Chapter
3.
Management
accounting
in
non-profit
organisations
Non-profit organisations belong to what is commonly known as the third sector, i.e. in between
the public sector and private companies. Some characteristics enable to distinguish non-profits
from other organisations (Anheier & Salamon, 1994, 1996). They differ from private companies in
two respects. First of all, unlike private companies, donating to a non-profit does not open any
rights over the organisation. No property right is associated with donated monies. The inexistence
of a property right implies that there no dividend can be paid to donors. More broadly, this implies
that surpluses generated from the activity cannot be redistributed to stakeholders but must be reinvested in the mission. The second major difference from private companies is that donating to a
non-profit organisation does not necessarily grant a voting right at the Annual General Meeting or
a seat at the Board of Directors (Anthony & Herzlinger, 1975).
Behind the notion of non-profit is a series of possible misunderstandings. Being a non-profit does
not mean that such an organisation is not allowed to generate a surplus. They are allowed to report
a profit, provided it is re-invested (Cordery, Baskerville, & Porter, 2011). Another possible
misunderstanding lies in the idea that a non-profit organisation should not have a commercial
activity and should therefore only count on donations. Another classical mistake re the
understanding of non-profits is the idea that they are unprofessional, delivering amateur work
through volunteers’ benevolence. These misunderstandings proceed from an amalgamation of
non-profits and charities, although some non-profits live off lucrative commercial activities
(Connolly & Hyndman, 2000, 2004; Hardy & Ballis, 2013). These misunderstandings also highlight
a romanticised view of such organisations grounded in nineteenth-century patronage organisations
(Cadge & Wuthnow, 2006). This biased view of non-profits rests upon the implicit assumption
that these, being amalgamated with charities, are church-driven and managed. Such is not
necessarily the case: non-profits comprise of traditional charities, clubs, associations, societies,
foundations and other forms (Anheier & Salamon, 1994, 1997; DiMaggio, 2006). In the twentyfirst century, non-profits tend to have professionalised their activity, counting not just on
benevolent volunteers but also on qualified employees (Light, 2000, 2004; Macduff, 1994;
Sturgeon, 1994).
Based on these premises, it appears that non-profits could theoretically operate in any sector or
any industry, their main characteristics being just that surpluses cannot be distributed. Non-profits
tend to be very active in social care where they keep operating like traditional charities (Kendall,
Knapp, & Forder, 2006), such as the Salvation Army, Care, Oxfam or the Red Cross. They are also
very active in healthcare where they run hospitals (Schlesinger & Gray, 2006). They are also strongly
involved in arts and culture (DiMaggio, 2006), running museums (Christensen & Mohr, 2003). But
they are also active in sports where they run clubs and organise events and competitions (e.g. the
FIFA or UEFA).
Some non-profits exist through membership and what they can do for their members; others to
serve society or the local community. Membership-based non-profits usually operate in closedcircuit and rarely apply for public of private funding. Others serving society tend to act qua
surrogates for public authorities and thereby delineate public policy. In this capacity, their existence
is based upon public funding and controls (Freeman, 2006; Joannidès, Jaumier, & Hoque, 2015).
Lastly, those serving the community and acting regardless of governments, a.k.a. nongovernmental
organisations, count on private donors and sponsors, those being either individuals or businesses.
– 1 / 41 –
This chapter is structured as follows: its first section unveils the span of control in non-profits,
understood as the imperative to ensure goal convergence within the organisation. The second
section develops more explicitly the main areas and modes of management control in non-profits:
financing, mission and operations.
1. The span of control: ensuring goal convergence
Regardless of financial constraints on non-profits, their management and control are driven by two
series of imperatives: an external imperative relating to regulations of their activities and an internal
imperative pertaining to their identity and mission. Whatever their core activity and regardless of
their relationship to public authorities, non-profits’ activities are in most countries strictly regulated.
These organisations must abide by these regulations, since non-conformance to these may result
in sanctions. Therefore, non-profits systematically have to prove that their procedures, processes
and organisation comply. Beyond the spirit-versus-letter discussions around which compliance
revolve, what matters the most is the more general idea of congruence with standards, whichever
these are (Al Arabi, 2017).
1.1.
Goal congruence and output control
Like any other organisations, as they institutionalise, non-profits tend to become more and more
bureaucratic, which is perceived as a condition of possibility for their efficiency (Anthony &
Herzlinger, 1975; Ouchi, 1979, 1980; Weber, 1922). Accordingly, as hierarchy becomes stronger,
controls tend to address behaviours. Conversely, when the organisation is younger and less
bureaucratic, controls tend to focus more on outputs (Ouchi, 1980). Whatever form these controls
take in non-profits, they emphasise the honouring of people’s commitment to the mission and its
execution. It is constantly verified that members adhere to a project or the defence of the collective
interest, serving a common good. Controls aim at ensuring that members work pursuant to these
commonly accepted goals, be they clear or ambiguous. In non-profits, in contradistinction to
private companies, this common good is hardly measurable through tangible figures, which leads
management control to privilege procedures, behaviour, service quality and to a lesser extent costs
(Anthony & Herzlinger, 1975).
When the organisation pursues more than one goal, control revolved around their prioritisation
under the purview of eventually delineating the overall mission. Therefore, the major difficulty
confronting management accountants in non-profits consists of identifying and formalising goals’
prioritising. For instance, in an organisation such as the Salvation Army, serving three goals –
temporary emergency aid, social inclusion and soul salvation –, goals relating to social work are
subordinated to the spiritual objective, thereby contributing to its reaching (Joannidès et al., 2015).
More generally, management control systems in non-profits are aimed at making all these collective
and individual goals convergent, congruent and coherent Allegedly, organisational members do not
spontaneously understand the appropriate behaviour for specified objectives. Accordingly, they
may well not all do the same things or act in the same way, highlighting a potential risk or
inconsistency throughout the organisation (de Haas & Algera, 2002). The underlying assumption
is that goal convergence, by framing individual behaviours, fosters collective performance and
enables higher achievements (high quality service).
When it comes to control issues, non-profits are often at risk of being defiant of controls, these
potentially highlighting a guardian vs. advocate divide (Lightbody, 2000, 2003) leading to the rise
of opposed clans (Ouchi, 1980). Allegedly, mission advocates would emphasise the right way of
conducting operations, viewing financial managers – guardian of organisational resources – as
enemies to the mission. Noticeably, such misunderstanding between various occupational groups
in the same organisation, coupled with a misalignment of their objectives, results in a need for
controlling behaviours. It is the purpose of hierarchy and bureaucracy: appeasing opposed or
separate clans within the organisation (Ouchi, 1980). Top management is required to arbitrate these
– 2 / 41 –
difficult relationships between various and mutually defiant occupational groups, taking two forms.
Firstly, people’s behaviours are codified and regulated in order to pacify relationships and avert
conflicts. Secondly, in order to encourage organisation members to do their best, collective
achievements are controlled through outputs. The figure below summarises the control challenges
raised by the necessary coexistence of several occupational groups (clans) and the need for making
their goals converge.
Figure 3.1. Clanic controls in non-profits
The author reasons that the notion of congruence implies a consensus proceeding from a
negotiation; albeit, the ultimate convergence of goals cannot be collapsed to goal similarity.
However, difference does not systematically lead to divergence (Fiol, 1991), both terms being in
no way antonyms. In return, similarity does not necessarily lead to convergence. Rather,
convergence is a common direction. This latter is not necessarily the same as individual objectives
but is not necessarily contradicting these. Convergence of non-profits with regulations would mean
that day-to-day operations can look towards public governmental direction in a win-win
relationship. It is not necessary that they share the same cognitive charts or the same mental
programmes, since they are pursuing common objectives. They just go to the same what, in spite
of a goal dissemblance. Reciprocally, individuals sharing the same mental programmes and the
same cognitive chart can be pursuing different whats, which is not necessarily convergence. For Fiol
(1991), goal convergence is an issue, precisely for individual goals are not similar, for which four
modes are possible: results, behaviour, regulations, and values and beliefs, as summarised in the
figure hereafter.
– 3 / 41 –
Figure 4.2. Clanic controls in non-profits
This figure highlights the broader scope and necessity of behaviour control in a non-profit, since
the main issue confronting management is that of making employees and volunteers look into the
same direction and behaving consistently with one another and with organisational objectives.
Therefore, common behaviours, without necessarily implying that they are standardised, appear as
the cement of non-profits’ management. Assuming that members’ behaviours are homogenous or
predictable, values and beliefs may appear as the second layer of convergence. These apply as the
rationale for certain behaviour at the same time as they can be perceived as its external
manifestation. In parallel to these personal convergence controls, procedures and norms enable
that organisational members do things in the same way, so that their personal identity ultimately
vanishes at the benefit of the superior mission. Procedures and norms operate as the legal cement
in a non-profit enabling to give some coherence to individual actions. At the top of the pyramid
are results, which are mostly a concern for management. Meeting certain results is not necessarily
an objective for non-profits’ members, especially if they join because they adhere to a certain
ideology or advocacy. Rather than the final outcome, what may federate them is the overall mission.
As volunteers are not necessarily in a capacity of formalising and quantifying these objectives, these
are a task central to managers. This ultimately is because certain objectives can be met that
organisational members can see effective reasons for their membership. One could even see this
pyramid as a cycle whereby effective achievements – results – foster members’ behaviours, and so
on.
1.2.
Convergence through results
The first lever of convergence identified by Fiol (1991) lies in the attaining of objectives commonly
set by the two parties involved. As both parties have different agendas, these results cannot lie
expressively or explicitly in their very activities’ achievements. By-results need to be agreed upon
which reflect each other’s performance on this account. Two solutions are possible, a greater and
a lesser one The greater one consists of setting an objective for each party that is complementary
to each other. Such is supposedly the case with socially responsible investment (Adam & Shavit,
2008; Clark & Roberts, 2010; Dillenburg, Greene, & Erekson, 2003). The lesser one consists of
– 4 / 41 –
setting two objectives that are attainable by each party regardless of the other but requires mutual
agreement (Crettez, Deffains, & Musy, 2014; McGillis, 1978).
If these non-profits are selected because they count on a unique expertise and infrastructures which
public authorities do not have, it is implicitly assumed that these organisations know what they are
doing, how they do so and why. Accordingly, they are not imposed operational standards but tend
to be results-driven. Public authorities pay them a fee or a subsidy but leave them of their
organisation and actions, provided they meet the set objectives. Such can be the case when a
government commits itself to political objectives, e.g. reducing the unemployment rate to a certain
level (Eldenburg & Krishnan, 2003), obtaining the organising of international events – the
Olympics or the Football World Cup – (Ballou & King, 1999; Carlsson-Wall, Kraus, & Karlson,
2017). In these situations, what matters is not how things are done but the final outcome set in
advance.
Case n°1. The London Organising Committee of the Olympic and
Paralympic Games
Results as standards
The London Organising Committee of the Olympic and Paralympic Games (LOCOG) was established in July
2005 shortly after the Olympic bid was won by the UK Government London Olympic Bid Team. LOCOG
was responsible for organising, publicising and staging the London 2012 Olympic and Paralympic Games of
2012.
