Social accounting should be about good organisational practice, not just a tool for measuring social value…

In his recent blog for the Social Audit Network (SAN), Alan Kay sent out a rallying cry to the social economy:

‘I think that social enterprises should be looking seriously and overtly at the degree to which they contribute to social capital.  This would mean putting in place how they build trust between people and organisations; how they encourage reciprocal working and mutuality; how they state and then live up to their values; how they support a commitment to a community and a sense of belonging; and how they actively create connectedness through informal and formal social networks.

I would also take this further and say that social enterprises could, and perhaps should, take a social capital approach.  This might mean separating out the composite elements of social capital and examining how what social enterprises do and how they do it can contribute to strengthening social capital.

We should arguably be embracing social capital making it a central tenet of what social enterprises are all about’.

This got me thinking – how can a social enterprise show that it is creating social capital? Not only in the work that it does and the outcomes that it creates but also in the way that it conducts its business. I believe that the most effective way to create social capital is to live up to the values which underpin the approach that an organisation takes to its decision-making.

There’s been a huge resurgence in interest recently in ‘social accounting’ – Social Business Wales has a ‘Social Accounting Zone’ on its website, Community First in Herefordshire and Worcestershire and Salford CVS both provide support and training, and a range of academic articles explore the link between social enterprise and social accounting. Social Value UK believes that there should be a wider discussion on the nature of accounting principles – ‘Accounting for Value’. [Point 3.]

Could ‘social accounting’ be the answer to proving ‘social capital’? As a director of SAN, I know that the answer is ‘yes… but – it’s not as simple as that’.

Social accounting is not necessarily about being accountable for values or creating social capital (or even in reflecting on accounting principles). It’s more about proving outcomes and impact; the ‘social value’ which is created by an organisation’s activities.

I believe that this is market driven. Commissioners and funders are looking for evidence of impact and for a return on their investment. Everyone wants to be the next to publish a social impact report. In fact, this goes beyond the remit of social enterprises, co-ops and the third sector – ‘ethical business’ is now mainstream. Even major corporations publish social impact reports – Nestle, Teva, NatWest, Marriott International, and Walmart to list a few.

But social accounting can only show social capital if it also covers how the values of an organisation – trust, mutuality, social networks, commitments to a community, etc – are embedded in its operation and decision-making.

There have been various attempts over the years to define a system of ‘social accounting’ which would sit beside financial accounting… again, I refer you to a recent blog by Alan Kay. In this blog, Alan refers to the work of John Pearce from 2004 – which describes how financial accounts could be presented in a way that separates out the Trading Costs from the Social Benefit Costs.

This leads us to consideration of the importance of an organisation’s values as distinct from simply accounting & reporting on ‘social value’.

Values are the set of principles that underpin how an organisation operates in the social economy, and social accounting is the way to present the cost and impact of creating social and community benefit.  Organisational values are about how an organisation conducts its activities and operations and social value is about what it has achieved through its activities.

Most importantly, in the social accounting and audit process, organisations are required to report on what SAN has called the Key Aspects Checklist, which examines the fundamentals elements of their business operations. This includes human resources, governance & accountability, financial sustainability, environmental sustainability and economic impacts which are an indication of an organisations ethical principles and values.

In 2012, the ‘Social Value Act’ introduced a curved ball, creating the concept of ‘social value’.  SAN had always talked before about ‘values’ as being things that are important in underpinning the way an organisation is managed; ‘performance’ being how well an organisation achieves its goals and ‘impact’ and the difference it is making.

But, then, when social value became mainstream, the idea of ‘values’ as a set of principles about how organisations operated was lost and this lead to a confusing array of tools, methodologies, and online platforms to measure ‘social value’, many of which have plagiarised simple and effective concepts which already existed.

Interestingly these tools are mostly championed by the people spending the money, not the people using the money…. Measuring ‘social value’ is becoming market-driven, rather than being driven by the ethical business/social enterprise/co-operative principles and values that our sector holds dear.

But where does that leave social accounting?

The following diagram illustrates the parallels between social accounting and financial accounting. They are similar processes working with different data, but they don’t necessarily reveal the values that organisations have….

Social Financial AC pyramid

Nothing has changed; Social Accounting and Audit allows community and social enterprises to build on existing monitoring, documentation and reporting systems to develop a process to account fully for social, environmental and economic impacts, report on performance and draw up action plans to improve on that performance.

The process also allows an organisation to evaluate whether it is delivering the values which underpin its operation and to use the Key Aspects Checklist to carry out an assessment of responsible practice. It does this alongside its financial accounting…Businesses and organisations are legally required to produce their financial accounts; social accounting adds depth and understanding to how socially responsible organisations deliver and operate their services

In summary, social accounting is good business/organisational practice, not just a tool for measuring social value… and it should be mandatory. But that is possibly the subject of another blog!

My rallying call, therefore, to social enterprises, community businesses and co-operatives is don’t just use a tool to measure the impact on your service users.  You can only truly know whether you are making a difference, creating social capital and living up to your values if you properly embed social accounting to prove both ‘value’ and ‘values’.  Use the information that you have collected as part of your organisational decision-making to improve performance; demonstrate impact; and finally, to be accountable to all stakeholders.

Anne Lythgoe, Social Audit Network

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