Financial reporting and accountability in charitable organisations

The not-for-profit sector is made up of approximately 700,000 entities employing around 600,000 people and controlling assets up to $70 billion, with the largest charities comparing favourably in size and value to big business. While it is expected that many charitable organisations are well-managed and make a significant contribution to society, a lack of good governance and/or accountability could have devastating affects on the community. Official inquiries into the not-for-profit sector have questioned the lack of transparency and accountability created by a complex legal and regulatory regime. Critics of the existing regime have called for reforms including mandatory financial reporting requirements and an independent regulator to enhance public accountability and organizational efficiency and performance. This study provides an insight into the financial reporting activities of Australia’s largest charities so as to provide a measure of the extent to which charities meet public expectations of accountability. This involved the examination of over 100 publicly available reports for charitable organizations and the administration of a questionnaire. The majority of charities examined in this study provide community, welfare or health services, employ over 100 employees, and rely on a similar number of volunteers to assist with their activities. We have attempted to shed light on a significant failure of the not-for-profit sector to date, in that although our research highlights inconsistencies in reporting formats, ambiguus financial information and a high proportion of qualified audit reports there is a strong belief from charity organisations that the public is entitled to receive quality information on financial performance, suggesting that increased financial disclosures would be beneficial to the charitable sector. Respondents supported ‘programme accountability’ (89.1%), ‘fiscal accountability’ (78.2%) and ‘profit’ (76.6%) as suitable measures of performance with the circumstances of not-for-profit organisations sufficiently different to require a specific and dedicated accounting standard for the sector