringing these issues to the attention of accounting standard setters. The information we fed into the AASB over several years put the spotlight on service performance information in the NFP and charities sector. Through our research it was clear that stakeholders wanted more information about performance, not just aggregated dollar figures,” Professor Tanewski said.

Under the current regulatory framework, it is not possible for stakeholders (or journalists and members of the general public) to clearly assess a charity’s performance against their stated objectives; nor can they gauge the extent of benefits flowing to the beneficiaries.

While some steps have been made in recent years to improve transparency and accountability in the sector, with charities expected to complete an annual information report, Professor Tanewski said it was not enough.

“It would help if all charities complied, but it still wouldn’t address everything. Even if you had all the financial information under the current regulations, it isn’t broken down enough to show details around administration costs, debts, interest rate payments, the efficiency with which they operate, and exactly how much is going to the actual beneficiaries [of the charity].”

Australia’s federal system is a complicating factor for charities doing their best to meet reporting requirements. Each state has its own regulations relating to fundraising, in addition to commonwealth laws – making it a maze for charities and hindering transparency.

If the AASB adopts some of the recommendations in the review, Professor Tanewski expects the new standards to go a long way in addressing some of the issues around performance information and accountability.

“It is likely to shake up the sector, but in a good way.  Everyone benefits from a strong charity sector because charities do a huge amount of good and are a major part of the economy. The changes are about improving performance information and accountability, which will ultimately strengthen investment and community confidence.”

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