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308 NONPROFIT MANAGEMENT & LEADERSHIP, vol. 13, no. 4, Summer 2003 © Wiley Periodicals, Inc.
ARTICLES
Social Accounting
for Nonprofits
Two Models
Betty Jane Richmond, Laurie Mook,
Jack Quarter
After giving an overview of the development of social account-
ing, this article presents two models of social accounting for
nonprofits: the community social return on investment model
and the expanded value-added statement. The discussion focuses
on the process for establishing a comparative market value for
nonmarket social outputs. The authors discuss these models and
the comparative market value in relation to social accounting,
an academic field that has evolved as part of a critique of finan-
cial accounting, especially its failure to analyze the impact of
the organization on society and the natural environment. For the
most part, scholars have not related social accounting to non-
profits. This article attempts to draw nonprofits into the field of
social accounting. Both models address the social impact of non-
profits by including social inputs and outputs that accounting
statements normally exclude.
THIS ARTICLE has two objectives: (1) to discuss social account-
ing as it applies to nonprofits and (2) to present two models
of social accounting financial statements—the community
social return on investment model and the expanded value-added
statement—for nonprofits. Both of these models present examples of
how nonmonetized social outputs can be given surrogate values and
included with financial statements.
Social Accounting Tradition
Social accounting is based on a critique of the limitations of financial
accounting, particularly the limited range of items that it considers,
its exclusion of items that do not have an established dollar value
(nonmonetized), and its focus on shareholders and other financing
nml13402.qxp 5/21/03 9:49 AM Page 308
providers to the exclusion of other stakeholders—employees, users
or consumers of the service, society, government, volunteers, and
members. When it originated in the early 1970s, scholars referred to
this approach as either environmental accounting or social and envi-
ronmental accounting (Bebbington, Gray, and Owen, 1999; Gray,
Owen, and Adams, 1996; Mathews, 1997), because one of its con-
cerns was the organization’s impact on the natural environment. Grad-
ually, the emphasis has shifted to a broader array of social concerns.
We define social accounting as “a systematic analysis of the effects of
an organization on its communities of interest or stakeholders, with
stakeholder input as part of the data that are analyzed for the account-
ing statement” (Quarter, Mook, and Richmond, 2003, p. 3). This def-
inition is consistent with others in the field (Estes, 1976; Gray, Owen,
and Adams, 1996; Gray, Owen, and Maunders, 1987; Institute of
Social and Ethical Accountability, 2001; Mathews and Perera, 1995;
Ramanathan, 1976; Traidcraft, 2002). All the definitions emphasize
the broadening of the domain of items under consideration and
include a broader array of stakeholders.
The most widespread application of social accounting involves
the use of qualitative data and descriptive statistics to assess how an
organization is meeting its stakeholders’ expectations in executing
its mission (New Economics Foundation, 1998; Sillanpää, 1998;
Zadek, 1998). This approach—also referred to as a social or ethical
audit—has been used by socially oriented businesses (such as the
Body Shop, Ben & Jerry’s, and Traidcraft), credit unions, and non-
profits. The approach was developed primarily by the New
Economics Foundation and Institute of Social and Ethical Account-
ability (United Kingdom) and the Council on Economic Priorities
and Social Accountability International (United States). However,
it remains a supplement to the financial statements and may not even
be viewed as accounting. Accountants prepare the financial
statements; a consultant (not necessarily an accountant) prepares the
social account.
Earlier, some U.S. accountants attempted to create social account-
ing financial statements that would broaden the domain of items con-
sidered and that also attempt to relate financial statements to a broader
group of stakeholders (Abt and Associates, 1974; Estes, 1976;
Linowes, 1972, 1973). However, relatively few organizations have
taken up this work. Very recently, some have attempted to create
financial statements for nonprofits—the social return on investment
models of the Roberts Foundation in San Francisco (Roberts
Enterprise Development Fund, 2001) and the models created by
Benson (1999). In addition, since 1980, cooperatives in France and
Italy have created a cooperative balance, a stakeholder-based balance
sheet (Riahi-Belkaoui, 1984; Vaccari, 1997).
