Understandability and Transparency of the Financial Statements of ...

such as unregistered charitable trusts, as currently, there is limited accountability
regarding whether these organisations are utilising funds for their NFP or charitable
purposes and consequently are deserving of the taxation benefits. There is a need for the
public to feel confident that money that could otherwise contribute to the „public purse‟,
for example funding health and education, is being utilised for charitable purposes.
In relation to monitoring, once again the issue of poor professional standards arose, this
time in relation to charities‟ board members and charities‟ auditors. Well-meaning
people may be constraining charities‟ ability to achieve their mission effectively by
considering that they are „giving to the community‟ by sitting on a charity Board
without experience, or by accepting audit roles without an understanding of the
technicalities of risk-based auditing. These people must be up-skilled to lessen the
potential harm done to the image and functioning of their charity.
The altruistic nature of charitable organisations often leads to the assumption that the
people within them are honest, so there is little need for any form of control. This
research noted the battle taking place in some charities as some interviewees attempted
to implement internal controls, to the horror of those in the charity who considered they
were not being trusted. There needs to be a balance between trust and internal controls.
To have trust is good but to support it with a system of internal control enhances trust.
Next, the issues identified in the previous section, regarding donors using expenditure
overheads ratios in their decision-making, are examined.
9.3.3 Performance accountability
As well as looking at expenditure overhead ratios this research also considered the
broader question of how charities report to their stakeholders. Charities need to be
proactive in convincing potential donors and funders that their charity is needful and
deserving of financial support. Current performance accountability is focused on output
measurements. Widening performance accountability to include three performance
accountability tools, i.e. outcomes, outputs and financial viability, should lead to
changes in the reporting demands from funders and also could lead to the introduction
of New Zealand rating agencies to evaluate the wider range of information provided by
charities for donors who may not have the skills necessary to interpret the information.
Charities that refuse to evaluate their performance, could be seen as arrogant and self-
absorbed by donors and thus not supported. Next, the academic contribution of this
study is reviewed.
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