Among its responsibilities were venue and competition management, sponsorship, ticket sales, the Opening and
Closing Ceremonies, the Volunteer programme and monitoring and reporting project progress to the International
Olympic Committee. LOCOG was also responsible for preparing and delivering all venues in Games mode,
including infrastructure at temporary Games venues and, in the lead up to the Games, to host 'test' events to
ensure that the venues were ready for use […]
The vision which drove the Games - 'to host an inspirational, safe and inclusive Olympic and Paralympic Games
and leave substantial legacy for London and the UK' - was underpinned by the four strategic objectives which
were agreed by the UK Olympic Board, which were; to stage an inspirational Olympic Games and Paralympic
Games for the athletes, the Olympic Family and the viewing public; to deliver the Olympic Park and all venues
on time, within agreed budget and to specification, minimising the call on public funds and providing for a
sustainable legacy; to maximise the economic, social, health and environmental benefits of the Games for the UK,
particularly through regeneration and sustainable development in East London; and finally, to achieve a
sustained improvement in UK sport before, during and after the Games, in both elite performance - particularly
in Olympian and Paralympian sports - and grassroots participation.
As the Organising Committee, LOCOG's specific key objective is located as the first of the Board's strategic
objectives (above) 'to stage an inspirational Olympic Games and Paralympic Games for athletes, the Olympic
Family and the viewing public'; this included the delivery of the following sub-objectives:
1. Deliver an inspirational environment and experience for athletes and provide a first-class experience for
the Olympic Family and spectators;
2. Meet International Olympic Committee (IOC) and International Paralympic Committee (IPC) needs
and specifications, including venue overlays;
3. Ensure effective and efficient planning and operation of the Olympic and Paralympic Games (including
security, transport, technology, health, volunteering and accessibility);
4. Maximise audience size at venues; secure support and engagement across all sections of the UK public;
5. Deliver effective media presentation and maximise global audience size;
– 5 / 41 –
6. Communicate Olympic values across the world, particularly amongst young people;
7. Stage inspiring ceremonies and cultural events;
8. Deliver an operating surplus from the Olympic Games and Paralympic Games;
9. Operate sustainable and environmentally responsible Olympic Games and Paralympic Games.
Source: http://discovery.nationalarchives.gov.uk/details/r/C13273031
1.3.
Convergence through behaviour
The second means of goal convergence lies in behaviour where conduct is codified, as with codes
of ethics or codes of conduct (Avshalom & Rachman-Moore, 2004; Backhof & Martin, 1991;
Brooks, 1989; Fisher, Gunz, & McCutcheon, 2001; Gaumnitz & Lere, 2002; Schwartz, 2005;
Somers, 2001). This said, in order for such codes to apply and produce any effect, it is crucial that
they do not remain mere incantations or procedures. As with results, the challenge, argues Fiol
(1991), is to have both parties agreeing on a type of acceptable conduct. As a result, principles for
conduct are issued as well as an ‘official’ interpretation thereof. As with results, consensus is
required.
When non-profits find themselves having their name and brand associated with a specific donor,
be it a person, a business or the public sector, it must abide by certain behavioural standards set by
these stakeholders. The difficulty for non-profits lies in that these behavioural standards are often
implicit. Accordingly, it becomes especially important that management identifies these or
formulates them in a way enabling to derive codes of conduct that volunteers and employees must
stringently follow (Avshalom & Rachman-Moore, 2004; Deshpande, 1996; Martínez, 2003; Ritchie,
Anthony, & Rubens, 2004). Such is often the case when the main donor is a well-established
institution managing its brand and reputation. In most cases, these philanthropists do finance nonprofits for the quality of their work but foremost its consistency with the funder’s image.
Accordingly, certain types of behaviours are expected or imposed on sponsored non-profits. The
utmost example can be the Bill and Melinda Gates Foundation funded by its founders delineating
the behaviour they expect of their employees and volunteers for any programme managed, through
codes of conduct and behavioural statements. This non-profit appears as an extension of the Gates
couple’s philanthropy and is a vehicle for their name’s spreading (Aggarwal, Evans, & Nanda, 2012;
Chauvey, Naro, & Seignour, 2015; Mehrpouya & Samiolo, 2016; Sansing & Yetman, 2006;
Sobanjo-ter Meulen et al., 2015; Sud, VanSandt, & Baugous, 2009).
Case n°2. What we expect and do not expect to hear
Behavioural standards from a private sponsor
A non-profit infirmary funded by a major private donor receives the following instructions as
behavioural standards for staff. In case of non-conformance thither, the sponsor threatens the
infirmary that it would stop financing it.
What we expect to see and hear
Present yourself in a professional way, in how you speak to people and your dress code.
• Ensure you follow policies regarding safety, hygiene and cleanliness, conduct, information governance, use of
mobiles etc.
• Be aware of where you are having conversations and / or information you have access to always ensuring
confidentiality is maintained at all times
– 6 / 41 –
• Speak up and escalate concerns appropriately, either about unsafe practice or inappropriate behaviour
• Be open to challenge and welcome feedback from others
• Regularly review your performance against feedback to ensure you are doing the best in your role and working
within current practices.
What we do not expect to see and hear
Being disrespectful to people. Not following the appropriate dress code.
• Inappropriate conduct or failure to follow policies and processes causes undue worry for patients and colleagues
as its seen as unprofessional
• Breaching confidentiality by discussing patient or staff information including leaving documentation on desks
in an open environment
• Criticising others for speaking up on behalf of patient safety and any inappropriate behaviour
• Ignoring feedback provided and refusing to take issues on board or make changes to behaviour
• Continue to work as you have done rather than reviewing performance and ensuring you are working within
current practices
• Bringing personal issues into the workplace and letting them interfere with your work
Source: Behavioural Standards Framework –A great place to be cared for; a great place to work.
p.8
Document retrieved from:
https://www.uhmb.nhs.uk/files/8714/4482/8917/UHMB%20Behavioural%20Standards%2
0Framework.pdf
1.4.
Convergence through procedures
The third means of goal convergence, which is also the best-known, consists of setting rules and
procedures that need to be followed by both parties, which raises two challenges. Firstly, the rule
must be the offspring of an agreement between both parties, otherwise it cannot be enforced.
Secondly, an authority independent from both parties must operate to arbitrate in case of contest.
As with rule issuance, a consensus must be reached in terms of who this independent body is and
what prerogatives he or she has to enforce it and compel the parties to abide by it (Armour, Deakin,
Lele, & Siems, 2009; Madry, 2005; Niblett, Posner, & Shleifer, 2010).
1.4.1. Conformance and compliance
The least convergence seems to occur with behaviour or rules and procedures whilst results seem
to represent a middle-range form of convergence. Fiol (1991) argues that if less than three of the
four modes of convergence can operate at the same time, a lesser approach than coherence and
congruence must be envisaged: compliance and conformance. Yet, it is important is to understand
that both are not quite fulfilling.
1.4.1.1. Conformance as the strict abiding by regulations
The notion of conformance is strongly connected to systems of law or rules where a party is
compelled to abide by certain principles issued by a different party. Conformance operates at two
levels and raises a number of questions (Bhimani & Soonawalla, 2005; Leavitt & Maykuth, 1989;
Tucker, 1962). Firstly, behind the notion of conformance is the authoritativeness of the issuing
– 7 / 41 –
party since there is no negotiation, contrary to coherence or congruence. One party expects to be
acknowledged or recognised by the other as following its principles. Therefore, this demanding
party has to make changes to its own procedures and rules of functioning to eventually arrive at
new ones mirroring those whither they are expected to conform. The second level of conformance
lies in the consequences of not conforming. That is, when a demanding party applies for
recognition and after a certain time does not have the appropriate rules of functioning, the
accrediting body can ban them or compel them to major sanctions (Cast, Stets, & Burke, 1999; Rai,
1975; Rupert, Jehn, Engen, & Reuver, 2010; Sandron & Hayford, 2002; Yair, 2007).
The philosophy behind the notion of conformance is somewhat close to the subjectification
mechanisms stressed in disciplinary studies (Foucault, 1975, 1984). Those who apply for
recognition are not obliged to do so. Therefore, if they choose to do so, they accept all the
constraints implied. They relinquish their own sovereignty and subject it to an external body that,
in turn, dictates their own functioning. As the applying body finds itself in this alien regulatory
system, it is now forced to do exactly as prescribed. The absence of obligation to join this new
system of law results in sanctions being dissuasive in case the applying body breaches the rules to
which it supposedly conforms. Where a system of conformance is very Foucauldian is in that one
party transfers their own body and soul to an external regulatory body. Not just does that latter
impose rules but compels behaviour and operates as a court with no possible appeal (Forneret,
2013; Frickey, 2005; Moore, 2010; Owens & Wedeking, 2011; White, 1995). Again, conformance
applies because of the applying body’s willingness to subject itself. If the rule is too much of a
constraint, the applying body can decide to quit, thereby belying the object of convergence.
The arbitrariness underlying the notion of conformance is therefore what makes it easier to achieve,
as compared to convergence of congruence. Yet, its condition of possibility lies in surrendering.
Although this may happen in certain contexts and under certain conditions, research highlights an
even lesser form of convergence most often in use: compliance. Contrary to conformance,
compliance does not imply that sovereignty be relinquished, even though norms remain imposed
by the body receiving application for recognition (Cardenas, 2011; Ee, 2011; Gilliland & Manning,
2002; Greenberg, 2010; Wright, 2011).
1.4.1.2. Compliance as a process
Compliance consists of issuing standards that will be enforced by the applying body consistently
with its own agenda. All possible changes in processes and rules of functioning are the applying
body’s discretion (Fasterling, 2012; McKendall, DeMarr, & Jones-Rikkers, 2002; Parker, 2000;
Weber & Wasieleski, 2013). This has three series of implications, one for each body and one for
their relationship. Firstly, the applying body is setting their own agenda and have to prove to the
accrediting body that they are so revising their internal processes as to making them converge with
the receiver’s principles. That is, the applicant maintains full control over the application and
convergence process at its end (Agócs, 1997; Anderson, Welsh, Ramsay, & Gahan, 2012; Armour
et al., 2009; Block, 2013; Boon, Flood, & Webb, 2005).
Secondly, the accrediting body is expected to issue clear minimal criteria that must be honoured by
the applicant. Such criteria supposedly pertain to the core values on which the accreditor cannot
make any compromise. This implies that a list of ‘to-does’ and score-sheet be set up by the
accreditor. Compliance is then acknowledged when a certain score is obtained, that is when a
certain amount of principles are not breached (Boyce, 2004; Christensen & Mohr, 1999; Rouse,
Davis, & Friedlob, 1986). This clearly means that the accreditor loses most of the control over the
applicant and the eventual honouring of its core principles.
Thirdly, compliance has a major implication for the relationship between the applying and
accrediting bodies. The very first implication is that accreditation eventuates ex post facto and not
prior to the conduct of applicant’s operations. This means, the accreditation is often issued in
response to obvious misuses or misconduct denounced by the party whose principles have been
breached (Cardenas, 2011; Chartier, 2012; Fasterling, 2012; Latin, Tannehill, & White, 1976;
– 8 / 41 –
McKendall et al., 2002; Parker, 2000; Weber & Wasieleski, 2013). Hence, the accreditor appears as
the weak in the relationship since it almost emotionally reacts to the situation, so that compliance
mechanisms appear as negative regulations whose effect is that they cannot be constraining
(Badiou, 2001, 2009). Compliance leads to a paradoxical situation where the norms hence issued
find themselves undermining their own applicability since they are just negative, neither
programmatic nor performative, and often vague (Joannidès & McKernan, 2015; McKernan, 2012;
McKernan & Kosmala, 2007; McKernan & McPhail, 2012). At best, the accreditor operates qua an
advisor on compliance that the applicant can consult or not (Parker, 2000). In sum, whilst
coherence and congruence lead to substantial convergence conformance and compliance do make
two views formally concur. The utmost form of convergence lies in congruence delineated from
negotiations the accreditor and the applicant, followed by coherence. Amid the lesser forms of
convergence, conformance consists of a set of rules imposed by the accreditor whilst compliance
eventually appears as the imposing of the applicant’s agenda.
