Analysing NGOS' Accounting and Cultural Praxis : A first Cross-National Reading of Medecins Sans Frontieres's Reporting

Electronic copy available at: http://ssrn.com/abstract=1419383

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ANALYSING NGOS’ ACCOUNTING AND

CULTURAL PRAXIS: A FIRST

CROSS-NATIONAL READING OF MÉDECINS SANS

FRONTIÈRES’S REPORTING

CLAUDIO TRAVAGLINI Professor Department of Management Bologna University claudio.travaglini@unibo.it RENATO MEDEI PhD Department of Management Bologna University renato.medei@unibo.it

ABSTRACT

This pap er, r ef erring to the NG O Médecins Sans Fro nti èr es , analys es its syst e m of reportin g by comparing dir ec t reports produ ced by the in ternational hea dquar t ers wit h some r eports of the national branches i n Euro pe. This work tri es t o assess t he readability fr om an i nt erna ti onal and t rans national p erspecti ve. I t ai ms t o see if t he report is r ea dabl e by al l donors and highl ight s t he transnational c onnections constru ed be tw e en the indi vidual nati onal offices. The paper tri es t o verif y whether the s ocial values of single European nations ar e r efl e ct ed in t he national reports of MSF and produce som e diff erenc es in th e ways th e annual reports ar e writt en and pr es ent e d.

INTRODUCTION

Th e harm onization of NGOs’ reporting is a basic prer equisi te fo r t he reading o f the annual repor ts of those enti ties that a re operating in diffe r ent countri es o n t he Euro pean con tin ent. A model of a cc ountabil ity f or Nonprofi t or ga nization’s (N POs)

Electronic copy available at: http://ssrn.com/abstract=1419383

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would allow the c om parison of r esul ts at a continen tal le vel and asses sm ent i n t er ms of performan ce. Howev er, as Jeg ers (Jeg ers, 2001) not ed, the landsca pe of the social econo my is v er y he te rogeneous, not only in th e t ypes of c ompani es an d i ndustrial secto rs, but also in the r elationship with civil societ y and especiall y i n a ccounting reportin g pra ctic es, so the harmonization of reportin g is a very t rick y business.

A comparison of t he infor mation requ este d by t he various Eur ope an national l aws on re por ting f or non -profi t entiti es has b een largel y at t empt ed (Chi tt y & M organ, 2001; Torr es & Pina, 2003; C Travagl ini, 2008; Claudio Tra va glini, Supino, & Perdomo, 2006) , and the results ca n be summariz ed as follows:

1. All models includ e a n um ber of pages, which collect the sam e inf or mation: the incom e stat em ent and balanc e she et;

2. Th e current re por ts ar e t he r esul t of a differ ent f oc us fr om t he world of the third s ector. Nations lik e the Unit ed Kingdom, which ha ve a c enturi es -old tradition f or th es e issues, have de veloped more c ompr ehe nsive and compl ex models of repo rtin g;

3. Th e quantit y and qualit y of volun tar y i nfor mati on, contained in the narrati ve p art of the r eports, ar e esse ntiall y r ela ted to a sp ecific stak ehol der. If the r eports are desi gned to giv e informatio n r egardin g t h e performan ce of opera tions for cal culating tax, the addi ti onal i nfor mation is ver y li mit ed. If the r eport pri mari ly ai ms to inf or m the d onors or inv est ors, the amount of inform ation is voluntarily c onsiderabl y highe r.

Th e evid enc e r ef erre d to i n paragr aph one m ay be explained by t he idea that onl y a few Europ ean stat es ha ve specific l egi slation on N PO r epor ting and, in most case s wher e ther e is a sp ecific law o n that topic, it re qui res a cop y of the r epor t for profi t en ti ti es.

Th e e videnc e in poi nts tw o and thr ee is explained through t he corr elation be tw e en the local culture a nd the influence that it has on th e values (Hofst ed e, 1984; Hofst ede, Neui j en, Ohay v, & Sanders, 1990; Math ews & Reynolds, 200 1) .

Hofsted e beli eves t hat, a s softwar e ca n only work whil e r es pecting th e se t o f rules an d infor mation r equir ed by the oper ati ng s ys t em, th e sa me applies in that th e carrying amounts and th e accounti ng sy st em must comply with t he rule s et give n by the co mpany.