The models we present in this article follow in the tradition of
creating financial statements that include a broader array of items
(integrating the financial and the social), but we apply them to
SOCIAL ACCOUNTING FOR NONPROFITS 309
Social accounting
is based on a
critique of the
limitations of
financial
accounting
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nonprofits. For the purposes of this article, social items are those that
are nonmonetized; that is, they do not involve a financial exchange
on the market. This concept is of relevance to nonprofits because
some serve their clients either without charge or with a nominal
charge; therefore, financial statements do not track the benefits that
the nonprofits create (Henke, 1989; Richmond, 1999). Moreover,
even nonprofits with earned revenues are organizations with a social
mission, so including their social benefits (in the broadest sense)
within financial statements is important.
In our book, What Counts: Social Accounting for Nonprofits and
Cooperatives (Quarter, Mook, and Richmond, 2003), we present an
early model to assess nonprofit impact, the community social return
on investment model, followed by three social accounting statements:
• The socioeconomic impact statement, an adaptation of an income
statement
• The socioeconomic resource statement, an adaptation of a balance
sheet
• The expanded value-added statement, an adaptation of a value-
added statement
We cannot discuss these models in detail in this article. Rather,
the article discusses the issue of monetizing social outputs and illus-
trates how they can be presented within two of our models—the
community social return on investment model and the expanded
value-added statement. For a more detailed discussion of these
matters, see the following: Quarter, Mook, and Richmond (2002,
2003); Richmond’s doctoral thesis (1999); and our Web site
(http://home.oise.utoronto.ca/~volunteer).
In general, the accounting profession has been restrictive about the
circumstances in which it allows for monetizing of social items. Profes-
sional accounting organizations have studied issues related to the envi-
ronment and a broader array of social matters (American Accounting
Association, 1972a, 1972b, 1973, 1989; American Institute of Certified
Public Accountants, 1977; Canadian Institute of Chartered Accountants,
1993; Institute of Chartered Accountants in England and Wales, 1992),
but the change in practice has been slow. Nevertheless, accountants
sometimes do make estimates. Human resource accounting assigns val-
ues to nonmonetized items (Flamholtz, 1985), and financial accoun-
tants make estimates, which lack precision, for inventories and the
depreciation of assets. However, in general, conventional accounting
has shunned assigning market values to nonmonetized items.
To some extent the accounting profession has recognized these
limitations, but generally the profession has avoided departing from
that framework and has ignored approaches that recognize the
unique features of social organizations. The Financial Accounting
Standards Board concluded in 1980 that measurement of perfor-
mance of nonprofit organizations required information about the
service efforts and accomplishments of the organization, together
310 RICHMOND, MOOK, QUARTER
For the purposes
of this article,
social items
are those that are
nonmonetized;
that is, they do
not involve a
financial
exchange on
the market
nml13402.qxp 5/21/03 9:49 AM Page 310
with information about the amount and nature of net resources. It
went on to state that “financial reporting should provide information
about service efforts (how resources are used to provide different ser-
vices) in the financial statements” (cited in Fountain, 2001, p. 2).
The Financial Accounting Standards Board also recognized that a
nonprofit organization reporting on performance ideally should pro-
vide information about service accomplishments as part of financial
reporting. This pronouncement recognized the difficulties organiza-
tions face in measuring and reporting program accomplishments and
acknowledged the need for more research to determine whether
researchers might develop measurements of service effort and accom-
plishment that met the characteristics necessary for inclusion in non-
profits’ financial statements.
Community Social Return on Investment Model
The community social return on investment model is an early social
accounting model that was developed to examine nonprofit value
from the perspective of the community as a stakeholder. It led to the
development of the expanded value-added statement that follows.
In the community social return on investment model, an orga-
nization’s financial statements are restructured to represent an inflow
and outflow of resources for a period of one year. This conceptual-
ization is also compatible with the systems model for understanding
how human service programs operate (Henke, 1989; Martin and
Kettner, 1996). Table 1 depicts a one-year cycle, showing the flow of
incoming resources (or inputs) into a training program to the out-
going resources (or outputs). Using the classic definition of produc-
tivity as the ratio of outputs to inputs (Brinkirhoff and Dressler,
1990), the model provides feedback to the organization on its pro-
ductivity and stewardship of resources, as reflected by its ratio of
social return on investment (see Table 1). By examining this yearly,
the organization can use this information to assess how it spends
resources to produce an impact on its community.