1.4.2. Standards and regulations for non-profits
Should the abiding by standards and regulations take the form of conformance thither or
compliance therewith, some of them are common to any non-profit. What may differ relates to
country-specific matters, some being more inclined than others to standardising non-profits’
activity (Anheier & Salamon, 1997). Depending on the organisation’s relationship to public
authorities and other private businesses, there also exist specific standards and regulations. Lastly,
unions and political parties, acting as very specific non-profits, are subjected to tougher standards
and controls.
1.4.2.1. Common regulations
Whatever activity a non-profit organisation conducts and whatever its relationship with public
authorities and private donors is, certain regulations indifferently apply to all. It is mostly
regulations pertaining to health, hygiene and security, because these organisations admit the public
on their premises. Technically, such regulations cover building size and structure, emergency exits,
fire hydrants. Bathrooms must be organised in a certain way and cleaned following a strict schedule.
The building must be accessible to people with disability, etc. Conformance is controlled by public
authorities and take different forms, depending on location (country, state, region).
For the same safety reasons, equipment and materials must conform to official standards.
Depending on the country and the level of detail in regulations, these standards can consist in
maintenance obligation and evidence thereof, an exhaustive list of allowed materials or suppliers.
Such is especially the case of sports clubs, non-profit schools or hospitals where people’s safety
and lives are at stake (Kennedy, Burney, Troyer, & Caleb Stroup, 2010; Samuel, Covaleski, &
Dirsmith, 2009). To some extent, these standards applying to non-profits are grounded in common
sense and are very similar to CSR standards applying to private companies or, more recently, human
rights protection standards issued by some multinationals (Cragg, 2000; Gray & Gray, 2011;
Harcourt & Harcourt, 2002; McPhail & McKernan, 2011; Whelan, Moon, & Orlitzky, 2009).
Such can take the form of equal employment opportunities and non-discrimination based on class,
race, gender, sexual orientation, religion or age (del Carmen Triana, Wagstaff, & Kim, 2012; Ferris
& King, 1992; Roehling, 2002; Tinker & Fearfull, 2007). For instance, a Christian soup kitchen,
such as the Salvation Army, is not allowed to exclude a homeless person because he or she is
Muslim, and vice versa (Ng & Metz, 2015). Even though it may seem common sense that such
standards should apply to non-profits, this idea is not most intuitive, insofar as non-profits may be
perceived as outwith the public realm and therefore out of public control.
The third type of common regulations and standards applying to most non-profits relate to skills
and qualifications, i.e. professional standards. As a number of non-profits operate in industries
– 9 / 41 –
where private companies or the public sector are present, professional quality standards apply to
them as to any other professional body. Such is especially the case for non-profits operating in
education, social care, healthcare, sports and arts. That is, specific degrees, qualifications and
training sessions are compulsory for staff. These regulations are aimed at ensuring service quality
and professionalism regardless of the organisation’s legal status. Social workers, nurses and medical
doctors, schoolteachers and sport instructors must be equally qualified wherever they work or
volunteer.
Case n°3. Assistant coach – Canterbury Mitre 10 Rugby Cup
A job offer: Professional qualifications required
The Canterbury Rugby Football Union (CRFU) has a long and proud history since it was
established as the first Union in New Zealand in 1879. In 2017 Canterbury won their 9th
provincial title in the last 10 seasons and are seeking to build on this success by appointing an
assistant coach to join an experienced and talented team of coaches and support staff.
The role is a fixed term full time poison for the Mitre 10 Cup campaign (July - October) and
provides the successful applicant the opportunity to be immersed fully in one of New Zealand's
leading Provincial Union performance rugby programs.
Working with a passionate team you will be responsible for coaching the team, both on and off
the field, to a standard of excellence that enhances the legacy of Canterbury Rugby.
You will be a suitably qualified and successful coach with a proven track record and a deep
understanding of the technical and tactical components of forward play and preferably the
ability to coach the delivery of set piece execution (scrum, lineout and kick restarts). Just as
importantly you will possess the skills, character and attitude, needed to contribute positively
to the team and wider organisation's culture through living and exemplifying the CRFU
standards and values.
This is a unique opportunity to join a successful team within a leading organisation and
contribute to its ongoing success.
If you are interested in this position, please email your application to name@mail.co.nz by 4th
February 2018. A full position description is available on our website at www.crfu.co.nz
The Canterbury Rugby Football Union aims to build on its position as one of the leading
provinces in world rugby. Its responsibilities extend from the nurturing of junior and school
rugby to the management of the Mitre 10 Cup team.
1.4.2.2. Activity-specific regulations
Depending on their core activity and on the type of public they are addressing, non-profit
organisations are expected to either conform to or comply with regulations. That is, when these
organisations only serve their members’ interest, regulations are looser than for organisations
handling public policy matters and count on public monies. In this latter case, qua a surrogate for
public authorities devolved a quasi-mission as a public service (see chapter for more details).
Certain non-profits operating in the field of social work act on behalf of governmental authorities
from which they receive funding and standards to follow (Freeman, 2006; Furneaux & Ryan, 2015).
Acting qua surrogates for an elected government whose political agenda rests upon democratic
promises made to voters, these non-profits are particularly subject to public accountability that is
often perceived as technocratic (Dorf, 2006; Morgan, 2006; Sinclair, 1995). Such oversight tends
to be particularly intense in countries characterised by a strong welfare system and in which private
– 10 / 41 –
benevolence is not as central, such as in France, Germany or Sweden (Esping-Andersen, 1992,
1996). Most likely due to the structure of welfare in most countries studied in research addressing
accountability in non-profits (e.g., the US, the UK, Australia or New Zealand), accountability to
governmental agencies has been relatively under-explored and still requires understanding.
Moreover, most publications on accountability in non-profits address an existing accountability
system or framework, whereas the creation of such a system is left aside.
These organisations are imposed strict standards for the conduct of their operations are regularly
inspected by public auditor sent from the ministry devolving them operational authority. Usually,
clear books of procedures are to be applied and followed, which mostly eventuated when the
concerned non-profit deals with social care or healthcare in the name or on behalf of the
government. Concretely, when the Salvation Army or the Red Cross run social homes funded
through public monies, house-standards do apply only if these are compatible with national
standards.
Case n°4. The Australian Professional Standards for Teachers
Professional standards
The Australian Professional Standards for Teachers are a public statement of what constitutes teacher quality.
They define the work of teachers and make explicit the elements of high-quality, effective teaching in 21st century
schools that will improve educational outcomes for students. The Standards do this by providing a framework
which makes clear the knowledge, practice and professional engagement required across teachers’ careers. They
present a common understanding and language for discourse between teachers, teacher educators, teacher
organisations, professional associations and the public.
Teacher standards also inform the development of professional learning goals, provide a framework by which
teachers can judge the success of their learning and assist self-reflection and self-assessment. Teachers can use the
Standards to recognise their current and developing capabilities, professional aspirations and achievements.
Standards contribute to the professionalisation of teaching and raise the status of the profession. They could also
be used as the basis for a professional accountability model, helping to ensure that teachers can demonstrate
appropriate levels of professional knowledge, professional practice and professional engagement.
The Australian Professional Standards for Teachers are organised into four career stages and guide the
preparation, support and development of teachers. The stages reflect the continuum of a teacher’s developing
professional expertise from undergraduate preparation through to being an exemplary classroom practitioner and
a leader in the profession.
The Graduate Standards will underpin the accreditation of initial teacher education programs. Graduates from
accredited programs qualify for registration in each state and territory. The Proficient Standards will be used to
underpin processes for full registration as a teacher and to support the requirements of nationally consistent teacher
registration. The Standards at the career stages of Highly Accomplished and Lead will inform voluntary
certification.
Source: Australian Professional Standards for Teachers, February 2011, p.2
1.5.
Convergence through values and beliefs
The fourth lever of goal convergence proposed by Fiol (1991) consists of the sharing of common
values or beliefs. Although this seems to be easy at first glance, it is likely to be the most problematic
means of convergence. Values and beliefs can easily be shared when the two parties involved are
similar in nature, as with professions for instance (Abernethy & Stoelwinder, 1995; Boon et al.,
2005; Carlisle & Manning, 1996; Davison, 2011; Frankel, 1989). When the two parties are too
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different, it becomes difficult to identify shared understandings of the world and emotions driving
conduct (Schatzki, 2000, 2003, 2005).
When it can appear that non-profit organisations engage in activities where values can clash with
those encouraged and diffused by public authorities, controls can rest upon the abiding by official
values and norms, whilst beliefs cannot be changed. Such is especially the case in countries where
public schooling is on the political agenda, i.e. where schools are supposed to diffuse national
values. In this case, non-profit private schools driven by other values – generally religious – than
the official ones, must prove that their teaching diffuses these official values. Nowadays, with the
rise of radical Islam and its spread amongst youngsters, non-profit Qur’anic schools are under
public scrutiny on the grounds of the values they diffuse (Holmwood & O'Toole, 2017).
The figure below summarises the formal guidance received by primary school teachers confronted
with foreign pupils and cultural differences. These guidelines are aimed at ensuring goal
convergence through values and beliefs
Questions
Evidence
How do we promote the values of democracy in
lessons and wider in school life?
How do we value the importance of identifying
and combating discrimination?
Do students understand that the freedom to
choose and hold other faiths and beliefs is
protected in law?
How do we promote tolerance between different
cultural traditions by enabling students to acquire
an appreciation of their own and other cultures?
Do students understand the difference between
executive and judiciary systems?
Are pupils made aware of the difference between
the law and religious law?
How do we challenge opinions or behaviours
that are contrary to fundamental British values?
Figure 3.3. The Key for UK School governors – How does our school promote British values?
https://schoolgovernors.thekeysupport.com/school-improvement-and-strategy/strategic-planning/valuesethos/promoting-british-values-in-schools/
1.6.
A note on trade unions and political parties
Political parties are trade unions playing a major role in the exercise of democracy. Unions were
indeed born long before political parties and appeared as the utmost form of democratic expression
in private companies (Abrahamson, 1997; Ogden & Bougen, 1985). Trade Unions were first
launched in reaction to the excesses in Capitalism imposed by the industrial revolution and the rise
of the Communist ideal (Badiou, 2008, 2012a; Behling, 2018). Trade Unions appeared for the first
time in the 1880s in the mine and steel industries in the United Kingdom and Prussia and spread
throughout Europe and the United States afterwards (Behling, 2018). Almost concomitantly to the
rise of trade unions, political parties were created. In the United Kingdom and in Prussia (then
Germany), trade unions launched political parties to have relays in the public realm and especially
in the making of law. This is how the Labour Party was born in Britain in 1880 (Thorpe, 2015) and
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the German Socialist Party in 1890 – die SPD – (Hall, 2008). Even though the unionist movement
has not spread uniformly across Europe, most countries have given birth to trade unions between
1890 and 1920 (Gumbrell-McCormick & Hyman, 2013). Given the centrality of trade unions and
political parties in democratic life and vitality, rules imposed on them are especially though and
constraining their activity. Such rules are of two orders.
