Achieving transparency and accountability amid scandal and dropping trust
Posted by Christopher Brewer
Recent scandals are undermining mechanisms aimed at improving accountability, and low public reporting standards have escalated the debate around transparency, putting traditional financial technology solutions under intense strain.
Too many charities are still not meeting “very basic standards” in transparent, public benefit reporting, while recent scandals in the not-for-profit sector may have contributed to demands for increased accountability for non-governmental organizations (NGOs).
In a growing sector with mounting demands from donors amid a fast-changing political, economic and social landscape, not-for-profit organizations need a new type of financial management approach that won’t buckle under the strain.
Growing scandal, increased accountability
The recent scandals engulfing the growing European charity/NGO sector could lead to demands for increased and more sophisticated accountability, according to Alliance MBS.
The Manchester University business school says the EU demanded “maximum transparency” from Oxfam after the charity was hit by allegations of sexual misconduct in early 2018, adding that it potentially faces the forfeit of millions of pounds of UK government money.
The Oxfam scandal follows a number of high profile cases of insider fraud including the theft of £900,000 from Birmingham Dogs Home by its former chief executive, and the imprisonment of NSA Afan’s head of finance for spending almost £54,000 of the charity’s money for her personal gain.
MBS says the Oxfam crisis “strikes to the heart of the debate around the accountability of NGOs.” Its professor of accounting, Brendan O’Dwyer, says: “The mechanisms through which NGOs are held to account are much more sophisticated today, particularly with regards to financial accounting.”
But he adds that these mechanisms, which are aimed at improving accountability to the beneficiaries of NGOs, risk being “undermined” by recent events.
Too many not meeting basic transparency standards
Meanwhile, the Charity Commission warns that charities should use their annual reports and accounts in a better way to improve communication with the public and increase trust through transparency.
After the commission randomly scrutinized more than 100 trustees’ annual reports to assess how well they meet public benefit reporting standards (and whether they meet readers’ needs) the regulator says too many are falling short.
The commission’s head of accountancy services, Nigel Davies, says the results show that “too many charities” are still not meeting “very basic standards” when it comes to making key information available to the public, adding: “I am encouraged to see that an increasing number of trustees recognize the value of public benefit reporting, but there is clearly more work to be done across the sector.”
The regulator’s monitoring reviews show almost half (49 percent) of charities failed to demonstrate a clear understanding of the public benefit reporting requirement. The regulator found the most common reason for inadequate reporting was that the trustees’ annual reports did not explain the charitable activities the charity had carried out.
“Public reporting is an opportunity for charities to tell their story and explain to the public what they do and how they use charitable funds,” he says. “Producing a trustees’ annual report and accounts is not an administrative box-ticking exercise — it is a chance to show how your charity is making an impact and how you are delivering on your core purpose.”
Herein lies the problem, from a financial accounting perspective, agrees MBS’ Brendan O’Dwyer: “...there is no institutionalized bottom-line-like profit which with to evaluate the performance of NGOs.” He adds that these unique complexities make the sector especially interesting from an accounting point of view: the performance measurement challenges, the need for accountability to diverse sets of stakeholders, and the requirement to balance and reconcile aims centered on efficiency and effectiveness.
Why traditional ERP systems fail
According to MBS, NGOs today employ 23.8 million full-time workers across Europe; 13 percent of the workforce. Also, public trust has changed, as Nigel Davies warns: “...the public no longer give charities the benefit of the doubt; they want evidence that charities make a difference when using their money.”
While most of these comments are UK-based, the problems are global. The best way project-driven NGOs and charities can meet the challenges these problems create is through modern enterprise software.
Within a growing sector, where more data, more people and more lives are involved, all not-for-profit organizations need a financial management solution capable of providing these new levels of transparency, accountability, depth and complexity.
But they need an enterprise resource planning (ERP) solution tailored for project-driven, not-for-profit sector. This is crucial. It needs to be specifically built for your sector, and not adapted from a traditional ERP designed and built for generic commercial entities. In today’s climate, they just don’t cut it.
In order to achieve transparency and accountability in today’s world, project-driven NGOs and charities need a solution that combines financial management with project accounting. They need an ERP solution that supports results-based management — to help capture purpose, outcome, output, activity and KPIs — and one that can translate the governance structure into corresponding workflows while adapting to constant political, economic, social and technological change.
How sector-focused ERPs help
Most existing traditional ERP solutions can’t handle this level of financial management. Organizations like yours need to achieve program success in order to improve lives. All the while, you need to increase organizational productivity, improve financial control and provide business insights and reporting with deeper levels of transparency and accountability than ever before.
Sadly, traditional ERPs designed for commercial entities don’t include specific capabilities needed by not-for-profit organizations. If your solution is not fit for purpose, it could create extra problems which ultimately delay your organization getting help to the people that need it most.
To learn why you need an ERP tailored for NGOs and charities, and to see how it helps you overcome the unique challenges for financial control and public reporting, download How to Achieve Transparency and Accountability in NGOs.