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Figure 1 Source Hofstede (1980)

In thi s regard, Gray1 not es:

S ocie tal val ues are dete rmine d b y ec ol ogical infl ue nces modified by e xte rnal f ac tors. ... In tur n, s ociet al v alues have i nstit utio nal conse que nces in t he for m of t he leg al syste m, political syste m, n ature o f capit al marke ts, pa tte r ns of corpor ate owne rship a nd so on ... the value syste ms of attit udes of acc ount ants may be expe cte d t o be rel ate d t o and derive d fro m socie tal value s wit h speci al re ference t o work re late d val ue s. A ccounting 'value s' will in turn imp act on accounting sys tems.

Following t hes e authors, a substantial failure occurs in the transna tional reading of annual reports of NPOs, becaus e thes e reports are the product of th e differ en t model s of so cial value s that infl uen ce in uniform amoun ts.

Th e contributions highli ght t he nec essity for com mon soci al values on which t o set t he a ccounting syst e m. By focusing only on th e E uropean con ti nent, one can track a

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vari et y of shades that mo ve b etw een th e two extr em es of the s oci al syst em: open t o high tran spar enc y, and cl os ed with a mark ed predomina ntl y mandator y rep orting .2

At the g eneral lev el , a compa rati ve readi ng with uniform r es ults is not possi ble among Europ ea n not -for- profit entiti es, but an att em pt ca n be made b y r edu cing the focus and conc ent ratin g on a singl e NPO, which has the following cha ract eristics:

• A pres enc e of mor e E uropean cou ntri es, so that we c an mak e a transna tional r eading;

• A pr es enc e of str ong c oor dination, ev en in value t e rms, not onl y operational, so as t o reduc e the im pac t t hat social val ues may hav e on individ ual nati onal r eports ;

• A s tro ng i ncl usion i n its ac t of int ern ational human valu es, values generally reco gni ze d as such anywhere in the worl d (aid for th e sick , supp ort fo r childr en in troubl e ...), with the goal in th is case of reducing t he i nfor mation asy mm etri es arising from local cul ture.

Th es e featur es can b e found expr ess ed only in a specific t yp e of N PO : non -go vern mental org anizati ons, institutions t hat ha ve as th eir mission in te rnati onal coope ration and humanitarian aid.

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Gray's accounting values were represented and defined as follows:

 Professionalism versus Statutory Control – a preference for the exercise of individual professional judgement and the maintenance of professional self-regulation as opposed to compliance with prescriptive legal requirements and statutory control.

 Uniformity versus Flexibility – a preference for the enforcement of uniform accounting practices between companies and the consistent use of such practices over time as opposed to flexibility in accordance with the perceived circumstances of individual companies.

 Conservatism versus Optimism – a preference for a cautious approach to measurement so as to cope with the uncertainty of future events as opposed to a more optimistic, laissez-faire, risk-taking approach.

 Secrecy versus Transparency – a preference for confidentiality and the restriction of disclosure of information about the business only to those who are closely involved with its management and financing as opposed to a more transparent open and publicly accountable approach.

These accounting values, in turn, are linked to Hofstede's cultural constructs of Individualism, Uncertainty Avoidance, Power Distance and Masculinity, by a diagrammatic model and four hypotheses. Gray's hypotheses are:

 HI The higher a country ranks in terms of individualism and the lower it ranks in terms of uncertainty avoidance and power distance then the more likely it is to rank highly in terms of professionalism.  H2 The higher a country ranks in terms of uncertainty avoidance and power distance and the lower it

ranks in terms of individualism then the more likely it is to rank highly in terms of uniformity.

 H3 The higher a country ranks in terms of uncertainty avoidance and the lower it ranks in terms of individualism and masculinity then the more likely it is to rank highly in terms of conservatism.

 H4 The higher a country ranks in terms of uncertainty avoidance and power distance and the lower it ranks in terms of individualism and masculinity then the more likely it is to rank highly in terms of secrecy.

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Th er e ar e various definitions of NGO in the lit eratur e ( Bend ell, 2000; Edwards, 2000; Tee gen, Doh, & Vachani, 2004), but c ertainly t he one that mak es the bes t work of thes e compa nies is the description gi v en by the United Nations ():

any non-pr ofit, volunta ry citiz ens’ gr oup which is organiz ed on a local, national or in ternational le vel. Task - ori enta ted and driv en b y peopl e with a co mmon in ter es t, NGOs perf or m a vari et y of s er vi ces and humanitarian func ti ons, bring citizens’ con cerns to Gov ernm ents, monitor p olicies and encour age poli tical parti cipation at the c omm uni ty l e vel. They provide analysis and expertis e, s er ve as earl y w arning m echanisms and help moni tor and i mpl em ent int erna tional agr eem ent s. Som e are or ganiz ed around specific issues, such as huma n rights, the envi ronment or heal th .