First of all, trade unions, to be allowed to speak on behalf and in the name of employees, must be
sufficiently representative. Depending on the country, this representativeness requires full
independence from political parties, as in France, Italy, Spain, Austria, Scandinavian countries or
the United States. Conversely, in other countries, representativeness rests upon political affiliation,
such as Germany and the United Kingdom, where they were initially established by political parties.
In addition to this, depending on the country, again, trade unions must be grounded in a certain
industry, as in Germany, or count on national relays, as in France and Italy. That is, a union
grounded in one industry only cannot claim to be representative at the national level in France and
Italy and can therefore not partake in national discussions. At best, it is allowed in these companies
where it exists. Conversely, in Germany, as with IG Metall, unions seem to be grounded in one
particular industry where they have full legitimacy to negotiate with employers (GumbrellMcCormick & Hyman, 2013). In addition to this, in countries such as France or Belgium, these
unions are representative only when the law grants them this status regardless of their scores at
workers’ elections. In these latter cases, there is what is called in French law a representativeness
presumption (Schain & Kesselman, 1998).
In return, political parties in most Western countries are only allowed in their mission statement
and electoral programme abide by democratic principles and do not call the regime into question.
For this reason, extreme right parties are allowed, unless they are proved Nazi of Fascist, whereby
the Vlaams Block has been prohibited in Belgium and the New Nazi Party in Germany whilst
monarchists are under severe scrutiny in France and Italy (Hainsworth, 2008; Mammone, Godin,
& Jenkins, 2012). More broadly, a political party is allowed, provided its leaders and most active
militants do not openly contest the democratic grounds on which the country is standing and does
not openly call for a coup. It is because of such fears of a coup that opposition parties have been
prohibited in a number of countries, such as China (Wu, 2015), Russia or Turkey (Goldner, 2018).
Or, because of the Arab Spring, North African and Middle Eastern countries have been defiant of
political parties seen as potentially bearing a revolutionary agenda (Badiou, 2012a, 2012b; Goldner,
2018).
A second legal constraint on political parties and trade unions is that their existence and recognition
are conditioned by their capability of being elected. That is, a union with no representatives in
companies or a political party with no representatives at the Parliament, local governments or
municipalities cannot exist. As such, they cannot have a voice in the public realm, since they
formally do not exist. This regulation, though implicit, applies to all democratic countries, where
an opponent only exists and can partake in public debates when his or her party has solid grounds.
This rule was a problem in the French elections in 2017, as Emmanuel Macron was leading a young
party founded a year prior and had no elected representatives. His party started to count only when
established parliamentarians openly supported him and formally joined his party (Plowright, 2017).
The same happened to Beppe Grillo in Italy when he initially launched his 5 Star party: no elected
and representatives granted him no legal status and existence until they won seats at the Parliament
and the Rome town hall (Tronconi, 2015).
1.7.
Organisational constraints: mission and identity
As non-profits do not necessarily operate in areas whence the public or the private sector is absent,
joining such an organisation is usually grounded in good reasons. These tend to relate to
organisation mission associated with a certain identity, if not ideology underlying the conduct of
operations (Mintzberg, 1999). In numerous cases, non-profits’ members see in their organisation a
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missionary engaging in the public sphere or even an advocate for a certain cause in public debates
(Jenkins, 2006; Unerman & O'Dwyer, 2006b). Within this context, it becomes clear that members
exert a form of control over the honouring of this quasi-political positioning.
This ideology driving people’s joining is the common cement enabling the gathering of persons
coming otherwise from different backgrounds. The best-known ideologies are certainly those that
can be found in political parties or trade unions, since these openly defend certain values and
interests. Political parties’ and trade unions’ mission consists of spreading their view of how the
country, the local government or the company should be run, which often results in opposing
those in office (Gumbrell-McCormick & Hyman, 2013; Pomper, 1992).
In other types of non-profits, i.e. neither political parties nor trade unions, this ideology directly
relates to the mission itself and the way it is or should be conducted. This can apply to arts: people
join a classical music association because they love baroque music and would certainly not admit
that contemporary composers would be played on their premises. In return, members of an
association promoting contemporary or experimental music would not tolerate that classical music
or popular music be played in their society. The same logic could apply to sport organisations. A
rugby club playing by Australian rules would not encourage playing according to international rules.
In return, a rugby club in Australia playing according to international rules would certainly not
promote Australian rules. Outwith sports and culture, this logic applies to any other type of nonprofits, such as churches or charities involved in social work or education.
In such organisations, mission and identity are a core constraint imposing itself. As members join
because of this particular identity and mission, these impose themselves to management. Members
at the bottom of the organisation place management under scrutiny, ensuring that these are making
decisions consistent with core values. If management deviates from what members perceive as core
identity and mission, they will be notified and maybe sanctioned. To some extent, mission and
identity are at the heart of controls exerted from the bottom of the organisation, with management
placed at its centre. Whilst the Panopticon effect is widely known and accepted in management
control research (Armstrong, 1994; Brivot & Gendron, 2011; Cowton & Dopson, 2002; McKinlay
& Pezet, 2010) the imperative of making goals converge leads to a Reversed Panopticon (Joannidès,
Démettre, & Naudin, 2008). Through this Reversed Panopticon, management is placed under
surveillance: at the centre of the organisation, his or her actions and decisions are visible to every
single member. Accordingly, any deviation from what organisational members view as acceptable
is immediately seen and can be sanctioned. In contradistinction to organisations from the public
and the private sectors, identity and mission control are exerted from the bottom.
How this Reversed Panopticon works is as follows. Management is placed at the core of the
organisation, where every action is perfectly transparent and visible. Any organisational member
can potentially view managers’ behaviour and actions, provided they look. Where they are placed,
managers cannot see who is looking at them and if anyone is at all. This visibility should lead these
managers to engage in self-control, so as to avoid bitter sanctions from organisational members in
case of deviant behaviour. In return, managers in non-profits are constantly accountable to their
members for their managerial actions. Such accountability can take numerous forms, depending
on how structured and bureaucratic the organisation is. In relatively small and flat organisations
with little bureaucracy, notifications of actions planned and undertaken may suffice. Such can be
the case of a local football club for instance. Unlike this, when the organisation is larger and has
strict procedures, management must apply for permission for certain decisions. Periodically, he or
she has to justify these before the Board of Directors and annually before all members on the
occasion of the Annual General Meeting (Herman, 2009; Roberts, Sanderson, Barker, & Hendry,
2006; Vaivio, 2006). Such can be the case of non-profits where management is professional, such
as in most U.S. or British universities (Feldner, 2006; Firmin & Gilson, 2010; Parsons & Platt,
1973). The figure below summarises this Reversed Panopticon and associated surveillance of
managerial actions.
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Figure 3.4. The Reversed Panopticon
Case n°5. Professionalising a soup kitchen
Management under surveillance
In a French soup kitchen, management wanted to anticipate volunteers’ availability by
encouraging them to register for specific actions. In 2012, a first attempt consisted of sticking
on the hall’s main wall a timetable with dates, hours and locations. Each cell in the table
corresponded to a specific action: a certain soup kitchen in a certain place on a certain day at a
certain time. People would register by writing their name in cells. Volunteers strongly rejected
this initiative on the grounds that so doing was unfair on the organisation’s spirit. To them,
their soup kitchen was built on mutual trust and benevolence, certainly not on control and
constraint. They perceived this initiative as an attempt to control their assiduity and pressure
them to do things in a certain way. After the first day, they expressed a strong disagreement
and threatened the manager to depose him if he maintained this control. Management was
forced to relinquish this initiative. In order to anticipate volunteer’s availability, he would only
be allowed to ring a few people who would notably not perceived these phone calls as intrusive
and controlling.
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2. Management control systems in non-profits
Management control systems in non-profits take on forms very different from what can be found
in private-sector organisations or in the public sector. In non-profits, controls are aimed at
following up what is peculiar to these organisations in terms of financing, mission and the
conduction of operations. They are not just aimed at ensuring goal convergence but also at
discharging accountability to organisational stakeholders. Whilst, in other settings control, serves
internal decision-making they also appear as a means of accountability to public and private donors
as well as beneficiaries. Accordingly, these controls are twofold. On one hand, they focus on
fundraising activities and outcomes; on the other, they scrutinise the conduct of operations and
the righteous use of the resources collected.
2.1.
Non-profits’ financing and performing
The main area of control in non-profits unsurprisingly relates to the use of financial resources and
thereby is intertwined with accountability to donors. Resources on which a non-profit can count
proceed from four types of donors (Havens, O'Herlihy, & Schervish, 2006).
2.1.1. Public funding
When non-profits operate as surrogates for public authorities in whichever field, they are missioned
with a form of public policy conduct. In these situations, they are chosen by public authorities
because of their knowledge of the local environment in which they are operating and on the
grounds of their expertise at the dedicated public policy. Operating through public funding has a
series of implications for non-profits’ functioning.
These non-profits are publicly funded, which makes them explicitly accountable to public
authorities for the use of taxpayers’ monies and the completion of polity programmes. Depending
on the polity programme but also on the amounts of money at play and the type of non-profit,
public funding can take three forms, implying three types of relationships to public authorities.
The best-known public funding consists of subsidies and grants paid annually to these
organisations for the conduct of their programmes. In this context, public authorities call on nonprofits and clarify with them what is expected of them in terms of activities. Non-profits’
management estimates what resources are needed, those being human, material or financial. Given
these resources they already have regardless of demands from public authorities, they estimate for
how much money they need to apply to be able to conduct the operations for which they are
missioned. They submit their estimates to public authorities that decide to pay the required amount
either in full or in part. The implicit assumption here is that these non-profits have already absorbed
most of their fixed costs and need to clarify to public authorities what the variable cost directly
relating to the mission shall be. Supposedly, public authorities shall pay the strict amount relating
to this variable cost incurred because of polity programmes (Anthony & Young, 1994; Clemens,
2006; Young, 1994). In this case, public authorities can decide to pay the strict variable cost the
non-profit shall incur for the conduct of this public policy programme or pay with a margin
enabling the organisation to also fund its other activities (Rathgeb-Smith & Grønberg, 2006).
The second form of public funding a non-profit can receive consists of a lump sum paid by public
authorities for the conduct of public policy. This lump sum does not necessarily consist of a
subsidy paid by public authorities. Rather, it appears as an estimate of the cost the public sector
would have incurred if it had conducted this programme on its own. In this case, the non-profit is
expected to organise itself in such a way that it can conduct the programme within the cost frame
imposed by the public service, covering its variable costs and possibly some of the fixed costs the
programme would imply. In this situation, the non-profit takes on the role any subcontractor to
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public authorities would, as in the case of private-public partnerships or the Private Finance
Initiative in the UK or Australia (Benito, Montesinos, & Bastida, 2008; Broadbent, Gill, & Laughlin,
2008; Froud, 2003; Shaoul, 2005). Behind this term is a form of private-public partnership that
can be found in numerous other countries under different names (Broadbent & Laughlin, 2003;
Grimsey & Lewis, 2005).