We applied the community social return on investment model
to the Computer Training Center for fiscal year 1994–1995. The
SOCIAL ACCOUNTING FOR NONPROFITS 311
The Financial
Accounting
Standards Board
also recognized
that a nonprofit
organization
reporting on
performance
ideally should
provide
information
about service
accomplishments
as part of
financial
reporting
Table 1. Template for a One-Year Community
Social Return on Investment
Incoming Resources Outgoing Resources
Revenues Expenditures
Value of volunteer activities Value of volunteer activities
Value of outputs
Primary
Secondary
Tertiary
Total
Note: Return on investment is the ratio of incoming resources to outgoing resources.
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Computer Training Center in Canada is part of a network of similar
community-based agencies. The mandate of community-based train-
ing agencies is to provide employment-related training to the
“severely employment disadvantaged,” that is, people facing complex
systemic and personal barriers to employment (Rans, 1989). Clients
of these agencies include recent immigrants, older workers who have
been laid off, mothers who have little work experience and are receiv-
ing income support, people with disabilities, youth who have not
completed high school, women seeking entry into restricted trades,
people in recovery from alcohol and drug dependency, and former
criminal offenders.
Although the total number of community-based training agen-
cies is generally unknown, approximately 450 organizations were
affiliated to this Canadian network (Ontario Network of Employ-
ment Skills Training Projects [ONESTEP], 1996a). On average,
community-based training agencies have small budgets of approxi-
mately $335,000 (all figures are in Canadian dollars), a full-time staff
of about four, and approximately 275 clients per year. The board of
directors consists of volunteers from the local communities
(ONESTEP, 1996b). A study in Ontario shows that over half of the
community-based training agencies receive more than 75 percent of
their funding from a single source, most frequently the federal gov-
ernment (ONESTEP, 1996b). Provincial ministries, the United Way,
individual donors, and charitable foundations are other funders.
For this article, we focus on the Computer Training Center’s
social outputs and how it attributed comparative market value to
those items. We consider outputs within three categories:
• Primary: direct effects of an organization’s services on its clients
• Secondary: indirect effects on the clients
• Tertiary: effects on groups other than the clients (for example, the
community)
The Computer Training Center had only primary and tertiary
outputs, but Waterloo Cooperative Residence Incorporated (WCRI)
used all three categories of outputs in the expanded value-added
statement.
Agency’s Expenditures
Although they were not strictly a social output, we viewed the
agency’s expenditures of $842,051 as an outgoing resource because
salaries and external purchases return to the community. The agency’s
staff members used their salaries to make purchases, pay mortgages
or rent, and sustain themselves and their families. Nonpersonnel
expenditures represented purchases of supplies and equipment that
the agency required for its service. Expenditures for the Computer
Training Center were similar to its revenues; that is, it transferred the
grants that it received from the government to the community. This
is true of most public-sector nonprofits.
312 RICHMOND, MOOK, QUARTER
A study in
Ontario shows
that over half of
the community-
based training
agencies receive
more than
75 percent
of their
funding from
a single source
nml13402.qxp 5/21/03 9:49 AM Page 312
Value of Volunteer Activities
As Table 2 indicates, volunteers were both an incoming and outgoing
resource. Like revenues, volunteers represented a contribution from
the community that permitted the agency to undertake its service; like
expenditures, volunteers were a contribution that the agency returned
to the community. Arguably, the value of volunteers that was returned
to the community was enhanced as a result of the experience with the
agency. Volunteers develop skills through their volunteering experi-
ence that should be treated as value added. However, management of
volunteers incurs costs. For the purposes of the statement in Table 2,
we assumed that volunteer contributions that remained with the
Computer Training Center at the end of the fiscal year offset the costs.
Therefore, in the community social return on investment report, the
value of volunteers as incoming and outgoing resources was the same.
