posted by Pat Lewis, Senior Professional in Residence ASU Lodestar Center

Welcome to Research Friday! As part of a continuing weekly series, each Friday we invite a nonprofit expert to highlight a research report or study and discuss how it can inform and improve day-to-day nonprofit practice. We welcome your comments and feedback.

Do volunteers count? Oh, yes, they count — in how services are performed, in how much is and can be done, and in generating social value. Volunteering is the heart and soul of the social sector.

However, the “contributions of most volunteer services are not recorded in the conventional accounting statements because they do not meet the very specific requirements of the Financial Accounting Standards Board (FASB),”^[1] the entity in the U.S. that establishes financial accounting and reporting standards.^[2]

For some nonprofits, this means that financial statements misrepresent the depth of effort and the breadth of support for services to clients, customers, and the community. They ask, “How can we present to our Board of Directors, our funders, and our volunteers how much value volunteering brings to our ability to carry out our mission?”

Well, to the rescue comes the work of Dr. Laurie Mook, an assistant professor in ASU’s School of Community Resources and Development and an affiliated faculty member of the ASU Lodestar Center. Dr. Mook, along with Dr. Jack Quarter^[3] and Dr. Betty Jane Richmond^[4], have researched the social sector for many years, as well as co-authored What Counts: Social Accounting for Nonprofits and Cooperatives.^[1] Their work suggests a new way of accounting for social value.

As noted in the foreword, “The field of accounting has traditionally evolved in response to the needs of the business community. While this is an important constituency, nonprofits are different in that they do not have shareholders and they serve many stakeholders. Therefore, new accounting models are needed that speak to the uniqueness of nonprofits. While going a long way in demonstrating how volunteer contributions and unpaid services to the community can be included in accounting statements, What Counts acknowledges that this work represents only a beginning. Nevertheless, it is an important beginning!”^[5]

For the purposes of this blog post, I have selected only one of a number of examples provided by the authors, all thoroughly supported by impressive research, and including some examples of nonprofits that have incorporated social accounting into their financial statements. These statements are:

• The Socioeconomic Impact Statement, an adaptation of an income statement;
• The Socioeconomic Resource Statement, an adaptation of a balance sheet, and;
• The Expanded Value Added Statement, an adaptation of a Value Added Statement.

Chapter 5 focuses on the valuation of volunteer hours as an add-on to the traditional income and position statements. The authors present statements from Junior Achievement of Rochester, New York Area to illustrate. Let's look at a Statement of Financial Position, with adjustments to make it a Socioeconomic Resource Statement (an adaptation of a balance sheet).

First, volunteer efforts are monetized. How?

Table 5.1 Volunteer Hours Contributed for the Year Ended June 30, 2001^[6]

Junior Achievement of Rochester, New York Area, Inc.

Using what is called a "replacement cost" method to estimate a monetary value based on wages paid for similar activities, the U.S. Department of Labor, Bureau of Labor Statistics, and Independent Sector were the sources for determining the average rate and the fringe benefit calculation. These data sources are updated regularly and are easily accessed on the Internet.

Incorporating this information into The Socioeconomic Resource Statement is an interesting exercise whereby human resources, both employees and volunteers, and the values of the organization’s brand and relationships are expressed in dollars in a column titled "Intellectual.” The hard valuations of assets and liabilities, as normally expressed in traditional accounting, are listed in a column titled “Economic.” An example of this follows.

Table 5.6 The Socioeconomic Resource Statement

Junior Achievement of Rochester, New York Area, Inc.

This is a very different way to look at the value of a nonprofit. It certainly shows a much fuller picture, especially for the many thousands of nonprofits who depend so heavily on volunteers for mission accomplishment. We do need to remember, however, that social accounting provides statements of value in addition to the traditional financial statements recommended by the Financial Accounting Standards Board.

There is a free online open-source software program that supports the development of these Socioeconomic Statements. The software is intended to accompany the book, a needed resource as the thinking and language is non-traditional; the book is very explanatory. To access the free software, you can register your organization here. (Note: The organization is currently transferring the software to a new server, so access may be limited at the moment.)

Social value is an outcome of the work of the social sector. Social accounting may be the nonprofit accounting of the future. I think back some 20 years or so ago when Return on Investment (ROI) was first applied to the nonprofit sector and how difficult it was for many to think in those terms. I suggest that social accounting falls into the same category: Something not easy to embrace immediately, but it may be a part of our future.

Volunteers are a valuable resource. Placing a dollar value on volunteer contributions and presenting this additional information helps stakeholders understand their social value and may help motivate even more volunteering.

Patricia Lewis' role as Sr. Professional-in-Residence at the Lodestar Center is to help bridge academia and practice. She has a long career as a nonprofit executive and as a "pracademic," having previously served as President and CEO of the Association of Fundraising Professionals, Executive Director of Camp Fire Boys and Girls in Seattle-King County, Development Director of the Childrens' Home Society of Washington State, and as the Nonprofit Professional-in-Residence at George Mason University. She has written and lectured throughout the world about various leadership and management topics for the nonprofit sector.

Sources:
^ [1] Mook, Quarter, Richmond, “What Counts: Social Accounting for Nonprofits and Cooperatives”, 2nd ed., Sigel Press, 2007, pg. 88 with specific reference to Statement of Financial Accounting Standards No. 116 (Financial Accounting Standards Board 1993).
^ [2] FASB: Financial Accounting Standards Board, fasb.org
^ [3] Jack Quarter, Ph.D., Professor & Co-Director, Social Economy Centre, Ontario Institute for Studies in Education, University of Toronto
^ [4] Betty Jane Richmond, Ph.D., Faculty of Education, York University
^ [5] Alan J. Abramson, Ph.D., Director, Nonprofit Sector and Philanthropy Program, The Aspen Institute, Washington ,DC. Ibid, Foreword
^ [6] Ibid, pg 89