The third option is rarer because it can lead to unpredictable costs for the public sector: a nonprofit charges the public sector for the service. In this situation, a non-profit is a surrogate for
public authorities in a polity programme. The amount of money that the programme will ultimately
cost public authorities is unknown; the non-profit conducts it and charges the public sector
afterwards accordingly. The invoice can only account for the variable cost incurred by the nonprofit for conducting this programme.
Whichever form of public funding is chosen, public authorities pay a certain amount of money to
non-profits for the conduct of a public policy programme. As most of these practicalities imply
the funding of variable costs only, these non-profits need to have a management control system
enabling them to account at least for their variable costs. Not only do they have to account for
their total variable cost, they also need to specialise their costs by activity or programme. Thence,
not just a variable costing system is required but also an Activity-Based Costing system (Sajay,
Covaleski, & Dirsmith, 2009). This ABC system has a purpose differing from that of private-sector
companies: in these latter, ABC supposedly serves management helping compute the costs the
organisation incurs. In a non-profit, it serves to determine whether an activity, especially financed
through pubic funding, can be undertaken without putting the organisation at financial risk.
2.1.2. Membership funding
The second best-known source of funding for non-profits consists of self-funding through fees
and donations received from members. Such is the case of most clubs, societies and associations,
where membership rests upon the payment of an annual fee allowing to partake in activities. Unlike
non-profits delineating polity on behalf of public authorities, these membership-based
organisations provide their members with a service (Anheier & Salamon, 1994, 1996, 1997).
Depending on the non-profit’s activity, its public and the overall costs incurred, membership fees
can be more or less high. Traditionally, non-profits benefitting from public subsidies can require a
relatively low membership fee whilst those that are not otherwise publicly funded tend to apply
higher fees.
In some other cases, the non-profit is just a legal form allowing people to gather. Through this
legal form, members can be insured in case any problem occurs. In this particular case, the
organisation itself does not incur particular costs and only charges its members to cover various
membership costs. Sport clubs just utilising publicly available equipment and counting on volunteer
coaches and only needing minor assets for the conduct of operations, such as balls or after-game
refreshments, can charge their members a little amount of money. The same can apply to societies
gathering at members’ place or in other spaces where they are not charged (e.g. a café, a public
garden, etc.). Such non-profits are for instance literary societies or book clubs, home leagues, or
school kids’ parents’ societies, etc.
Some other non-profits benefitting from no public funding could apply high membership fees.
Such is the case when the organisation incurs high fixed costs and has to cover them through its
members’ contribution. This situation occurs with some very private, exclusive clubs and societies
gathering in their own spaces (buildings, hotels, restaurants, etc.) This can also happen in the case
of non-profits doing activities requiring significant assets (e.g. buildings, equipment or highly
qualified employees). Such exclusive non-profits are common in sports (e.g. tennis clubs, golf clubs,
polo clubs) where estate, equipment and professional training are central.
– 17 / 41 –
In either case, the non-profit needs to count on a more or less developed management accounting
system whereby the costs incurred can be estimated. Thence, membership fees can cover these
costs. In the first case, membership fees shall cover the mere variable costs; in the latter case,
membership fees are also supposed to cover fixed costs.
Some other non-profits doing charitable giving in their own name may require that their members
pay a high fee enabling their donations. Such can occur in societies such as the Rotary or the Lions
Club (Martin & Kleinfelder, 2008). In this particular case, the management accounting system is
more aimed at tracing donations made rather than costs (Anthony & Young, 1994). This exception
these organisations represent is such that they act as sponsors to other non-profits and therefore
are the one to whom accountability must be discharged. That is, their direct concern lies in tracing
the righteous use of funds entrusted to other non-profits: economy, efficiency and effectiveness.
In sum, these particular non-profits operate like trustees financing others and thereby exerting an
external control over these.
Within this galaxy of non-profits, three types thereof deserve a special treatment: churches, political
parties and unions. Most churches can generally count only on their members’ generosity (Irvine,
1999, 2002, 2005; Lightbody, 2000, 2003). Of course, there are some exceptions to the rule: the
Roman Catholic Church, which can benefit from international clerical funding, or officially
recognised churches receiving public funding in certain countries (e.g. Sweden, Germany,
Switzerland, or the UK). In the general model, these churches do not charge their members a
certain fee but live off the donations they receive from them. These can consist of donations during
services, responses to particular appeals, bequeaths or any other personal donations (Joannidès,
2009). A church is a particular case of non-profits, insofar as members’ generosity usually rests
upon certain emotions driving the believer and cannot be explicitly fostered or suggested and
therefore difficult to anticipate. In such a church setting, management accounting mostly consists
of budgeting day-to-day activities at the least cost, hoping that members will contribute sufficiently
to cover the cost of activities (Irvine, 2005). This is especially vivid in local congregations whilst
larger denominational churches have other sources of funding, discussed later on in this chapter.
The funding of political parties and unions represent another two exceptions to non-profits’
financing. Unions clearly represent and defend their members’ interest. In most countries, unions
are therefore funded only through the annual fees paid by members. In this case, the fee paid is
generally a very low percentage of the salary received. In some countries, where unions are not just
recognised but do have a real negotiation power, the fee can be directly debited monthly from the
members’ account. This is the case in Scandinavian countries, Germanic countries, the US, the UK,
Australia or New Zealand. The phenomenon is accentuated when membership in a union is
compulsory, in which case the monthly fee appears on the payslip almost as any tax payment.
Conversely, in countries where unions are weaker or not very institutionalised within companies,
the fee paid tends to be a paid by the member him-or-herself (Gumbrell-McCormick & Hyman,
2013). This case can be found in France and Belgium. Monies collected from members serve to
finance information flyers addressed to all members, costs of public protests (freighting coaches
to a protest place, bandwagons and other accessories) or the possible cost of major strikes. By
definition, protests and strikes, which are major actions, cannot be predicted or anticipated, making
budgeting if not impossible at least a difficult task. Therefore, management accounting focuses on
the securing of resources over time, with financial managers appearing as guardians of organisational
resources (Lightbody, 2000). This securing rests upon the following two pillars. Firstly, financial
managers are tasked with the tracing of the number of members and their wages so as to anticipate
their fees. Secondly, as a union only exists through its members, management accounting traces
ways and means of attracting new members and retaining current ones.
Political parties’ financial concerns are quite similar to those of trade unions with two major
challenges. The first one is that political affiliation and activism may be much less attractive to
people than involvement in a trade union. Accordingly, political parties are likely to count fewer
members funding their actions than unions. Whilst these latter directly serve their members’
– 18 / 41 –
interests political parties do not. This implies that political parties may need to find other sources
of funding and donors than mere members (to be discussed in the subsequent subsection). The
second challenge proceeds from this one and lies in the fact that political parties have to face
electoral campaigns and elections that are known in advance. Thence, management accounting in
a political party has a twofold focus. The first consists of estimating of how much electoral
campaigns shall cost and how much extra funding will be needed. The second focus is more
conventional, as any other organisations and consists of tracing expenses. More particularly, owing
to the difficulty to raise funds, expenses’ destination needs to be expressly identified and connected
to an operational concern on the political agenda. In other words, any expense must be justified
through its contribution to the political battle (Pomper, 1992).
2.1.3. Private donors and sponsors
The role played by some generous donors or philanthropists often reveals spectacular actions, with
people leaving massive estate and properties or bequeathing their inheritance. As private donating
and sponsoring are multifaceted, it is important to draw donor profiles and specific associated
issues for management control and accounting. For each type of donor would a management
accounting concern arise.
2.1.3.1. Donors’ profiles and expectations
The main type of private donations non-profits can receive proceed from philanthropists, i.e.
generous donors (Liket & Simaens, 2015; Liu & Baker, 2016). Philanthropists tend to donate to
non-profits operating mostly in healthcare, social care, education as well as arts and culture (Gautier
& Pache, 2015; Vesterlund, 2006). In these areas, three practicalities reflecting three profiles of
philanthropists emerge.
The most spectacular profile is that of a wealthy entrepreneur donating a massive amount of money
to charities under whichever form. The most famous philanthropists falling within this category
are U.S. billionaires who, following Warren Buffett’s initiative, decided to donate half of their
fortune to charities acting in the aforementioned fields (Shirley & Askiwith, 2013). These include
George Soros, Bill Gates, Mark Zuckerberg and a series of others. After having donated massive
amounts of money to non-profits, some of these philanthropists launch their own foundation
which they fund through their own wealth, as with the Bill and Melinda Gates Foundation
(Sobanjo-ter Meulen et al., 2015).
The second best-known profile of philanthropist is that of successful professionals, not necessarily
as wealthy as in the first category, who decide to bequest their properties to a non-profit after they
decease. These legacies can consist of various assets including estate, properties, artworks, bank
accounts, security portfolios, life insurance contracts, etc. Depending on the cultural variation of
welfare Capitalism in which they are active – Anglo-Saxon, Latin, Germanic or Scandinavian –, the
rationale for bequeathing their fortune can vary. In continental European countries, where
inheritance and heritage properties are parts of culture, bequests tend to be more the fact of elderly
people with no official heirs. In U.S. and Australian settings characterised by a hard-work and selfmade culture, wealthy parent have traditionally donated their fortune to non-profits, letting their
children making theirs on their own without counting on family assets (Behling, 2018; EspingAndersen, 1992). In either case, bequests, legacies or major donations cannot be anticipated, unless
these donors explicitly share their wills with the targeted non-profits.
The third profile is less easily detectable, since it consists of people responding to one particular
appeal launched by a non-profit. Specific appeals are often launched by non-profits seeking to
partake in a relief action and needed funding for this. Usually, numerous non-profits are called for
and raise funds to be capable of responding to this particular crisis. Appeal examples can be those
launched by the International Red Cross, Care or the Salvation Army after the 2010 earthquake in
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Haiti (Salvation-Army, 2010), the need for volunteers to retrieve and aid September 11 victims
(Feinberg, 2006), or the 2004 tsunami in Phuket (Schultz, 2015). When such crises arise, these nonprofits are immediately solicited because they can response very quickly: they can raise funds
enabling them to send volunteers, professional relief specialists, materials, equipment and
humanitarian aid. Donors may be people feeling directly concerned with the event occurring and
willing to contribute (Havens et al., 2006; Sargeant, 1999; Vesterlund, 2006). Targeting the public,
these campaigns may result in smaller amounts being donated, multiplicity making the difference.
Outwith individual donors are corporate sponsors financing non-profits. These fall within three
groups, highlighting three profiles.
The best-known profile is that of private businesses sponsoring certain non-profits on an ongoing
basis. This first profile is an expression of corporate social responsibility policies (Liket & Simaens,
2015; Wulfson, 2001). Thereby, a private company contributes to a social or environmental project
borne by a non-profit and associates its name thither by financing it. As discussing the sincerity or
spontaneity of such donations is outwith the scope of this chapter, these issues will not be discussed
here. For instance, McDonald’s is funding a foundation fighting obesity and infantile diseases.
The second profile consists of private companies financing specific, recurring events organised by
non-profits and to which they can associate their name and brand. In this case, the corporate
sponsor spreads its brand through an event deemed compatible with it, if not seen as an extension
thereof. Whilst the first profile appears as a way of gaining social or environmental credits the
second profile can more be seen as targeted advertising campaign through a non-profit (Sargeant,
1999). Such can be the case of luxury brands financing some exclusive sport events organised by
non-profits, such as Longines Watches sponsoring a world-class horse-riding contest
(https://www.longines.fr/univers/actualites/longines-speed-challenge-at-the-longines-mastersof-paris). The same could apply to Rolex sponsoring major world class events in horse-riding,
golfing, formula 1, tennis and sailing (https://www.rolex.com/fr/rolex-and-sports.html).
