Reporting in the Nonprofit Sector
The first thing that comes into one’s mind when thinking about reporting in the nonprofit sector may be the thought that reporting is a task that is mainly carried out in order to meet funders’ criteria. However, reporting is more than that. Within and outside of an organization, reporting has different purposes and is aimed at different stakeholders. Therefore, reporting plays an important and complex role in the work of nonprofit organizations.
Due to a lack of commonly accepted reporting standards in the nonprofit sector, NPOs currently report in a vast variety of formats. While this mirrors the diversity of organizations and causes in the sector, the reports produced are often difficult to compare. This then creates a challenge for funders and other stakeholders trying to compare organizations that work in the same field, or assess the development of one particular organization over time, for instance. At the same time, nonprofit organizations dedicate a significant amount of resources in an effort to comply with the different information requirements of their partners. As a result, a lot of time is spent on reporting that could otherwise be devoted to the organizations’ core objective, namely, creating social change.
Therefore, a common reporting framework would have advantages for NPOs as well as for funders.
Advantages of a Common Reporting Framework
By reporting according to a common reporting framework, NPOs can better document and improve their impact. Here are some advantages of using a common reporting framework for nonprofits:
- By adopting a reporting framework, a NPO’s reporting becomes consistent. As a result, it is possible to track progress over time. In addition, NPOs are able to re-use a significant amount of the information produced in the previous year and focus on updating those elements that have changed in the current period.
- With a common reporting framework, nonprofits can use one report for all funders, which would significantly decrease the time and effort put into reporting.
- A common reporting framework increases the transparency of an NPO and helps its PR and marketing efforts.
- Based on the data filled into a reporting framework, it is possible to develop a better and shared understanding of the NPO’s theory of change and the results of the NPO’s work. This supports the internal learning and improvement processes, as staff can refer to the data compiled in the report.
- A common reporting framework facilitates the exchange between NPOs on “What works”, best practices and even benchmarking.
Although some funders require NPOs to fulfill their own reporting criteria, most funders struggle with different reporting formats and inconsistent reporting. A common reporting framework will:
- Provide funders with better reports that have a clear focus on the impact of an organization.
- Reduce funders’ costs for researching and analyzing information on NPOs’ performance.
- Help funders to compare NPOs and track NPOs’ performance over time.
- Increase the donor and funder trust in NPOs overall.
Therefore, a common reporting framework will make funders’ resource allocation more efficient and effective.
Examples of Reporting Frameworks
There are different reporting frameworks that provide for very comprehensive reporting. In Germany, the Social Reporting Standard (SRS) has been developed over the last two years for this purpose. In the U.S., the GuideStar Exchange is the only initiative of its kind that allows nonprofits to provide additional information that encourages nonprofit transparency on a national scale and allows nonprofits to supplement the public information that is available from the IRS.
The Social Reporting Standard (SRS)
The Social Reporting Standard (SRS) suggests a structure for impact-orientated reporting for nonprofit organizations.
Research of Technische Universität München (University of Technology, Munich) and the University of Hamburg provided the starting point for the development of the SRS. A consortium of German non-profit organizations, funders, social investors, scientists, and practitioners has since been responsible for the further development of the standard. This consortium includes Ashoka Germany, Auridis, BonVenture, PHINEO, Schwab Foundation, gut.org, Technische Universität München, and University of Hamburg.
The standard aims at improving transparency, accountability, and comparability in the sector while at the same time reducing complexity and resource requirements for social organizations. While the focus of the standard is on impact reporting, according to SRS, a report also covers the fundamental elements of reporting usually found in financial statements, from organizational structure to financial information. In this way, SRS reports draw a comprehensive picture of the reporting organization and its activities.
A report according to the Social Reporting Standard consists of five parts:
Part 1: Overview and description of the report’s scope and contact persons in the organization.
Part 2: The NPO’s programs and their impact:
1. The social problem and the organization’s approach to solving it as well as the description of the subject area, the social problem, its causes, and your approach to solving the problem.
2. Social Impact: resources used, work performed, and social impact.
3. Planning and Outlook: Objectives for the coming years, opportunities and risks, and future development.
Part 3: Overview of organization(s) involved and key persons.
Part 4: Detailed description of organization, including the organization’s legal structure, number of employees, etc.
Part 5: Finances, including a statement of assets and liabilities as well as income and expenses.
Because of its comprehensive scope, the SRS report fulfills the information requirements of the majority of (potential) funders. In Germany an increasing number of foundations, investors, nonprofit organizations, governmental bodies and social competitions already accept or even demand SRS based reporting or are in the process of introducing it, as it has proven to be an effective framework for portraying nonprofits and their work.
For more information on the SRS, please visit here.
The GuideStar Exchange
In the U.S. the GuideStar Exchange offers a very similar reporting framework as the Social Reporting Standard.
The GuideStar Exchange consists of six parts:
1. General information about the organization
2. Information on the organization’s financials
3. Information on the organization’s people
4. Information on the organization’s mission and programs
5. Information on the organization’s impact
6. The possibility to upload additional documents
To learn more about the GuideStar Exchange, please visit here.
Criteria for Success
In order to be successful, a common reporting framework or “reporting standard” would have to fulfill several criteria. A framework must:
- Be easy to use and understand.
- Be broad enough to acknowledge the diversity of the organizations and causes in the nonprofit sector.
- There would need to be a common understanding and acceptance of the framework/standard by the stakeholders in the nonprofit sector that can only be achieved by ensuring the involvement of relevant stakeholders in the development of the standard.
The preceding is a guest post by Bettina Kurz, a Special Projects Fellow at the GuideStar office in Washington, D.C., where she just authored a report on data quality for the GuideStar Exchange program. She is a visiting fellow from Germany where she works as a Social Impact Analyst for PHINEO, a Berlin based not-for-profit-corporation. Together, with her colleagues, she developed a comprehensive due diligence tool for NPOs. She analyzes NPOs and prepares recommendations on how to enhance their impact. She recently authored a comprehensive manual that helps nonprofit organizations plan, implement, review, and improve their programs with a focus on effectiveness and impact.