Social Accounting in Australia – Re-Building Social Capital

A new tool for social accounting – measurements that go beyond finance – is launching in Australia, writes Alan Greig, director of the Mercury Cooperative, the not-for-profit organisation behind the initiative.  

This year’s Nobel prize-winning economist, Bengt Holmström, produced his most famous paper – Moral Hazard and Observability – in 1979, concluding that observation of outcomes alone, without studying the efforts and inputs required to achieve them, hinders efficiency and leads to less than optimal results.

While these studies focused initially on workplaces, the conclusions are now being extended to most contractual situations where rewards and incentives – including pay and funding – should not be seen as being solely dependent on outcomes, but reflective of the range of actions and activities undertaken as well as “collective endeavour” which underpins meaning and understanding in organisations.

In his article published in Pro Bono Australia News in November, Social Impact: Should We Be Talking Process or Product?, Alan Kay of the Social Accounting Network (SAN UK) provides further insights into this issue – how to show the best face of the social economy, not only in terms of results, but also in terms of the effort required to change anything for the betterment of society.  

“Social accounting” (a technique which has been in operation around the world for more than two decades and which initially arose from the cooperative sector), he advocates, is best for doing this through its “prove, improve, account” framework.  

Given the increasing interest in social accounting, the Mercury Cooperative in Sydney will be working in partnership with governments and like-minded organisations to embed “social audit and accounting” (SAA) as the preeminent tool for small and medium community organisations in Australia to measure the impact of their work in their communities, as well as for improving business processes and the understanding of their vision, mission and purpose.

Social accounting

Measuring and reporting social impact of social organisations provides evidence of the value of funding by members, by governments and increasingly by the philanthropic and corporate sectors – or in the case of social enterprise, of the income they generate through enterprise activity. SAA provides a framework to provide this evidence, regardless of size.

While several tools for the measurement of social impact have emerged, many of these tools have proved to be expensive, consultant driven and not sufficiently focused on business improvement. Some of these tools are also concerned primarily with “numbers” rather than the more qualitative aspects of service delivery, including importantly social capital and relationship building. The result has been that these tools have tended to be adopted by organisations with sufficient resources to capitalise on their impact for marketing purposes.

SAA alternatively implants a strategic measurement and reporting process into everyday governance of social organisations which builds on purpose and values of the host organisation.  SAA can prove what value a social organisation adds to society by building accounting, monitoring and reporting systems that show social, environmental, economic and cultural impacts. In highlighting improved performance where it has taken place, it introduces processes to further improve that performance. Through stakeholder engagement – a key aspect of SAA – increased accountability produces more rapid understanding of impact on beneficiaries, as well as in the surrounding community, resulting in sharpened service response.   

SAA is not an external evaluation and, unlike other tools, it requires no ongoing external consulting to complete. Rather it is for social organisations themselves to identify their values and objectives and to take responsibility for reporting on them. In this way, SAA enables an accurate description of what is being achieved and can demonstrate this to others in a much more holistic way.

For more on SAA and how it works, see SAN UK’s What is Social Accounting.

Social Accounting Network

As a social impact measurement technique, SAA is functioning in many countries, supported by the international Social Audit Network based in the UK, which has been in existence for 20 years and from which much is now available in terms of skills, experience, manuals, tools and supports, as well as contact with SAA practitioners around the world.

The Mercury Cooperative is developing a pathway for readily accessible SAA in Australia and is working on a program of three components to achieve this:

1. Entry: for organisations indicating an initial interest in social accounting, information and guidance can be provided from a range of members and associates.
2. Facilitation: for those organisations proceeding to training, access will be enabled to online resources and templates, along with setting up internal processes to produce social accounts and to submit them for assessment.
3. Assessment: reviewing an organisation’s social accounting, auditing and reporting processes and providing feedback for business improvement and enhanced social impact.   

Benefits to the community

There are many good reasons why SAA will add considerable value to the growth and performance of the social economy in Australia.

SAA can enable the tens of thousands of mostly smaller community organisations, social enterprises and cooperatives which currently undertake no social measurement and reporting, to start doing so.

In doing so, the following benefits will be derived:

1. accurate, honest and meaningful reporting on organisational achievements
2. proof of results to stakeholders, to society generally and to the environment
3. demonstrating how organisations can improve on business and social performance
4. increased stakeholder participation in influencing behaviours and policies
5. sharper understanding of core values, cultural differences and social objectives
6. more open internal and external appraisals of social performance.

SAA also adds value to public policy development as it operates to key principles which deliver what is being demanded from funded services, in a much broader sense than simply “return on investment”.

It does this through:

1. giving social organisations a clearer understanding of what they are achieving
2. highlighting how much it is costing them to achieve that, while
3. enabling different stakeholders to readily perceive that “success”, while taking into account cultural differences.

SAA delivers this in a simpler, more practical and useful way than other approaches. It also builds confidence and community resilience through its do-it-yourself business improvement process.

Well-functioning SAA can also stimulate increased social investment in communities through better showcasing “success”. It also rapidly addresses reporting deficits and, in partnership with those like-minded and diverse, locally based organisations, effectively builds and maintains social capital in local communities.

In terms of re-introducing SAA in Australia, it is believed that as only 5 per cent of social organisations currently address social performance measurement and reporting – and that these are mostly at the larger end of the scale and happy with the more complex tools they are using – then there is a large, potential “market”’ for the adoption of SAA in this country. Primarily that market will be those smaller social organisations which have a need to address and report on social performance, but are limited in their means for doing so. They are also those organisations critical to the maintenance and growth of social capital and participatory civil society in this country.  

For more information on SAA visit here.  

About the author: Alan Greig is a board member of Employee Ownership Australia Ltd, a director of not-for-profit organisation Mercury Cooperative Ltd, a member of the New Economy Steering Group and coordinator of the Social Enterprise Legal Models Working Group.