The third profile of corporate donors is specific to political parties. Some companies openly
support a party or a candidate for a major election, e.g. the presidential election in the U.S. and in
France, or the Prime Minister in the UK. In order to facilitate the implementation of a political
programme consistent with their values and interests, these corporate sponsors do finance in part
or in full an electoral campaign (Pomper, 1992). In case the supported candidate wins the election,
this latter should find him-or-herself indebted to these corporate funders and supposedly defend
their interests (Zetter, 2014). Such can be the case of the National Rifle Association in the US
regularly funding the campaign of candidates rejecting gun control in the country (Street, 2016).
2.1.3.2. Issues in management accounting
The specific case of responses to appeals highlights major concerns for management control and
accounting. Donors do give not to a non-profit in general but for a specific purpose involving an
non-profit organisation. That is, private donors respond to a specific appeal because they feel
concerned with a specific event. Accordingly, the main challenge confronting non-profits’
management accounting system is that the monies received are eventually utilised for the conduct
of this particular programme. If some of the funds donated have not been utilised, they can
supposedly not be used for any other project, since they were given for this one in particular. That
is, non-profits cannot afford to raise funds too much exceeding their actual needs. This has major
accounting implications.
Firstly, the non-profit must raise funds on the basis of a comprehensive forecasting model, setting
a collection target and terminating the campaign when it is met. This implies that the scope of nonprofit’s mission be perfectly clear at the outset, hence it is possible to anticipate how much money
is needed. Defining the scope of a non-profit’s action appears as functional, temporal and spatial:
what is expected of this non-profit, where and for what period of time. It is because this scope is
clear that the non-profit can estimate its financial needs (Anthony & Young, 1994).
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Secondly, in order to avoid dormant monies that cannot be utilised for any other purpose, a
fundraising campaign must be associated with an ultimate total collection target and interim
objectives. To this should warnings be added, in order to be notified when the target is about to
be met. Accordingly, the campaign can regularly be temporarily suspended, until management
accountants determine the pace at which the total amount can be collected and progressively
prepare the end of the fundraising campaign (Kelly, 2012; Pawson & Joannidès, 2015; Sargeant &
Shang, 1999).
The issue confronting non-profits is that they cannot return excessive money to donors, and this
for two reasons. The first reason for this impossibility is that of the grounds on which excessive
monies would be returned to donors. Should there be an allocation rate based upon whichever
criteria pursuant to which each donor would receive part of their initial donation? Would certain
donors be privileged and paid back in priority? According to what criteria? The second reason
arises, assuming that an allocation rate may have been found: as non-profit’s financing is often
associated with fiscal incentives, returning their monies to donors would have major financial and
fiscal implications. Donors based in countries where donations to non-profits open for tax
exemptions and deductions, retrieving their donation back may alter their fiscal situation and result
in them retroactively paying unexpected tax. In countries, such as the UK, where the government
matches donations received from philanthropy, the non-profit would have to reimburse the tax
office, which could affect its financial sustainability.
Thirdly, management accounting is expected to periodically produce figures of collection targets
associated with actual collection and expenses. Under the purview of proving donors that their
monies have been used righteously, the non-profit periodically sends to each of them a note
summarising the following (Kelly, 2012; Sargeant & Shang, 1999):
- collection target;
- actual collection as of a certain date;
- expected additional collection;
- operational achievements;
- how much of the donation received has been utilised as of this date.
In the particular case of responses to appeals, management accounting enables the discharging of
accountability to donors, by highlighting on an ongoing and continuous basis how resources
collected has been utilised. Accordingly, in order to avoid excessive fundraising and monies
impossible to spend, it is often recommended that non-profits set targets lesser than their actual
needs, the assumption being that they will always find the necessary resources (Kelly, 2012;
Sargeant & Shang, 1999). The implicit assumption is that there will always be generous people in a
capacity of making an extra effort if required (Havens et al., 2006; Vesterlund, 2006).
Fourthly, management accounting helps in the preparation of annual disclosure to donors. Here,
it is management accounting that plays a central role rather mere financial reporting abiding by
standards. Although financial reporting offers an aggregated view of the non-profit’s financial
situations and health, it does not allow them to highlight what has been specific to their activity. In
particular, ad hoc programmes, such as responses to appeals, cannot be made easily visible to donors.
Accordingly, annual disclosure also builds upon data from management accounting by detailing
each programme, highlighting fundraising objectives and actualisations as well as operational
achievements (Gray, Bebbington, & Collison, 2006; Jayasinghe & Wickramasinghe, 2006; Unerman
& O'Dwyer, 2006b).
Case n°6. The 2004 Tsunami in Phuket, Indonesia
The Red Cross two-step scandal
On December 26 2004, a tsunami devastates the Phuket Island in Indonesia, causing
destructions, people missing and other casualties. Immediately after the event took place,
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international non-profits launched fundraising campaign for relief actions in the region. Amidst
these non-profits were the Salvation Army, Care and the Red Cross. In order to allow generosity
from all over the world and for any organisation willing to participate in this relief mission,
each of them was commissioned with a specific task within a specific geographical area and for
a certain period of time.
Owing to its international reputation and connections, the Red Cross managed to raise massive
amounts of money. After six months, in June 2005, it was noticed that the Red Cross still had
2 millions euros unspent whilst numerous areas in Indonesia were still in deep need. This was
the first scandal confronting the Red Cross: as its mission was terminated, the organisation still
had excess resources without being allowed to reuse them for any other purpose. At the same
time, other non-profits were struggling to finance their field operations. Given its
commissioning, the Red Cross was not allowed to trespass on these organisations’ mission. The
scandal was that these 2 millions euros found themselves idle although they were dramatically
needed.
The scandal took a second turn in December 2005 when the Red Cross conducted follow-up
missions in Phuket. Having these 2 millions euros in hand for this specific relief programme,
the organisation was obliged to spend it all. This resulted in volunteers being flown first-class
and accommodated in expensive hotels. The scandal was that these people volunteering for a
non-profit were unduly benefitting from international aid whilst needy people in Phuket
remained unhelped (Schultz, 2015).
This two-step scandal occurred to a great extent because the Red Cross’ management
accounting system had not enabled an accurate anticipation of collections and certainly underestimated donors’ generosity. Since this event, when launching appeals, non-profits have added
a box to their forms asking permission to reuse excessive funds to other programmes. Such is
done so that, if donors tick this box, the organisation is not committed to utilising all the
funding received for this specific purpose. Conversely, if donors do not agree, the non-profit
is constrained to spend their donation in priority and inform them thereof.
2.1.4. Commercial activities
The last and least known source of financing for non-profits consist of revenues generated from
commercial activities. Very often, there is confusion as to non-profits’ status leading to mistakenly
believe that, because they cannot share profit, they cannot have lucrative activities. Such confusion
is probably more vivid in the general public than in research and corporate circles (Hardy & Ballis,
2013). Yet, numerous non-profits, especially those operating in a circumscribed area, do have
commercial activities. Some are especially known, such as White Elephant Sales in the UK or New
Zealand, garage sales in the U.S. or Australia or thrift shop sales in most countries in the world.
Most charities do organise such op-shop sales, since these generate resources that can be used for
the conduct of organisational core programmes. The Salvation Army, Oxfam, Emmaüs and many
others (Haegele, 2012).
Non-profits can also generate resources from recurrent commercial activities, especially in relation
to their services. When they own properties and estate, they can generate revenue from leasing
them, thereby acting as social landlords. In places, families a minimal rent for dwelling in a place
owned and managed by a non-profit. Low rents are often made possible because these properties
were received from generous donors or bequeathed. Thence, even minimal, the rent perceived
allows to fund other programmes run by the organisation. Other commercial activities conducted
on the side of these can generate resources, such as hospitality on estate these non-profits own.
Such can be the case at the Salvation Army William Booth training college for officers in London,
– 22 / 41 –
where visitors can book rooms and pay nightly for their stay in this quasi-hotel run by the
organisation (Joannidès, 2009).
Lastly, non-profits can generate resources from their publishing activities. Many non-profits do
publish books, newspapers and magazines they are selling. In these outlets, these organisations do
not just communicate on what they do; they also share some tips and secrets with their readership:
personal testimonies in books, other cooking recipes in magazines, colouring books for children
with their activities… Some other non-profits do sell goodies and accessories with their logo, such
as clothes, tea towels, napkins, key rings, memory sticks or any other thing the public could
purchase.
As in any other organisation, revenues generated from the commercial activities can be more or
less anticipated. For recurrent activities and revenues, non-profits’ management accountants can
relatively easily forecast how much money may be earned annually, by building on previous years’
figures. In this case, as compared to private companies’ forecasts, it can be assumed that these nonprofits can count on recurrent ‘clients’ supporting their activities by buying goodies. Thence, it is
not necessary that these organisations build sophisticated forecast models (Anthony & Young,
1994; Anthony & Herzlinger, 1975). Also, most of the time, these non-profits do not make their
goodies themselves. Either they buy them from external suppliers or are offered these by some
supporting companies. In either case, sales happen as these products’ total cost plus a profit margin.
As these products do rarely represent high amounts of money, management accounting mostly
focuses on volumes sales and the surplus generated from these sales (Anthony & Young, 1994;
Anthony & Herzlinger, 1975).
2.2.
Operational audits and controls
In contradistinction to a commonly agreed idea, management control systems in non-profits do
not just serve day-to-day decision-making. Accordingly, management control systems in nonprofits do not only consist of conventional controls but appears as the intertwining of external and
internal controls. These former focus on the righteous use of money and effective mission conduct;
the latter emphasise the convergence of individual goals with organisational objectives under
external accountability constraints.
2.2.1. External operational and financial audit
In contradistinction to a commonly accepted idea that management accounting serves for
managerial decision-making only and is not supposed to be shared outwith organisational premises,
such is not quite the case in non-profits. In these organisations, owing to the fourfold means of
goal convergence control, management accounting appears as an information system with a dual
objective. In the first place, management accounting indeed play a traditional internal managerial
role (Anthony & Young, 1994; Anthony, Dearden, & Bedford, 1984; Anthony & Herzlinger, 1975).
Secondly, it contributes to the discharging of accountability to donors of all sorts or public
authorities (Joannidès et al., 2015; Joannidès, Jaumier, & Le Loarne, 2013; O'Dwyer & Unerman,
2007; Unerman & Bennett, 2004; Unerman & O'Dwyer, 2006a, 2008).
2.2.1.1. Specialised auditors
Donors of whichever sort are considered central stakeholders to the non-profit organisation. In
this capacity, some social accounts specific to their requirements and expectations need to be
produced. Such accounts are not necessarily financial or, when financial, not systematically
aggregated figures. This idea contradicts a certain amount of publications on non-profits’
accounting and accountability emphasising either financial reporting and disclosure, summarised
as what needs to be accounted for (Christensen & Mohr, 1995, 2003), how this can be done
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(Connolly & Hyndman, 2000, 2001; Hyndman & McDonnell, 2009) or income statement
construction under with the objective of reporting no surplus (Cordery et al., 2011).