READING ANNUAL REPORTS OF MÉDECINS SANS FRONTIÈRES

Mé decins Sans Fro nti èr es ( MSF) is t he lar gest medical humanita rian organization in th e world , creat ed by do ct ors an d jo urnal ists in Fr ance in 1971. MSF provides indepe ndent an d im partial assistance to tho se who are in condition s of gr eat need. MSF also res er ves the right t o bring forgotten crises to the attention of the public, to challeng e inadeq uaci es or a bus e in th e syst em of aid, and publicl y to su ppor t a b et t er qualit y of car e and m edical protocols. MSF is an international move ment f orm ed b y an inte rnational offi ce in Geneva and ninete en se ctions .3

Th e co mp arison t ook int o consideration the annual repor t produc ed in 2 00 7 by MSF Inter natio nal and b y fi v e sisters: MSF France, MSF G erm any, Italy MSF, MSF Spain, and MSF UK–Ir eland. The choic e o f location of the sist ers was no t random. The locations sel ec t ed ar e t hose that hav e a more complex nati onal sy ste m of soci al valu es, but also a mor e dev eloped national accou nting syst em for N POs. Th e reports w er e f ound t hrou gh the websi t es of th e NG Os and ha v e be en evaluat ed in their en tiret y through th e

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The national branches of MSF are Australia, Austria, Belgium, Canada, Denmark, France, Germany, Greece, Holland, Hong Kong, Italy, Japan, Luxembourg, Norway, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Each section is a response to a board of directors elected by its members at a general meeting held annually. In addition, some sections of the partners manage the projects on the ground, on behalf of one of the sections in place.

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co mparison of t he inf or mation co ntain ed t her ei n. A ll the r epor ts4 have a st ruc tural orga nization with a si milar split be tw een:

• The pr es enta tion of re sults thro ugh requi red a cc oun ti ng sum mary prosp ec tuses (financial stat em en t, bal anc e she et, not e on mana gem ent)

• The pr es enta tion of supple mentar y inform ation, su ch as indi ces of performan ce, composition of the workforc e, comp ensati on of dir ectors, and use a nd destination of donations.

Th e r epr es entation of the r equired financial statem ents provid es a rang e o f information fairl y com parabl e t o each ano ther, even if ap propria te distin ctions ar e ne ede d on th e training of thes e r esult s and diff er enc es arising f rom the a cc oun ting sys t em and the nation al legal syst em .

Th e quantit y and qualit y of the voluntar y infor mati on de ter mine th e degr ee of information transpare nc y5 _{to the r ecipi ent of the docum ent, and qualify and identif y a}

lack of information res ults in a voluntar y guide to t he ci vi l authori ty with contr ol; a wider v oluntar y reporting leads to a broad s pectr um of corporate stak ehold ers.

Howev er, the incr ease in voluntar y infor ma ti on disclosur e and hi gh transpar enc y, as several au thors hav e no ted ( Edwards, 2000; R. Gray, Bebbing ton, & Collison, 20 06) , are of ten corr ela ted wi th the n eed to l egiti mi ze6 their work, which is n ecessary f or the continu ing su pport from civil soci ety t hrou gh the donatio n of funds.

Th e c om parison cl early s hows a general differ ence be tw e en th e infor ma ti ve report pro duc ed by the various partners and the int ernational he adqua rt ers and wit hin the docum en ts of the pre mises a substant ial differenc e in th e th re e reports of th e United Kingdo m and th os e of other c on tin ental subsidiaries.

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First, NGOs are typically service organizations and those who control and fund the organization (managers and donors) may well be quite distinct from those who receive/benefit from the service (the client or beneficiary). There is typically no direct means by which the clients/beneficiaries can enforce accountability upon the donors and managers. If, in addition (as is often the case), the NGO is not a membership-based organization, there is a clear absence of direct, obvious groups to whom the body must express its accountability, (Uphoff, 1996) . Second, NGOs (as NFPOs), have no simple ‘bottom line’ equivalent to the profit/loss measure of commercial organizations (Perrin, 1985).

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Civil society requires a careful balance between rights and responsibilities; between the entitlement of individuals to come together to pursue their own and the wider community’s interests, and the right of society at large to have reasonable reassurance that such organizations are what they say they are, and in particular that they are not covertly abusing their position in ways that go beyond the legitimate exercise of individual freedom (Fries, 2003).

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[i]t is no accident that questions about legitimacy are being raised at a time when NGOs have started to gain real influence ... They are victims of their own success. Neither is there a shortage of hypocrisy among the critics, especially when it appears that NGOs are being singled out in contrast to businesses (and even many governments) that are even less accountable than they are (Edwards, 2000).