Like many nonprofits, the Computer Training Center did not
track the hours its volunteers spent, so we asked staff to estimate
them. The executive director estimated that ten volunteers on the
business advisory committee and eight volunteers on the board spent
2,896 hours serving on five committees; interviews with board
volunteers corroborated these estimates. We asked the director which
value was closer to the skill level and tasks that the volunteers
performed: a figure equivalent to his salary or the professional salary
of the volunteers. He estimated the board members’ average yearly
salary to be $72,500 or $37.18 per hour (based on a standard measure
of 1,950 hours of work in a year). The director then estimated the per-
centage of executive skill capacity that volunteers used to complete
their tasks with the center: 20 percent of their professional capacity
SOCIAL ACCOUNTING FOR NONPROFITS 313
Like revenues,
volunteers
represented a
contribution from
the community
that permitted the
agency to
undertake its
service; like
expenditures,
volunteers were a
contribution that
the agency
returned to the
community
Table 2. Community Social Return on Investment Statement
for Computer Training Center, 1994–1995
Incoming Resources Outgoing Resources
Revenues $837,614 Expenditures $842,051
Value of volunteer Value of volunteer
activities $65,853 activities $65,853
Value of outputs
Primary
Employment acquisition $599,320
Enhancement $113,988
Secondary
N/A
Tertiary
Social savings from
income benefits $13,524
Social savings from
related services $2,300
Total $903,467 $1,637,036
Ratio of incoming resources to outgoing resources 1:1.81
nml13402.qxp 5/21/03 9:49 AM Page 313
for each of the committees (for 2,448 hours) and 35 percent of their
professional capacity for the board of directors (for 448 hours). Using
these figures, we calculated the values as follows:
Committee work: $37.18 2,448 hours $9,106 20 percent
$18,203
Board of directors: $37.18 448 $16,656 35 percent
$5,830
Using the director’s estimates, we calculated the total value of the vol-
unteer contribution as $24,033.
The estimates used a combination of opportunity costs (how
much the volunteer received for an hour’s work in the workforce)
and replacement costs (assessment of what the task was worth to
the organization). However, these estimates appeared low to us
because the volunteers were highly skilled professionals who were
undertaking key tasks for the organization.
Because of the discrepancy between these points of view, the
researchers assessed the value of the volunteer contribution as
the average of the following two estimates:
Our estimate based on the assumption that the members of the board
of directors and committees were using their full professional skills
in their volunteer activities at the Computer Training Center (2,896
hours $37.18 per hour 100 percent, or $107,673)
The director’s estimate that the members of the board of directors and
committees were using only 35 percent and 20 percent, respec-
tively, of their professional skills in their volunteer activities at the
Computer Training Center, valued at $24,033
The average of these two estimates becomes $107,673 plus $24,033
divided by 2, or $65,853. We entered this amount into Table 2 both
as an incoming and outgoing resource.
Employment Acquisition and Employment Enhancement
As we mentioned previously, according to the organization’s stated
mandate and the terms of its contracts (verified through interviews
with graduates), the program’s two primary outputs or direct effects
on the clients were employment acquisition (skills training that led
to jobs) and employment enhancement (successful completion of
training that increased their chances of getting jobs). Three months
after graduating, twenty-three out of thirty clients (77 percent) had
found employment.
As Table 2 indicates, the value of employment for the twenty-
three clients who found work was $599,320 (rounded up), estimated
by aggregating graduates’ wages (see James, 1987). We arrived at this
figure by multiplying the graduates’ average salary ($26,057.39), as
recorded by the agency, by the number of graduates. To check on
the agency’s figures, we interviewed four graduates, who reported
average salaries of $28,850.
314 RICHMOND, MOOK, QUARTER
The program’s
two primary
outputs on the
clients were
employment
acquisition
(skills training
that led to jobs)
and employment
enhancement
(successful
completion of
training that
increased their
chances of
getting jobs)
nml13402.qxp 5/21/03 9:49 AM Page 314
We used the figure of $599,320 that the agency reported as the
twenty-three graduates’ total salaries as a comparative market value
for the employment acquisition output of the Computer Training
Center and entered this figure in the outgoing resources column of
Table 2. The total of the employment acquisition category is under-
stated because it does not include the value of employee benefit
packages that graduates received. Two of the four graduates we inter-
viewed reported receiving benefit packages but were unable to ascribe
a value to them.
Another primary output of the Computer Training Center was
employment enhancement, to which (as Table 2 indicates) we also
assigned a comparative market value. Despite not necessarily achiev-
ing a paying job at the end of their training, the graduates of the
program had developed new skills. If they had acquired these skills
from a profit-oriented business, the clients would have paid for
them, and the payment would be seen as a measure of their value.
