Innovation and best practice in charity reporting - Feedback on the 2020 Charity Reporting Awards
Published 12 November 2020
[ 7 minutes to read]
The New Zealand Charity Reporting Awards recognise and celebrate best practice among registered charities in meeting the reporting standards. The awards, now in their third year, are organised by Chartered Accountants Australia and New Zealand (CA ANZ).(external link) The winners and highly commended in the 2020 awards were announced earlier this year.(external link) The calibre of award entries were high and the qualities of transparency and excellence shone through in the winning reports. Dr Cherrie Yang, a judge for the 2020 New Zealand Charity Reporting Awards, provides her reflections on good charity reporting below.
This year, I was appointed to be a judge for the 2020 New Zealand Charity Reporting Awards. It was a fantastic experience and a great opportunity to recognise best reporting practice among registered charities. This year we introduced ‘innovation’ as a new judging category to promote innovation in charity reporting.
But what does best practice in charity reporting look like? Why does innovation in charity reporting matter? In this blog I share my first-hand judging experience and provide some answers to these two questions.
Background: New Zealand charity accounting and reporting
The reporting standards came into effect on 1 April 2015 to ensure that all registered charities prepare their annual reporting in line with a set of standards. The reporting standards, which were set by the External Reporting Board (XRB), encourage greater transparency and consistency among registered charities. To comply with the reporting standards, all registered charities are required to prepare a performance report that contains both financial and non-financial information to tell a holistic story.
Registered charities are categorised into four reporting tiers based on their annual expenses (Tier 1, 2 and 3) or operating payments (Tier 4). Tier 3 and 4 charities, representing the majority (93%) of the New Zealand charitable sector, are relatively small in size and often lack resources and professional support in preparing their performance reports. Hence, meeting reporting requirements presents quite a challenge for some of these smaller charities.
Tier 1 and 2 charities must prepare financial statements based on International Public Sector Accounting Standards. From 2022, they will also need to present service performance information, which Tier 3 and 4 charities have had to do since day one. Before the reporting standards were introduced in 2015, registered charities could provide any information they chose to demonstrate their accountability, which led to concerns about transparency and the limited disclosures of information.
My judging experience
Once the judging panel was convened, we received several shortlisted reports in each of the five categories (four tiers and innovation). Based on three judging criteria, we carefully reviewed each report and scored them to determine both the winner and the highly commended charity in each category. Our criteria were:
1) compliance with standards;
2) communication effectiveness and innovation;
3) overall presentation.
We then sent our scores to the chief judge to consolidate and discussed the final results in a conference call. It was a robust process. I am extremely impressed by all the judges’ efforts in reviewing the charities’ reports in such a short time, despite the significant disruption of COVID-19 in our work and life.
Research suggests that charity stakeholders have strong needs for relevant performance-related information. However, this information is not always disclosed in a way that stakeholders can easily access and understand it. The reporting standards can address this, but four key issues are still evident in current reporting:
- Some larger charities only present summary financial statements, which does not comply with the requirements of the reporting standards. These reports also fail to present both entity information (e.g. charities’ purposes and goals) and service performance information. Therefore, they are less useful for accountability and decision making purposes.
- Many charities across all categories provide lengthy reports. Some even submitted two sets of reports – one the mandatory performance report, and the other their own annual report that presents varied information on their purposes, activities, governance and accountability. While the overall information is comprehensive, some information is redundant and at times, inconsistent. This points to an information overload problem that may make charities’ performance reports more difficult to read and understand.
- Not all charities provided the same reports for the awards that they filed with Charities Services. Many performance reports that are available on the Charities Register(external link) lack sufficient detail for users to understand a charity’s performance. The Charities Register, maintained by Charities Services, is a publicly available database of registered charities that allows a wide range of readers to access charities’ performance reports. The Register helps the public, funders and other users to make better informed decisions about charities they may wish to support financially, volunteer for, or whose services they may wish to use. Many charities could better utilise the Register to communicate their story to their stakeholders.
- Some charities put too much emphasis on why they exist and their appreciation of their funders/donors while saying less about how they are structured, operated and managed. Not all charities developed appropriate output measures to allow users to understand their activities and achievements.
- Integrated reporting - a more integrated performance report that includes both non-financial and financial performance information would make reports easier to read and understand.
- Telling a holistic story - it is crucial to achieve a balance between disclosing sufficient contextual information (e.g. why a charity exists and how it is structured and governed), what the charity has done, and its financial information in the reporting period. A good story does not have to be lengthy!
- Incorporating multiple perspectives if possible – charities that have stand out reports provide not only their own voices to describe their achievements, but also the perspectives of service recipients and volunteers. Where appropriate, testimonies, quotations and case studies of beneficiaries are powerful.
- Showing prior-year comparisons – comparisons to the same measures in the prior year help users understand and assess the effectiveness of charity performance. Where significant differences occur, meaningful explanations are needed.
- Demonstrating a linkage between achievements and the overall mission – it is helpful to highlight a charity’s financial activities, its performance measures (e.g. output measures) and how these contribute to its overall mission and goals.
- Clear presentation – the performance report must be easy to read, concisely presented, and formatted consistently.
My own research with government and philanthropic funders highlights the importance of charities reporting their performance results in creative and innovative ways. Therefore, I am pleased that the ‘innovation’ judging category was introduced this year to encourage innovation in charity reporting. Here I provide some suggestions on how charities can use new or different ways of presenting their performance:
- Make it easy to read and interesting – this is the key message I want to get across. A performance report does not have to be boring! It can be attractive, interactive, colourful and memorable.
- Use visual aids – a good picture is worth a thousand words! Charities should select relevant pictures, graphs, tables, charts, cartoons and poetry etc. to showcase their achievements. Users are more likely to understand a charity’s performance in these ways than via a lengthy performance report. However, these visual aids must not be misleading and should always be presented transparently and clearly.
- Use a creative but consistent reporting format – the performance report can be designed in creative ways. For more in-depth data, links or appendices are helpful for users to navigate further if they need to. Still, the format needs to be organised consistently across the entire performance report.
- Summarise key achievements in meaningful ways – charities need to understand who their key stakeholders are (i.e. users of their performance reports) and what kinds of information they would be interested in. Then charities should provide a summary of achievements tailored to these stakeholders’ information needs.
- Link the mission, purpose and achievements – remember, innovation in charity reporting aims to enable charities to tell holistic stories on their performance in new or different ways. Don’t get carried away by cool and fancy animations! Make sure the presentation and contents of a performance report link closely to the mission, purpose and achievements of the charity.
It was a great honour for me to be a part of the New Zealand Charity Reporting Awards this year. I am pleased to find improvements in charity accounting and reporting and I look forward to seeing more innovation and best practice in charity reporting.
- The accountability information needs of key charity funders(external link)
- How can the public trust charities? The role of performance accountability reporting(external link)
Dr Cherrie Yang is a Senior Lecturer in Accounting at Auckland University of Technology. She is passionate about research in the areas of charity accounting and accountability. She has developed a 'Not-for-Profit Accounting and Accountability' course that aims to prepare future Not-for-Profit researchers, leaders and contributors.