Charity ‘Fundraising’ Accountability Needed
Posted: Tuesday, July 22, 2014 - 10:47
Charities need to adopt a uniform approach to reporting fundraising income if their annual reports are to avoid confusing the public, a new QUT report has found.
The University-based research has called on regulators, accounting experts and the Not for Profit sector to boldly take on the challenge of implementing a “fit for purpose” approach to charity accounting for fundraising income and expenses in their audited financial statements.
Research by QUT’s Australian Centre for Philanthropy and Nonprofit Studies ACPNS, called Defining and Accounting for Fundraising Income and Expenses points to a lack of comparability and inconsistencies in financial reporting disclosures relating to fundraising revenues and expenses in Australian charities.
The research has been authored by the head of QUT’s ACPNS, Professor Myles McGregor-Lowndes along with Dr Ted Flack, Dr Glenn Poole and Stephen Marsden.
The project was funded by the Chartered Accountants Australia and New Zealand (formerly Institute of Chartered Accountants Australia).
The report examines whether the current reporting of fundraising in annual financial statements by Australian charities is fit for the purposes of informing the donating public and other stakeholders, whether through the Australian Charities and Not-for-profits Commission’s registry strategy or through other means such as private ratings agencies.
The research says charities' fundraising financial transactions should be reported in the interests of accountability, and this report should be publicly available.
However, research shows that at present there is little consistency in how fundraising is defined or in how such transactions are reported, and little guidance from accounting standards.
“The Australian Accounting Standards Board (AASB) prescribes standards … and these standards are transaction-neutral, meaning that for-profit, Not for Profit and public sector entities are generally subject to the same accounting treatment and disclosure requirements,” the Report said
However the researchers said there was no specific guidance for disclosures in relation to fundraising revenue or expenses in any of the AASB Accounting Standards.
“Not surprisingly, with no prescribed disclosure requirements for fundraising revenue and expenses in Australian accounting standards, different Not for Profit entities adopt different practices,” Prof Myles McGregor-Lowndes said.
“An entity is permitted to disclose its expenses by either nature or function. Many Not for Profits elect to disclose their expenses by function (i.e. by grouping individual expenses under headings, such as ‘fundraising’). However, such an approach ‘may involve arbitrary allocations and involve considerable judgement’, which may lead to inconsistent classifications and a lack of comparable data between entities.
“Australia stands at a juncture in fundraising reporting and it has a choice of paths. We need to evaluate the choices available carefully, in the light of the successes and failures of charity regulation regimes around the world, taking into account the best evidence available.
“Our report examines the formal accounting standards to ascertain their impact on reporting fundraising transactions.
“Given this vacuum, there appears to be a natural tendency for charity accounts to reflect their home state’s or territory’s mandatory reporting requirements and these vary from jurisdiction to jurisdiction.
“These drivers have in turn led to a lack of comparability and inconsistencies in financial reporting disclosures relating to fundraising revenues and expenses.
“Australian accounting standards provide an overall framework. However, another level of guidance is required for charities to be able to prepare annual financial reports which can be relied upon with other material as an indication of appropriate fundraising behaviours,” Prof McGregor-Lowndes said.
“The National Standard Chart of Accounts (NSCOA) is now hosted by the ACNC. It seeks to create a model chart of management accounts for acquittal of all jurisdiction’s financial information requirements. It could not reconcile the different requirements of state and territory regulators,” the report said.
The report offered a number of possibilities but recommends a system that recognises that fundraising is, in many ways, a whole of organisation activity with expenses best reported with other general expenses - by nature.
The report said this would mean that only the expenses associated with the cost of ‘goods sold’ type of fundraising would be separately disclosed whilst the other costs of fundraising would be treated as general expenses in accord with general accounting practice.
“This option has the advantage of relative simplicity, flexibility to alter with accounting standard revisions and avoids the fraught complexity of identification of direct and indirect costs and allocation of joint costs,” Prof McGregor-Lowndes said.
“Accounting ‘by nature’ rather than ‘by function’ avoids arbitrary management discretion in allocating joint costs. The proposal also takes into account the significant limitations of any material benefits associated with reliance on a sole ratio and adverse side effects of producing overhead ratios for external comparison.”
However, the report said the chief disadvantage of such a system would be that costs of all fundraising activities would not be separately disclosed, but we do not really consider this a critical disadvantage as this would avoid inducements to distort figures and crude ratios, meaningless in isolation.
Read More Recent News
Top News This Week