Rather, management accounting can serve to prove the systematic effectiveness of resources use
by showing how monies, depending on their origins and destination, are eventually spent for the
purpose for which they were donated (Joannidès et al., 2015; Joannidès et al., 2013). Something of
particular interest here is that financial reporting standards are seen as failing at doing this, which
concurs with Connolly & Hyndman’s (2001) findings that such standards are far from being
systematically used by charities. It does seem that a reason for such a situation could be that
financial reporting standards offer an aggregated view of the organisation and does not allow to
grasp the specificities of activity contents. This might also help understand why the Irish charities
studied by Connolly & Hyndman (2001) tend not to apply these standards. Seemingly, management
accounting and more broadly management control systems can support accountability’s
discharging through the identification of what counts for stakeholders (here public authorities), as
well as how this should be counted and recounted.
In the particular case of non-profits acting as surrogates for public authorities, a form of
technocratic accountability grounded in management accounting and controls arises (Morgan,
2006). Governmental agencies control two areas of non-profits’ activity, which mere financial
reporting can hardly reveal.
The first realm of external audits and controls relates to government’s accountability to citizens for
the keeping of the electoral promises made. It is therefore a control of polity execution. To this
end, the most common approach consists of sending operational auditors from the ministry under
whose responsibility this non-profit’s activity falls (Joannidès et al., 2015; Joannidès et al., 2013). If
the non-profit operates in the field of education, auditors are sent from the Ministry for Education;
if the organisation operates in the field of healthcare, auditors are sent form the Ministry for Health,
etc. These auditors are unsurprisingly specialists of the area in which the non-profit operates and
basically control operations at two levels.
2.2.1.2.
Public policy execution controls
The first layer of controls is at the Headquarters, where the operationalisation of every standard
set by the Ministry is scrutinised. This leads external auditors to focus on the effective honouring
of standards and regulations on one hand and on results on the other. On the former issue, as the
non-profit is acting on behalf and in the name of governmental authorities, it is required to
delineate public policy in a certain way, as close as possible to what the public sector would have
done. Accordingly and depending on the public policy area, ministerial auditors control the
adequacy of staff skills and qualifications with prescriptions from the ministry, internal business
processes and service quality.
The second level at which external operational auditors exert controls is that of grassroots
operations. Not just aggregated outputs and formal processes are scrutinised, but also how things
are done on the battlefield. As with conventional audit operating within a risk perimeter (Broadbent
et al., 2008; Froud, 2003; Hanlon, 2010; Knechel, 2007; Mikes, 2009), ministerial auditors would
select a range of business units they want to investigate. As with conventional audit, they visit these
units, browse the available and relevant documentation, observe how things are done and may
interact with grassroots actors (beneficiaries, employees, volunteers). In so doing, they would verify
that, at the most local level, official operational and quality standards are eventually applied and
followed.
In the first place, qualification and skill control is especially central when the non-profit is operating
in an area where the public sector could do the same and when the public’s health and safety are
at stake. Therefore, in any educational activity, teaching staff qualifications and skills are
periodically controlled. This results in controls focusing on the HR department and its practices
(staff allocation, staff training, etc.) Likewise, in healthcare and social care, qualification and skill
– 24 / 41 –
control consists of matching what is officially required with nurses’ and other social workers’ actual
initial qualifications and continuous training. The same logic applies to any other area of direct
interest to governmental authorities.
The second area of operational control addresses the contents of the mission itself and how it is
executed. As the non-profit is an operational extension of the public sector in numerous areas,
how things are done is especially important to governmental authorities. In many cases, the
outsourcing of certain activities to non-profits rests upon the assumption that these organisations
have a certain level of expertise that the public sector does not internally have. Therefore, it is
periodically controlled that such is still the case. Accordingly, public auditors pay attention to the
procedures followed internally to do things. Books of procedures, reports of activities sent to the
headquarters are checked so as to make sure that the official way of doing things is well honoured.
In places, this may lead to control the very contents of what is being done in the non-profit, these
operating as a servants for the diffusion of governmental ideology (Robson, Willmott, Cooper, &
Puxty, 1994; Rodrigues & Craig, 2009). In schools run by non-profits, this can take the form of
controlling what is taught in comparison to official school programmes. Textbooks, lecture notes
can be checked and complemented by interviews with teaching staff, pupils and parents. In arts
and culture organisations, auditors from the Ministry for Cultural Affairs would control that a
certain approach to arts and culture is diffused (DiMaggio, 2006). The nature of what is exhibited
in an art gallery can be controlled, material likely to shock the public being potentially subject to
an official removal order.
The third area of ministerial audit would focus on outputs. More than the results per se, what
becomes important to governmental authorities is twofold. On one hand, a major concern is that
the quantified promises made during the electoral campaign be kept. Accordingly, these auditors
shall trace facts and figures that governmental authorities could claim as their achievements.
Depending on the public policy area and governmental authorities’ core concern, these
achievements can be expressed in quantitative or qualitative terms. In the case of social care nonprofits dealing with the placement of unemployed people, the number of people effectively placed
will be emphasised. If the non-profit meets the publicly set objective or outperforms, governmental
authorities can claim this as an achievement for their policy. In the case of schools run by nonprofits, ministerial auditors would follow success rate to university admission. Sport organisation’s
achievements could be the final rank at a certain competition or the number of active members…
Or, as discussed in case n°1 with the example of the London Olympic Games Organising
Committee, the output would be assessed through the final decision made by the International
Olympic Committee to grant London the organising of the Olympics, which corresponded to an
electoral promise made by the Prime Minister and the Mayor.
On the other hand, the output control exerted by ministerial auditors can operate like quality
control, which can be perceived similarly to total quality management in private sector
organisations (Hoque, 2003; Ittner & Larcker, 1997; Johnson, 1994). Added to internal process
controls, output control enables in the very case of non-profits to ensure that organisational
expertise is still vivid (Anthony & Young, 1984; Young, 1994). The implicit assumption is that
satisfactory achievements rest upon good quality work and organisational processes. Whichever
method is chosen to assess outputs from non-profits’ activities, these raise an as yet unresolved
issue of what deserves to be measured and how this should be done.
2.2.1.3.
Money usage control
The control of how monies entrusted to non-profits is certainly the most-known activity of external
auditors. This form of control is especially vivid when non-profits are not acting as surrogates for
governmental authorities. In this case, two types of external financial audits take place. The mostknown form is that of professional external auditors and approving organisational financial reports.
The main weakness research has highlighted lies in that theses reports are built on financial
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reporting standards whose contents are not necessarily relevant. The aggregated figures produced
do give a glimpse of the non-profit’s financial situation and health but do not allow to trace the
usage of the monies the organisation has been entrusted.
In addition to compulsory conventional auditing, it is not unusual that major private or corporate
sponsors do commission their own auditors to verify internal controls and financial management
(Anthony & Young, 1994; Anthony & Young, 1984; Young, 1994). These auditors visit the
headquarters and investigate the management accounting system and financial management. As
with conventional auditing, these external controllers would set a risk perimeter and focus only on
this. Within this perimeter, commissioned controllers do verify for certain donations the following:
- collection target;
- actual collection as of control date;
- expected additional collection;
- operational achievements;
- how much of the donation received has been utilised as of control date.
These controls also emphasise the correspondence between the organisation and concerned
stakeholders, i.e. letters and reports periodically send to them (Unerman & O'Dwyer, 2006a, 2008).
Data is then triangulated with programmes’ management accounting figures so as to verify their
reconciliation. Such bureaucratic controls exerted from external auditors would occur in large nonprofits counting on high donations from major donors, since there is a real issue in them having
their name associated with this or that particular organisation (Brown & Caughlin, 2009; Luidens,
1982; Morgan, 2006; Rothschild-Whitt, 1979). Such external audits are aimed at either averting the
advent of financial scandals in non-profits or at least detect them at the earliest possible stage of
their occurring (Bou-Chabké, 2016; Taha, 2013).
In the particular situation where a non-profit acts as a surrogate for governmental authorities,
public auditors can be sent to do conduct these investigations. Depending on the country and on
the sensitivity of public policy delegations, these auditors can be sent either from the supervising
ministry or from a different one. When sent from a different ministry, public auditors are tasked
with a public interest mission: controlling the righteous use of public monies (Joannidès et al., 2015;
Joannidès et al., 2013).
Case n°7. The Salvation Army – denomination or charity?
Public auditors’ control of public monies’ destination
The Salvation Army was founded in 1867 in London’s poor districts by a Methodist pastor,
William Booth. Following his recognition of the fact that needy people were perceived as
troublemakers, he quit the UK Methodist Church and decided to found a congregation in
which they would be provided with temporary emergency aid (i.e., soup kitchens and a shelter
for homeless people). In parallel, social workers plan perennial and sustainable social inclusion
programmes; hence, they can quit their condition as social outcasts and witness to the miracle
of their new birth. All of the above is aimed at making those people receptive to the Gospel.
According to the founder’s theology, churchgoers must be involved in their church’s social
work either as volunteers or employees. Social work with no religious foundation would make
very little sense to the Salvation Army because that would not match its identity. In turn,
spiritual coaching with no social work would also not be consistent with the Salvation Army’s
identity. It does appear that the intertwining of these two pillars is central to the Salvation
Army’s accountability system, proving that social work is grounded in faith and that faith leads
to social work. Given the accumulated knowledge and expertise in handling misery, exclusion
and poverty, the Salvation Army has progressively become a surrogate for numerous
governments in the conduct of social policy, particularly temporary emergency aid and social
outcasts’ social re-socialisation, manifested in the constructing and following up of individuals’
– 26 / 41 –
plans for a second life and inclusion into society. In France, as a surrogate for social services,
the Salvation Army can count on c. 2,000 employees and 3,400 volunteers in 171 centres and
congregations to assist almost 150,000 people. The conduct of these operations is enabled
through public funding amounting to up to 76 per cent of its resources, in which public money
accounts for approximately 130 million euro of a total of approximately 160 million euro
funding. Thus, it is no surprise that in France, the Salvation Army's proof of accountability is
primarily directed at French governmental authorities and focuses on public policy matters to
which the organisation is legally committed.
Due to its hybrid identity as both a denomination and registered charity, accountability raises
numerous legal and control issues. These issues provide the basis for board discussions around
the design and implementation of an accountability system aimed at providing the government
with evidence of the Salvation Army's commitment to using public monies specifically for
public policy matters. This accountability system is this paper’s empirical concern. The legal
problem confronting the Salvation Army in its discharging of accountability to public
authorities is known in French as laïcité, a philosophy unique to France. In effect, on December
9, 1905, the French Parliament issued a law separating the State from religion; its first paragraph
states, The Republic does neither recognise nor employ nor fund any worship. Consequently, every expense
related to the practice of a religion will be removed from the budget of the State, counties and municipalities.
Public manifestation of religious affiliation and any public funding for religious organisations
and activities is prohibited. However, religious freedom is guaranteed, which justifies the fact
that the French authorities recognise no religion. Recognising no religion is manifested in the
French authorities granting no monies to religious denominations for any purpose. This
principle was reaffirmed by a law passed by the French Parliament on February 10, 2004,
confirming this prohibiting of manifest signs of religious affiliation in the public sphere,
particularly in schools, hospitals and any other public service and prosecution of trespassers.