Because the clients did not pay for the service at the Computer
Training Center, we applied a surrogate procedure to estimate its
value to the seven graduates who did not become employed. First,
we tried to find a similar private-sector training program but failed.
Because we could find no private-sector equivalent, we estimated
the employment enhancement output using the amount per client
that the funder granted to the center to deliver the specialized train-
ing. In 1995–1996 the per-client grant was $16,284. We used this
figure as the comparative market value per unit of training. For the
seven graduates who did not find employment but whose employ-
ment chances were enhanced by training, we estimated the value to
be 7 $16,284 $113,988.
As Table 2 indicates, the primary outputs of the Computer
Training Center—employment acquisition and employment
enhancement—have values of $599,320 and $113,988, respectively,
or a total of $713,308. This value was a key component of the
Computer Training Center’s contribution to the community.
Savings from Income Benefits and Related Services
In addition to its primary outputs of employment acquisition and
enhancement, the agency also had an effect on groups other than the
clients—namely, tertiary outputs. We identified the Computer Train-
ing Center’s tertiary outputs as the costs the community saved when
graduates who became employed and earned a salary no longer
required income support and other related benefits.
To place a financial value on these savings, we examined case
files for the graduates and cross-checked this information with the
interview data.
Because actual amounts were not available, we based the total
income assistance in the year before entering the program on
amounts that eight program clients (four 1994–95 graduates and four
graduates of a later fiscal year) reported having received. Their aver-
age was $588 in the year before entering the program. If this group
SOCIAL ACCOUNTING FOR NONPROFITS 315
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316 RICHMOND, MOOK, QUARTER
is representative of the twenty-three clients who became employed
as a result of training, the costs saved in their income benefits were
$13,524 ($588 23).
In addition to income assistance, the four 1994–1995 graduates
we interviewed also reported receiving other benefits. However, grad-
uates were frequently either unsure or not forthcoming about the
types, amounts, or value of these goods and services. Based on
the interviews, we assessed a modest value of $100 for additional
benefits per client. For the twenty-three graduates who became
employed, this amounted to $2,300 ($100 23) in further cost
savings. We include both this amount and the $13,524 of savings
from income benefits as outgoing resources in Table 2.
In total, the outgoing resources amounted to $1,637,036, or
$733,569 more than the incoming resources. In other words, for
every dollar’s worth of economic and social resources that entered
the organization, $1.81 in economic and social value returned to the
community. This ratio means that the Computer Training Center’s
expenditures for technology, individual instruction, specialized equip-
ment, and employment assistance for graduates as well as the volun-
teer support required to help with training and job opportunities were
offset by the center’s positive impact on the community. This positive
impact includes the value of employment acquisition and enhance-
ment, the costs saved in income and other benefits, and the enhanced
quality of life for clients (and to some extent their families).
Expanded Value-Added Statement
The expanded value-added statement builds on the community social
return on investment model and organizes the data into a financial
statement format. It combines value added from financial sources
obtained from audited financial statements with value added from
social inputs. In this regard, the expanded value-added statement
constitutes a unique contribution to the emerging field of social
accounting, especially as applied to nonprofit organizations.
Value added is a measure of wealth that an organization creates
by adding value to raw materials, products, and services through the
use of labor and capital. Since the 1970s, the value-added statement
has been in use in the United Kingdom and is a required financial
statement in many European countries, New Zealand, South Africa,
and Australia (Riahi-Belkaoui, 1999). In contrast to profit, the wealth
created for only one group—owners or shareholders—value added
represents the wealth created for a larger group of stakeholders. Thus,
the value-added statement focuses on the wider implications of an
organization’s activities beyond profits or losses; in the case of non-
profit organizations, it focuses on implications beyond surpluses or
deficits.
In the for-profit sector, value-added statements emphasize that
the organization also employs people, contributes to societal costs
through taxes, rewards investors and creditors for risking their funds,
For every
dollar’s worth
of economic and
social resources
that entered the
organization,
$1.81 in
economic and
social value
returned to the
community
nml13402.qxp 5/21/03 9:49 AM Page 316
and sets aside money to maintain its viability. In our proposed
expanded version, it also emphasizes the organization’s role in pro-
viding societal benefits that financial statements generally ignore
because these are not monetized transactions.
