Method Of Social Accounting

Method of social accounting (Finland) WHERE | WHY | HOW WHERE The Finnish EQUAL Development Partnership Response (2004–2007) was managed by the Finnish Red Cross. The goal of the project was to support social enterprises and organisations operating in a similar manner in their efforts of better reaching their set business and social objectives, and to enhance the employability of those in the weakest labour market situation. The main priorities of the project were 1) to develop a performance improvement model for social enterprises and other organisations operating in a similar manner based on organisational self-assessments applying the EFQM Excellence Model, 2) to develop a tool for demonstration of social results using the method of social accounting, 3) to promote diversity in the workplace, creation of paths to the open labour market and volunteering, and to 4) enhance recycling and to come up with new ideas for using recycled materials, especially textiles. A method to systematically analyse, verify and report those results and impacts that cannot directly be measured in terms of money The national project partners were the Finnish Red Cross (FRC, co-ordinator), Excellence Finland, Ruralia Institute of University of Helsinki, and the S Group. The partners developing their operations were all units with a social mission and operating in a similar manner as social enterprises: the Kontti Recycling Department Store Chain (FRC), Logistics and Sorting Centre (FRC), Meriko project/Meriko factory of the Merikoski Vocational Training Centre, Omaoksa laundry co-operative, Social Janitor project (FRC), House of Skills (FRC), and Uusix Workshops of the City of Helsinki Social Services Department. These units offer their staff a possibility to increase their capabilities in order to help become employed or to continue to some other meaningful goal after supported employment. WHY Discussion about social responsibility and social entrepreneurship has led to a need to systematically analyse, verify and report also those results and impacts that cannot directly be measured in terms of money. A social enterprise or an organisation operating in a similar manner generally has two kinds of objectives: those related to financial performance and those related to social or society objectives. Social accounts are needed to show the social achievements, because the financial accounts only present the business performance. The social accounts will present the social and society results, which often require considerable inputs and resources to achieve. There is a need to show that these social efforts are creating results – often invisible at first sight – and that the efforts are not wasted. The social accounts add to the credibility of the organisation, because they use the same language and logic as financial accounting.

HOW One of the objectives of the EQUAL Development Partnership Response implemented in Finland in 2004–2007 was to develop a method of social accounting that would meet the special needs of social enterprises and similar organisations. The method of social accounting was tested in six of the project’s partner organisations. During the project, two accounting cycles were to be realised, both falling shorter than calendar year due to the project schedule. In the Response project, the partners testing the social accounting method were organisations operating to a large extent in a similar manner as registered social enterprises, such as the the Kontti Recycling Department Store Chain, Social Janitor project and the House of Skills of the Finnish Red Cross, Omaoksa laundry co-operative, Uusix Workshops of the City of Helsinki, and the Meriko Project. The Ruralia Institute of the University of Helsinki was the partner responsible for method development and Develooppi Ltd was the external expert providing the subject knowledge. Social accounting is a method to measure, analyse and present social and society results. The process resembles that of financial bookkeeping and the two accounting processes are in fact good to carry out in parallel. The method tested in the Response project has been inspired by the model developed by John Pearce and the new economics foundation (nef). The contents of social accounts are always based on the objectives set by the organisation itself at a certain point in time. The idea is to include issues and aspects that matter to stakeholders. For this reason an important phase in the planning stage is stakeholder consultation to identify the social results that the stakeholders are expecting from the organisation. The contents of the social accounts will be defined accordingly. For many associations and social enterprises an important stakeholder is the funder, that is, labour administration. In that case the social accounting will be focused on the results relating to creation of paths to employment or those relating to the individual empowerment realisation. When starting the process of social accounting, it should be ensured that there is enough skill, know-how and time the organisation to conduct the process.

Concepts used in social accounting Social accounting applies the concepts of financial accounting. When learning the process, it is important to translate these terms into everyday language so that everyone understands their meaning correctly. In the third sector or social sector, the terminology of financial accounting can at first seem artificial or cumbersome. Everyday language can be used when this is appropriate for the sake of clarity. Do not dwell on the terminology discussion for too long. The key concepts are •

Account map: Table including the key social objectives and their quantitative and

qualitative indicators/measurements •

Budget: Final set of measurements including the measurement plan with time schedule and responsibilities. Indicators are always expressed so that they allow performance to be measured.

•

Bookkeeping: Information to be gathered routinely during the year and collection and filing of evidence (records).

•

Record: An evidence of a social event in social bookkeeping.

•

Social accounts: Analysis and summary of the past year’s social bookkeeping.

•

Social audit: The process by which an external and independent party reviews and checks the social bookkeeping and social accounts and verifies the contents and interpretations presented.

Social accounting process The social accounting cycle is the same as in financial accounting. The bookkeeping period lasts for a calendar year, from January to end-December. Ideally, the budget is prepared at the end of the previous bookkeeping period. In the case of the Response partner organisations, the budgets were prepared at the beginning of the bookkeeping year. When the bookkeeping period ends, the social accounts are prepared, and they will be reviewed by an external auditor. Getting ready: •

Getting the basic information about the method

•

Making an informed decision to begin social accounting

•

Getting the necessary external expertise and making a commissioning agreement

•

Nominating the person responsible for social accounting in the organisation and ensuring that this person has enough time and knowledge of the method

Budget planning •

This phase consists of planning and defining the following, preferably with the key stakeholder: o

most important social objectives for the coming year

o

reliable indicators with measurable targets

o

information collection, making sure that the information can be gathered from statistics and by surveys, interviews, case studies, etc.

o

time schedule for measurements

o

persons responsible

•

Remember that the organisation’s values, basic mission and objectives should always form the basis for budget planning.