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Th e r eports diff er substantially among t hem sel v es in the quan ti ty and qualit y o f accounting infor ma ti on. In states like the U K , accountabilit y to don ors/l enders is shown to a gr e at ext ent in the r eport by a cl ear repr es entation of th e entit y, t he source of funding of pu blic spendi ng, the areas of funding, and f undin g provided a nd r ec eiv ed from hom e and fr om inter national partners.

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UK SPAIN ITALY FRANCE GERMANY MSF

INTERNATIONAL

Fundraising Activities

Key performance indicators NO NO NO NO

Expenditure covered by

regular gift

YES YES

Cost of raising YES YES

Reserve policy YES NO NO NO

Accounting data

Income resources

Donation YES YES YES YES YES YES

Grant for operational

programmes

YES YES NO YES YES YES

Activities for generating

funds

YES YES NO NO YES

Investment income YES NO YES YES

Resources expended

Costs of generating

voluntary income

YES YES YES YES NO YES

Operational

programmes

YES YES NO YES YES YES

Charitable activities YES NO NO NO NO YES

Investment expenditure YES NO NO NO NO YES

More about income and

expenditure

Donations YES YES YES YES NO YES

Programmes YES YES YES YES YES YES

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More details

Credits and debits YES YES YES NO NO YES

Bank accounts NO YES YES NO NO YES

Foreign bank accounts NO YES NO NO NO NO

Money transferred

between MSF organizations

YES YES YES YES NO NO

Governance costs YES YES YES NO YES

Employees

Gender report NO NO NO YES NO NO

Staff figures NO YES YES YES NO YES

Staff costs NO YES NO YES NO YES

Board costs NO NO NO NO NO YES

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In cou ntri es such as Ital y or G er many, wher e th e pr essur e e valuati on and c ontrol is bet t er entrus ted t o th e s tat e rather tha n t o individual do nors/f unders, t he volunt e er s are mainl y orien ted to jus ti fying and val idating the infor mation contained in the prospe ctus sum mary.

Funda mentall y diff er ent is the r eport of th e i nt erna ti onal headquart ers . The inte rnational headquarters’s r eport aims to disclose the a cti viti es with l egi timat e purpos es, in ev ocation of the resul ts o bta ined b y th e or ganization and i ts need t o continu e to work as a principal of the comm unity.

Th e res ults obtained aft er exposur e all ow us to say th at a sup erfici al comparis on of the da ta is not possi bl e, because the present infor mati on is not unifo rm, alt hough w e would expe ct that ther e to be g reat er int ernal coordination i n t he manage ment o f information. In this regar d, it highlight s the case of tran sf ers betwe en diff er ent locations, and propos es for exampl e the value of tr ansf ers, but not how t o re cord it , lea ving unr esolv ed question s relatin g t o internati onal tax issues.

Th e rela tionship betwee n the NGO and the local soci et y s eems to be once again the cor e of the proble m. Soci et y influenc es t he valu es and t he accounting sys tem in th e sam e way, ev en i f th er e is s trong in t ernal coordination at th e inter natio nal l evel wit hin the NGO; howe ver, to l e gitimiz e their w ork , the local offic e must us e t he c hannels of co mm unica ti on expr esse d by the acc ounting co mp any, whi ch would par tl y mean th e coor dination and har moniza tion with othe r locations, c oordina tion t hat is pr es en t naturall y at home in the NGO, but not ext ern ally.

Howev er, although the comparabili ty of t he infor mation is limit ed, the report in general is so transpar ent that the acti vities of NGOs respond to t he minimum lev el of information that donors/fund ers want.

CONCLUSIONS

Th e r ela tionship betw een soci et y and its collec tive v al ue s yst ems is ver y s trong; it ha s substantially all of the forms of c oordination with th e NG O with a strong inte rnational vocation as a solid foundation of uni versall y recogniz ed values.

This i s mainl y du e to a virtuous cir cl e in the cent r e w her e th er e is the l ocal ci vil soci et y. NGOs hav e the legitimacy ne ed ed by the local ci vil socie ty . The local civil soci et y, to l egitimiz e, requir es i nforma tion o n mana geme nt; in turn, civil soci et y and i ts values influence the national account s. The NGO must theref or e adap t to the lo cal lev el

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with the f orms of co mmuni cati on r equir ed f or accou nting. Thi s circularit y m ea ns that a voluntary harmon iza tion of accounting inform ation betw een na ti ons is no longe r possible, a nd if a supra national body is t o define a co mmon model of repor ting, i t shoul d define a minim al con tent, leavi ng room for vol untary r eportin g m etho ds for ea ch sepa rat e c oun try.

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