We undertook the expanded value-added statement with the
Waterloo Cooperative Residence Incorporated (WCRI), which sup-
plies housing in dormitories and apartments for students of two
major Canadian universities, Waterloo and Wilfrid Laurier. The non-
profit student-operated cooperative has a ten-member board of direc-
tors that student-members elect from their group.
Table 3, which presents the value added by WCRI, has three
columns that refer to different sources of value added:
• Financial, representing information from audited financial state-
ments only and which is also referred to as a restricted value-added
statement
• Social, representing information about nonmonetized contri-
butions and outputs for which accountants estimate market
comparisons
• Combined, representing the total of the financial and social
columns, also referred to as an expanded value-added statement
In order to calculate the amount of value added, the first step is
to assess the organization’s total outputs and assign a comparative
market value to them. Total outputs are the results of an organization’s
activities to accomplish its mission, all of the services that it offers.
Total outputs are subdivided into primary, secondary, and tertiary,
reflecting how directly the associated items are connected to the orga-
nization’s mission.
Primary Outputs
For the fiscal year we examined, WCRI’s primary outputs were hous-
ing units and services, totaling $4,210,159. This amount consists of
SOCIAL ACCOUNTING FOR NONPROFITS 317
Table 3. Expanded Value-Added Statement (Partial) for WCRI
Value Added
Created Financial Social Combined
Outputs Primary $3,964,031 $246,128 $4,210,159
Secondary $65,192 $424,808 $490,000
Tertiary — $2,500 $2,500
Total $4,029,223 $673,436 $4,702,659
Purchases of
external goods
and services $1,538,561 — $1,538,561
Value added
created $2,490,662 $673,436 $3,164,098
Ratio of value added
to purchases 1.62 0.44 2.06
Note: For the year ended April 30, 1999.
nml13402.qxp 5/21/03 9:49 AM Page 317
318 RICHMOND, MOOK, QUARTER
two parts: first, $3,964,031 of revenues WCRI received from such
items as accommodation, food, and parking; and second, the value
of social labor contributions and donated services, totaling $246,128.
The social labor requires some explanation.
Social Labor. WCRI’s social labor is the members’ unpaid services
to the cooperative; this reduces costs, creates opportunities for skills
development, and enhances members’ psychological sense of owner-
ship. Social labor has an impact both on the market value of services
and on the residents’ manner of payment. WCRI’s dormitory residents
contributed forty hours of social labor a term. We reduced this figure
by 50 percent to allow for inefficiencies and valued it at $8.00 per hour,
an amount determined by the WCRI Market Subcommittee (1998).
Therefore, the member contribution to the school term had an esti-
mated financial value of $160 (40 hours $8.00 50 percent). With-
out this contribution, residents of WCRI would have had to pay
$2,360. With it, they paid only $2,200. On the restricted value-added
statement, WCRI would have recorded only the portion received in
cash ($2,200) as revenue and ignored the $160 for social labor. To
record the true market value of the housing units and services in a
value-added statement, WCRI must add to revenues we obtained from
the audited financial statements an amount equivalent to the value
of the social labor that members performed.
For fiscal year 1994–1995, the estimated total hours of social labor
were 58,632. As noted, we discounted this total by 50 percent to com-
pensate for inefficiencies. At $8.00 per hour, this resulted in a total
comparative market value of $234,528 ($58,632 50 percent
$8.00).
Members of the board of directors contributed additional social
labor. WCRI staff estimated that ten members each contributed ten
hours per month, which at $8.00 per hour totaled $9,600. The total
of these two figures is $244,128. This is the major part of the primary
output listed within the social column of Table 3.
Donated Service. Donated service is a third component of WCRI’s
primary outputs. Although WCRI supplies services primarily to
university student members of the cooperative, during the fiscal
year we examined, it housed approximately fifty refugees who also
donated services. Based on the student rate, the market value of
these donated services was estimated at $14,000. However, WCRI
charged immigration authorities at cost ($12,000), thereby forgoing a
portion of revenues ($2,000) that it would have received at market
value. In order to record the true market value of these services, we
treat the difference between its market value and its cost ($2,000)
as social value added and include it as part of the primary outputs in
the social column. We treat this donated service as a primary output
because it is directly related to the organization’s primary service, the
provision of housing. We classify it social value added rather than
financial value added because, unlike the $12,000 WCRI received from
the government, this amount never appears on the audited financial
In order to
calculate the
amount of value
added, the first
step is to assess
the organization’s
total outputs
and assign a
comparative
market value
to them
nml13402.qxp 5/21/03 9:49 AM Page 318
statements. Yet it is part of WCRI’s contribution to the community’s
need for social housing.