On 19 June 2000, the Territorial Commander convenes a board meeting. The 14 board
members and the TC’s personal counsellor are present. The meeting is open to the sharing of
a major concern:
Auditors from the Home Office visited us last month. They thoroughly looked at all our processes. They inspected
our homes in order to see how we manage to keep religious matters in a strictly private realm. In the report they
submitted to the Home Minister and the Minister for Social Affairs, they stressed a major ambiguity in our
way of doing things and completing our mission […] Laïcité is our legal constraint. Supposedly, the Salvation
Army should no longer be funded by public authorities. However, as we are the main partner of the Ministry
for Social Affairs, the government has found a solution; our social work can still be funded but our religious
activities cannot. This can be the case, provided we find a way of proving that the money we are granted is directed
towards social work only. Accordingly, this meeting’s purpose is to reflect on such a solution.
This meeting was the commencement of a reflection on the design of a management accounting
system enabling to prove that public monies are used only for a social work purpose (Joannidès
et al., 2015; Joannidès et al., 2013).
2.2.2. Internal controls and performing’s performance
Notwithstanding the effect of a Reversed Panopticon subjecting non-profits’ general management
decision-making and orientations, larger organisations tend to develop their own internal control
systems. Although these serve mostly day-to-day internal management and help managerial
decision-making (Anthony & Young, 1994; Anthony & Herzlinger, 1975; Anthony & Young,
1984), they appear as a way of tracing that a form of operational accountability can eventually be
discharged to the relevant stakeholders (Joannidès, 2012; Laughlin, 1996). That is, what employees
– 27 / 41 –
and volunteers do needs to be tracked and followed up, since management is ultimately to give
their stakeholders a full account thereof.
The grassroots person, be he-or-she an employee or a volunteer finds him-or-herself as a moral
and responsible self seeking to witness the truth, so that others have faith in him or her.
Traditionally, such truth and fairness can be found in stockholders and investors basing decisions
upon faith in financial disclosure (McKernan & Kosmala, 2004). This operational accountability
requires that management be in a capacity of demanding employees and volunteers an account of
what they do, how they do things and how they do these in a certain way. That is, management
appears as organisational internal superior authorities deemed legitimate to demand accounts and
conduct investigations if need be. In the particular case of non-profits, top managers are to give
good reasons for conduct to and markets and finance providers who gather at annual general
meetings and other events. On these occasions, such managers take instruction, directly from their
higher principals and subsequently render accounts to them (Roberts et al., 2006). This can also be
the case in a religious context where the faithful are constituted as open, responsive, and
accountable to God (Derrida & Wieviorka, 2001).
Organisational authorities are considered to have the legitimacy to define policy and doctrine
reflecting the requirements of the higher principal and to compel people to conduct themselves
accordingly. Non-profits’ volunteers and employees find themselves compelled to follow
prescribed procedures when doing things and accounting for conduct in order to facilitate
superiors’ control of accounts and behaviour. When accounts of conduct are given to a hierarchic
superior, prescriptions from the organisation management control system are followed in day-today accountability (Ahrens & Chapman, 2002). Thence, numerical figures can provide the higher
stakeholder with a visual, memorisable representation of how resources are used in the conduct of
business operations. These accounting records are coupled with words that, in the worst case,
merely label them and, in the best case, make sense of them to tell an intelligible story (Quattrone,
2009). In face-to-face meetings with investors, comments on numerical figures are demanded from
accountable managers: questions are asked and satisfactory answers are expected (Roberts et al.,
2006, p. p.283).
It is commonplace to consider that external stakeholders require financial accounting figures, in
order to appraise how public monies were utilised. In the case of listed companies, these are
financial analysts or any investors interested in knowing how much value was created through the
proper use of the Higher-Stakeholder’s (economy subrogated by capital markets) funds (Jupe,
2009). In the case of an non-profit, external stakeholders are generally considered donors and
public authorities, the Higher-Stakeholder being the public and the beneficiary (Goddard & Assad,
2006; Gray et al., 2006; Lehman, 2007; Unerman & O'Dwyer, 2006a, 2006b, 2008) interested in
quantifying the welfare produced for the social body. In other words, they do seem to demand
accounts for the righteous use of donations, i.e. for the completion of the announced programmes
(training, social work, soup offered, etc.) Lastly, public organisations disclose accounts revealing
how taxes collected and returns on public investments were used to construct infrastructures or
enable social transfers (Black, Briggs, & Keogh, 2001; Broadbent, Dietrich, & Laughlin, 1996;
Collier, 2005; Ezzamel & Willmott, 1993; Humphrey, Miller, & Scapens, 1993). In all these cases,
accountants are expected to respect generally accepted accounting principles, viz. routinised norms
for the accountability practice.
Within the organisation, managers subrogate the Higher-Stakeholder through demands for
accounts of actual everyday life, employees accounting for what counts (Ahrens & Chapman, 2002,
2007; Ahrens & Mollona, 2007; Jørgensen & Messner, 2009). In fact, subordinates are expected to
provide managers with management accounting figures, which can also comprise of non-financial
data, if these are an acceptable and reliable representation of the organisation strategy in practice.
In a private sector organisation, such figures can address costs and income, number of units
produced or sold, per unit value, inventory, or delivery velocity (Armstrong, 2002; Hopper &
Armstrong, 1991; Vamosi, 2005; van Tries & Elshahat, 2007; Wickramasinghe, Hopper, &
– 28 / 41 –
Rathnasiri, 2004). In public sector organisations and NGOs, management accounting figures can
inform on the same issues and service quality (Abernethy & Stoelwinder, 1991; Black et al., 2001;
Forgione & Giroux, 1989; Johnson, 1994; Lawrence & Sharma, 2002; Modell, 2003; Parker &
Guthrie, 2005; Pettersen, 1995; Unerman & O'Dwyer, 2006b).
In all these cases, managers are demanding information contributing to their own evidence giving
of value creation for the Higher-Stakeholder. As the latter is unbeknown, no one can argue that
He actually requires such figures. Management accounting is a practice per se, insofar as it creates
routines re the nature of figures given, procedures and formats to record and report them (Ahrens
& Chapman, 2002, 2007; Ahrens & Mollona, 2007; Jørgensen & Messner, 2009). This is where
non-profits’ managers enter into an accountability relationship with their volunteers and
employees.
As any other organisation accountable to its funders and clients (customers or beneficiaries),
members in a non-profit are expected to conduct operations in a certain way and achieve certain
results that justify resources’ entrusting (Anthony & Herzlinger, 1975). As in any other
organisation, and especially owing to the imperative to account for the righteous use of funds
(effective use for the purpose for which they were donated), programme managers follow up the
resources they are entrusted and the way they spend them in a more or less sophisticated day-today management accounting system (Anthony & Young, 1994; Young, 1994).
The official management accounting system records expenses in relation to the origin or resources
but also what matters to the organisation. That is, internal controls and management accounting
systems shall mostly follow up what is central to the effective conduct of operations. For instance,
in a school run by a non-profit, what needs to be accounted for shall be learning material such as
books, notebooks, pens, blackboards, desks and chairs, etc. (Khadaroo, 2008); in a football club, it
would be balls, clothes, shoes, infirmary material in case of injury, etc. (Carlsson-Wall et al., 2017);
in an art gallery, it would be artworks exhibited, artworks inventoried or artworks loaned, etc.
(Christensen & Mohr, 1995, 1999).
Re people’s day conduct aimed at executing the non-profit’s mission, the main challenge is that it
is very difficult to control volunteers and demand them an account of their conduct. On many
occasions, especially when volunteers join because of the non-profit’s advocacy or because they
are just benevolent, willing to help, there is always a risk of misunderstanding and rejection
(Joannidès, 2012; Pullen & Rhodes, 2013; Shapiro & Matson, 2008). However, non-profits’
managers are confronted with the imperative of controlling that volunteers too contribute to the
organisation’s overall mission and behave themselves in a convergent manner. Therefore, not
exactly the same controls can apply to those as to those who are salaried for the same type of
occupation (O'Brien & Tooley, 2013). Whilst formal and explicit controls can apply to employees
without major protests more informal controls seem to be applicable to volunteers, almost taking
on a ludic form (Hardy & Ballis, 2013). Volunteers would not easily accept to be asked too many
explicit questions re their personal involvement and achievements as a traditional performance
meeting would suggest; formal meetings tend to be perceived as managerial exercise of disciplinary
power over them (Roberts et al., 2006).
Case n°8. A social work non-profit
Informal internal controls
Manager’s office, Paris Cœur de Vey, Every Thursday, 2005-2007, 8:00pm
Once a week, active volunteers in a local non-profit doing grassroots social work tell managers
the story of their involvement. They comment on their activities, achievements, doubts and
expectations in a relatively relaxed environment. Volunteer supposedly fairly report on these to
their manager, the relationship between them resting upon mutual trust.
– 29 / 41 –
The manager: ‘So, what did you do this week?’
The volunteer: ‘Well, I participated in some of scheduled activities, as you know. On Wednesday, I supervised
for two hours the homework of a teenager.’
The manager: ‘What topics? The minister asks.
The volunteer: ‘This week, we prepared an examination in Russian and in English. We also made several math
exercises on the Thales theorem.’
Meanwhile, the manager’s PA wrote in a book of accounts exactly what the volunteer was
saying.
Here, the manager asks informal questions the volunteer answers under a format seemingly
understood by both. Indeed, the minister systematically poses what questions to have
clarifications and specifications re recent conduct. On the other hand, the volunteer provides
so answers, in which he gives details directed at fulfilling the manager’s informal requirements.
Ultimately, when no more questions on the clarity of answers need to be asked, the
conversation ends. In the mean time, a scribe records in a book of accounts all these
declarations, which come to appraise the consistency of individual conduct with organisation
overall mission. The procession in such discursive and scribing practices are made systematic
and routinised, manager status and office making the event formal and procedural.
Conclusion
It appears in this chapter that management control and accounting in non-profits is very specific
and cannot be the mere application of what is at work in private companies or in the public sector.
What differentiates non-profits from the private sector is the relation to money at the levels of
expenses and resources. Resources are central, since they are the condition of possibility for
mission execution; resources are not an end per se. Unlike the private sector, expenses are a
concern, not because of the amounts of money that are managed, but because they must be used
for the purpose for which they are donated. This implies that management accounting in nonprofits is aimed at matching resource origin with destination and effective use. Management control
systems more broadly find themselves strongly tied to the discharging of accountability to donors
and other stakeholders. The first difference from management control systems in private
companies certainly lies in the ultimate purpose: facilitating the discharging of accountability and
not just upholding managerial decision-making.
Non-profits also differ from the public sector insofar as they are not as directly confronted with
the constraints imposed by the pubic interest and democracy on managers. Acting as surrogates
for public authorities, non-profits bear constraints of a similar to those of sub-contractors fully
integrated in the value chain. Therefore, when running public policy programmes, non-profits are
directly controlled from the public sector.
Owing to non-profits’ peculiarities, controls cannot merely focus on value (for money) or on
outputs (results and achievements). These fall within the span of control but are just a part thereof,
as the two pyramids developed in figure 4.1 and 4.2 reveal: management control in non-profits,
under the purview of facilitating the discharging of accountability intertwines behaviour control,
norms and standards, values and beliefs, and outputs. This intertwining is revelatory of the ideology
spread by a non-profit, resulting in controls being mutual, as summarised through the Reversed
Panopticon.
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