•

It is sensible to make use of the information that is already being collected, measured and monitored in the organisation. Complementary measures should be designed as deemed necessary.

•

Key stakeholder’s comments on the budget should be requested to find out the relevance of the planned contents and improvements should be made on the basis of comments received.

•

When the budget is ready it is presented to the board of directors or other similar body for approval.

Social accounting •

The information is collected according to plan. Records (evidence) of all social events are collected.

•

The social bookkeeping records are collected as planned and filed systematically into folders, which will comprise the material for social audit.

•

Photographs of social events are also good material to illustrate the social accounts.

•

The next year’s budget is being planned towards the end of the social accounting cycle. Therefore, all the way through the accounting, it is recommended to make note of any changes or additions needed in the coming budget.

Social accounts •

The information from the social bookkeeping records is collected into the social accounts.

•

Basic details describing the organisation are given at the beginning of the social accounts.

•

The accounts should be a truthful presentation of the good results and also of the results in areas where the targets were not reached this year.

•

A pleasant graphical design makes the social accounts more interesting to the readers.

Social audit •

An external, independent social auditor is selected. The auditing can be carried out by a single auditor or a team/panel of social auditing experts.

•

The social auditor will review the draft social accounts, checking the social

bookkeeping records by going through the information gathered and the interpretations presented. The auditor will prepare a social audit report/statement. •

The social auditing can also be performed in a social audit seminar to which also stakeholder representatives will be invited.

Communicating the findings •

The social accounts will be published and communicated, for example alongside the annual accounts or in connection to the social audit seminar.

•

It is important to plan the publishing and communicating carefully. Questions to be considered are the extent of disclosure, the most useful format (all results or only part of the results, whole accounts or a summary) and the communications channels and media to be used (meetings with stakeholders, website, newsletter, presentation, local newsmedia, etc.).

Planning and budgeting for the next social accounting period •

The previous social accounting process will be analysed and improvements in measurements and the process will be discussed and done.

•

An improved social accounting process will be planned for the next accounting period and implemented.

Lessons learnt from the social accounting •

The needs for development brought up by the social accounting process will be examined and concrete improvement actions will be started.

Example of social objectives, indicators and results This is an excerpt of the Omaoksa laundry co-operative’s Social Accounts 2006, Account No. 300 00, Competent and reliable partner. The respondents gave their answers on a scale of 1 to 5: Objective 303 00 - The clients give recognition to Omaoksa as a social employer Indicator: 303 01 The clients representing the city of Järvenpää find it valuable that Omaoksa is a social employer. The average of answers is at least 3 and at the maximum one client has given grade 2 or less. Result: The city clients’ average is 5. No one gave grade 2 or less. Indicator: 303 01 The fact that Omaoksa is a social employer has affected the private clients’s choice of service provider. The average of answers is at least 3 and at the maximum one client has given grade 2 or less. Result: The private clients’ average is 4. One respondent gave grade 2 or less.

Another way of setting an indicator for a successful result is of type ‘the organisation employs x people’, in which the indicator is the number of work contracts. It is also possible to use a qualitative indicator. In that case the indicator states a certain number of case examples/success stories to describe how the organisation has created work, and the ‘result’ is the case examples presented in the social accounts. Example of full social accounts: Uusix Workshops’ Social Accounts 2006 Experiences The first accounting cycle requires a lot of work, but the subsequent rounds are expected to be easier. In the Response project, the experiences of the first social accounting cycle proved a need to focus on the following: •

Ensure the management’s commitment.

•

Make sure that you have adequate resources with the required skills and enough time at their disposal.

•

Plan the collection of information and storing of records well. Make a timeline of bookkeeping and information collection and stick to it.

•

Start preparing the accounts already in the bookkeeping phase. If the information has been collected on a continuous basis and well in time, preparing the accounts is not so bad.

•

A summary version of the accounts can be a good way of communicating the central findings in an interesting way to the stakeholders and the public.

•

Make observations and write down your experiences throughout the process to make it easier to improve the next year’s budget.

In the Response project, the process of social accounting was shown to work, since all of the six partners undertaking accounting were successful in producing their social accounts. With more experience, the process is likely to get smoother year by year within the organisations. So far, no single co-operation body or organisation exists in Finland responsible for the overall development of the method of social accounting. At the time of writing this, the Response partners had not yet published their first social accounts (early March 2007), so there are no experiences as to how they have been received by the main stakeholders. The partners themselves consider social accounting a valuable tool in showing the impacts of their operations to the funders.

Transferability The method is suitable to a range of different organisations, especially to organisations receiving external funding support and/or which have a need for presenting their social results to their external stakeholders. The budget is always prepared on the basis of the

organisations’ own targets and the target groups of the social accounts are always defined on the basis of the organisation’s own needs. For more information: Projet Leader Jaana Merenmies, jaana.merenmies(at)redcross.fi and Regional Coordinator Pia Sevón, pia.sevon(at)redcross.fi, www.redcross.fi/response Managing Director Tytti Siltanen, tytti.siltanen(at)develooppi.fi, www.develooppi.fi Managing Director Håkan Björk, [email protected], www.gemenskapsforetag.nu Main source: SoT (social accounting) manual, in Finnish only (www.develooppi.fi/sot) Uusix Workshops’ Social Accounts 2006