Financial reports are problematic for not-for-profits (NFP). They capture profit for shareholders but not the value an organisation’s inputs and activities deliver to stakeholders and the community. The gap has always existed, undermining and undervaluing an NFP’s existence.

Thankfully, change is in the air.

New reporting standards for NFPs in are place in New Zealand and are on the horizon in Australia, requiring organisations to report on what they have done to work towards broader aims and objectives.

It is the start of a big learning curve on social-impact reporting for many NFPs and their accountants. Accountants are well placed to assist because of their skills in linking inputs and activities to outputs, but they are not the first out of the blocks.

Dr Cherrie Yang CA of Massey University says consultancies such as Social Value International and New Philanthropy Capital have stepped in to fill the gap while the accounting industry gets up to speed.

“That should give us accountants some sort of urgency. If we do not take this space, someone else will,” she says. “There is a danger if they are treated as two different systems: financials with accountants, and non-financials with other people. I don’t think that is going to work because the financials are very much linked to the non-financials. We have the advantage, but we must have open minds to embrace this new space.”

Standards are (almost) here

New Zealand is clearly leading the way in the impact and outcome reporting space. Back in 2015, the External Reporting Board (XRB) required all public benefit entities to report on non-financial performance.

From 1 January 2022, large charities have had to comply with a Service Performance Reporting Standard (PBE FRS 48) and from 1 January 2024 they must have their reporting audited (NZ AS 1). To assist organisations, the XRB released a Staff Guidance Service PBE FRS 48 Performance Reporting paper in August 2023. Playing catch-up to New Zealand, the Australian Accounting Standards Board (AASB) is currently developing a NFP private sector financial reporting framework. Professor Matthew Hall and associate professor Paul Thambar of Monash University, who are working with the AASB on the framework, say it is still early in the development process.

“We previously went through a process with the AASB but it did not result in new standards. Now it’s back on the agenda and they are seeking to base it on the New Zealand standards,” Hall says. “There are no proposals yet. The AASB is waiting to see how things go in New Zealand.”

Start with a loose framework

New Zealand’s service performance reporting standards are already causing waves. CA ANZ members in the NFP space have been requesting help from the CA ANZ to interpret and implement the standards. Their requests have been heard. CA ANZ released a guide for measuring social impact in October 2023.

The guide outlines steps to follow, starting with clarifying why you are reporting and mapping stakeholders, through to identifying and measuring outcomes, and incorporating outcomes into reporting.

Identifying and measuring outcomes is the crux of the process. The guide recommends two models: a theory-ofchange model and a logic model. Both offer a way to link inputs and activities to impact and outcomes.

Yang says there is no best-practice approach but she prefers the logic model for its light touch. Defining what social impact means for an organisation is just as important.

“Personally, I’d rather go with something that’s relatively loose, like the logic model, and then tailor it specifically for the organisation’s contexts and practices, rather than use something imposed by software. If the organisation is funded by government, the funders usually provide a tool for measurement that has to be used,” she says.

“But first you need to define what social impact means, because it’s a very subjective concept. You, the people in charge, or the beneficiaries, may all have different definitions. It’s important to engage different stakeholders to discuss what matters to them and how it can be measured. For that, you need the support of the organisation. It cannot be done by accountants alone.”

A framework for mutuals and co-ops

In addition to their AASB work, Hall and Thambar recently published a Mutuals Values Measurement (MVM) framework to help mutuals and co-operatives define their total value.

The MVM was devised from a two-year study involving 13 Australian co-operatives and mutual enterprises of varying size.

It features six value dimensions: commerciality, shaping markets, member relationships, community relationships, ecosystem and reciprocity, and mutual mindset. The dimensions are unique to the industry but, similar to the logic model, the MVM does not prescribe measurement methods or outcomes.

“The mutuals and co-ops asked us not to try and lead to a metric that captured everything because they felt that was unrealistic,” Hall says. “They wanted to have the flexibility to be able to know where they’re creating value, and then to be able to measure it using a range of quantified and qualitative metrics.”

The MVM has been licensed to the Business Council of Co-operatives and Mutuals (BCCM) and has been adopted by mutuals and co-operatives in Australia, the UK and the US. Interestingly for Thambar, BCCM is using the framework as a tool for designing and building co-operatives from the ground up, such as a new aged-care service in rural Australia.

“MVM is not explicitly a reporting tool. It’s much more valuable as a strategic tool because it helps organisations to think about their purpose, the activities they are carrying out, and how and where they create value,” says Thambar.

“The process the MVM takes you through could be applied to any kind of organisation that wants to think about how they are creating value.”

Organisations need to go all-in

One impact model already in use is social return on investment (SROI). SROI translates the value an organisation is creating into a simple metric: the dollar amount return on $1 invested.

It is useful for NFPs seeking to demonstrate to funders the value they are creating, and funders can use the metric to decide where to invest their money.

Wellington-based ImpactLab calculates SROI for its clients and funders. While the outcome is a simple figure, such as a $3 return for every $1 invested, ImpactLab CEO Maria English says the process takes between four and six months.

The biggest challenge is getting the buy-in and time commitment from staff at the NFPs.

“I think organisations often don’t start the journey because social impact is complex and hard to map data to. They’ve definitely got to be committed to learning and improving what they are doing,” she says.

“The real test is: does the information help make better decisions? With that attitude, we can iterate through the quite challenging process of improving the data and methodologies to enable decision-makers to be more effective.”

As with the MVM and logic model, data from quantitative and qualitative sources is required for SRIO. To minimise the burden of data collection, ImpactLab leans into what data already exists in an organisation, before deciding what new collections need to be made. English says low-cost technology is helping NFPs to collect much better data.

“The affordability of tech tools to understand clients has got to a point where even a really small organisation on a very tight budget can understand their clients a lot better than a government
department of 40 people was able to,” she says.

Software not a clear-cut option

Jon Griffin is on the board of some small and larger community organisations, and has been using software to help them calculate their impact and outcomes. One of those organisations is the Anxiety Recovery Centre in Victoria.

“I’m trying to get something which is meaningful for the committee members,” says Griffin, who is founder of Social Value Accounting and director of APL Financial.

“Tracking the quantity of outcomes, like how many people ring the help line, is not difficult. Tracking the quality of each call is a lot more difficult. And take volunteers as another example. Volunteers are free of charge but their value needs to be counted.”

Until recently, Griffin was employing free, cloud-based software developed by Australia’s Centre for Social Impact (CSI) to make the measurements. Unfortunately, the software was recently shelved due to low uptake, leaving Griffin’s Social Value Accounting business in the lurch.

The only other software he considers useful for tracking impact data is Socialsuite, which is on a per user basis with a starting price of about A$10,000 a year: a price too high for many NFPs.

Without software assistance, Griffin has resorted back to carbon reporting for his clients, which he can do for under A$500. Having seen the benefits of impact reporting firsthand, he remains committed to helping organisations find a way.

“The fact that an organisation is measuring the quantity and quality of activities, allows management to decide which activities to commit further resources to and to see what impact those extra resources have on the outcomes,” Griffin says.

Image credit: mmpile

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