All of these items represent WCRI’s contribution to its mission.
When we add the amount of financial revenues ($3,964,031) to the
estimate of social value added ($246,128), we arrive at the total of
$4,210,159 in an expanded value-added statement.
Secondary Outputs
In addition to providing housing and related services, WCRI also pro-
duced secondary outputs such as cooperative development and skills
training. In order to include these in the value-added statement, we
also assigned market values to them. Like the primary outputs, sec-
ondary outputs are divided between financial and social. The
secondary outputs appearing in the financial column of Table 3 are
the expenditures of $65,192 taken from audited financial statements
on such cooperative development items as meeting expenses,
newsletter, and education. This was relatively straightforward.
The more demanding step was to estimate the social value for
skills training. This item would not appear in a restricted value-added
statement but represents a genuine benefit (hence, added value) of the
experience of living in WCRI; therefore, it appears in the social col-
umn of the expanded value-added statement. Members developed a
variety of skills as a secondary benefit of living in the cooperative.
These included independent living, as well as personal, organizational,
and leadership skills. Skills development comes from a variety of expe-
riences, and determining precisely what portion to attribute to living
in the cooperative is problematic. However, by comparison to students
living in typical campus dormitories or off-campus apartments, WCRI
members acquire managerial skills and democratic experience. Mem-
bers learn to run an organization with a $4 million budget and make
decisions about both large and small matters.
In addition, through membership meetings students experience
member control and participate in democratic processes in a highly
personal context, in which their decisions affect members’ living con-
ditions and quality of life. Members must balance their self-interest
with the interests of the community as a whole, requiring a maturity
of judgment that students may find challenging.
Assigning a market value to these secondary outputs was not as
straightforward as estimating the market value of social labor or
donated service. Yet these were valuable benefits of living in the
cooperative. We assigned these benefits a comparative economic
value equivalent to the cost of taking two undergraduate university
courses at $500 each. Yet we could not assign this benefit to all of
WCRI’s residents because our survey indicated that not all had par-
ticipated actively in the cooperative’s governance. Therefore, it
seemed reasonable to assign these benefits to the 56 percent of resi-
dents who reported that they participated in management through
the cooperative’s meetings. Thus, the amount we calculated for the
SOCIAL ACCOUNTING FOR NONPROFITS 319
In addition to
providing housing
and related
services, WCRI
also produced
secondary
outputs such
as cooperative
development and
skills training
nml13402.qxp 5/21/03 9:49 AM Page 319
market value of this portion of skills training was 56 percent of
the total, or 460 students, multiplied by the cost of taking two
university courses (at $500 each); this amounted to $460,000.
Our survey also identified a smaller number of students who
were especially active in the cooperative’s governance. We decided
that the additional enhancement of their skills could be a benefit
not just to the students themselves but also to the community at
large. The residents who benefited most from this type of learning
experience were the ten members of the board of directors and ten
committee chairs and selected committee leaders. For these twenty
students, we estimated the equivalent to be one additional theo-
retical and two practical courses in community development. Thus,
the value we assigned to this output was three courses at $500
each, or $1,500, multiplied by twenty students, for a total of
$30,000.
To arrive at the total value added of skills training, we added the
$30,000 to the estimated value of $460,000. This created a total social
value added of $490,000 for skills training. However, to achieve these
benefits, WCRI invested $65,192 (as shown in Table 3’s financial
column under secondary outputs). This amount represents such
costs to the organization as meetings, education as it relates to living
in and running a cooperative, and newsletter production. Thus, to
calculate the net social value added of secondary outputs, we must
adjust the estimated market value of skills training for financial
expenditures. Therefore, we subtract the amount that WCRI spends
($65,192) from $490,000 to arrive at the net social value for
secondary outputs of $424,808, as shown in the social column of
Table 3.
