Financial Frustrations In The Social Impact Sector

 

 

As the year draws to a close, the Nation Builder Collabs, both business and NPO, have been hard at work scoping the research that this peer-led community will be embarking on in 2019.

 

The idea for the research came from a talk by Brenda Coetzee of CMDS who works with donors and NPOs to assist one another in understanding the true health of an NPO’s financials. This presentation prompted a conversation that comes up year after year with no change in approach or solution. 

 

The implementing parties (usually NPOs) experience intense scrutiny of their financials, with rands and cents (on items like postage) needing to be reported on and not only reflected in their audited financials. Overhead costs continue to be a big debate, which is leading to “creative” reporting that positions the overheads differently so that the NPOs do not come under fire for paying staff, electricity, water and other items that constitute a functioning organisation and office. 

 

The other side of this conversation is the ever-increasing pressure that businesses experience to ensure their social investment partnership is having an impact and the greatest social return for their investment. As this pressure mounts, the person managing the social investment needs to find indicators that will convincingly show their Boards and executive committees the value of these investments into society. Impact reporting is not always that well understood, and no clear standard has been set for this type of reporting. This, then, leaves social investors looking to the financials for indicators of organisational health and ultimate impact. 

 

Financials and numbers, at face value, can be very deceiving when it comes to social impact measurements. Returns on investments are calculated by the quantified return over the invested amount. This formula only works within a for-profit system, as the larger the quantified return, the larger the ROI. In social impact terms, however, the number of people impacted may be large (constituting a large ROI); however, often times, the greater impact comes with impacting fewer lives in a much deeper and more sustainable manner.

 

The Collabs have therefore suggested that a standardised reporting system is implemented within the NPO and social investment arenas. Everyone has to be bought into the indicators, where the indicators and reporting metrics are not a hindrance to the not-for-profit organisational structures, but still meet the needs of the business reporting standards that allow for Board and senior level buy-in. 

 

There are many different metrics in the marketplace, and impact reporting has become an industry on its own, but if the Nation Builder community of over 100 corporates and businesses could align with one another on which metrics to use, we could start a push towards standardising nationally. This would drastically reduce the amount of paperwork and reporting that an NPO is required to do while making benchmarking, impact reporting and quantifiable impact much easier for the social investor. 

 

The Nation Builder community is looking forward to 2019 and the prospects of finding a solution, or jointly agreeing on a metric that will further professionalise our industry and put this age-old frustration between the social investor and NPO to bed once and for all. 

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