To arrive at the value that WCRI’s secondary outputs add, we
added the expenditure of the organization on related items, as stated
in the audited financial statements, to the estimated market value for
skills training. This amount ($490,000) appears in the combined
column and represents value added of secondary outputs for an
expanded value-added statement.
All of the outputs discussed to this point are directly related to
providing housing for WCRI residents. However, WCRI is part of the
cooperative movement and provides services for other cooperatives.
Because these are external to WCRI’s services to its members, we
label them tertiary outputs.
Tertiary Outputs
As a result of its achievements and leadership status, WCRI was able
to transfer knowledge to other cooperatives, another component of
social value added. In fiscal year 1994–1995, WCRI supplied free
consultation services to three other cooperatives. These contributions
were in the form of leadership development, cooperative consulta-
tion, and business consultation. To estimate a comparative value for
these services, we multiplied the number of days involved by the
320 RICHMOND, MOOK, QUARTER
As a result of
its achievements
and leadership
status, WCRI was
able to transfer
knowledge
to other
cooperatives,
another
component of
social value
added
nml13402.qxp 5/21/03 9:49 AM Page 320
daily amount that the client cooperative would normally pay to a
consultant. As Table 3 indicates, we estimated this amount to be five
days at $500 per day, or $2,500. This amount appears as tertiary out-
put in the social column and also in the combined column.
Total Outputs
Once we calculated the primary, secondary, and tertiary outputs, we
added these together to arrive at the total outputs. In this case total
financial outputs of $4,029,223 would appear in a restricted value-
added statement. When the total social outputs of $673,436
are added to the total financial outputs, the total combined is
$4,702,659.
Subtracting External Purchases
Returning to our earlier definition of value added as a measure of
wealth that an organization creates by adding value to raw materials,
products, and services through the use of labor and capital, we note
that in order to provide those services, WCRI has purchased goods
and services externally. We identified the cost of these purchases
($1,538,561) from the organization’s audited financial statements.
Ratio of Value Added to Purchases
Another way of expressing value added is to show it as a ratio to pur-
chases of external goods and services. This ratio relates back to the
definition of value added, illustrating the value an organization adds
to external purchases through the use of labor and capital. We estab-
lished the ratio of value added to purchases, indicated in the final
row of Table 3, by dividing the value added (“value added created”)
by the cost of external goods and services. This ratio indicates that
for every dollar WCRI spent on goods and services, the organization
generated $2.06 in value added. As noted, the expanded value-added
statement includes a market estimate of nonmonetized items such as
social labor, donated service, skills training, and consultation to the
cooperative sector. If we had not included those items, the ratio of
value added to purchases would have been 1.62, as the financial col-
umn indicates. Therefore, including nonmonetized items increases
this ratio by more than 27 percent.
Conclusion
Both the community social return on investment model and
the expanded value-added statement illustrate how organizations
can establish market values for their nonmonetized social out-
puts. By including social outputs, both statements tell a more
complete story of the organization’s performance than do
conventional financial statements. These models are scratching the
surface with respect to assessing the impact of nonprofits. However,
they are part of an emerging line of work that is attempting to
SOCIAL ACCOUNTING FOR NONPROFITS 321
This ratio
indicates that for
every dollar
WCRI spent on
goods and
services, the
organization
generated $2.06
in value added
nml13402.qxp 5/21/03 9:49 AM Page 321
rectify the limitations of conventional accounting statements for
nonprofits (Benson, 1999; Roberts Enterprise Development Fund,
2001). Parallels exist between these models and the more
established cost-benefit analyses that economists generate. For
instance, using these approaches is simplest when monetizing
outputs is possible. However, finding additional ways to establish
fair market comparisons for nonmonetized inputs and outputs is
essential.
BETTY JANE RICHMOND is an adjunct professor at the Ontario Institute
for Studies in Education and works as a program manager at the
Ontario Trillium Foundation. She developed a community social return
on investment model to assess the impacts of a nonprofit training orga-
nization, which received ARNOVA’s Outstanding Dissertation award
for 1999.
LAURIE MOOK is a Social Sciences and Humanities Research Council of
Canada doctoral fellow at the Ontario Institute for Studies in Education.
She developed the expanded value added statement model for social
accounting, which measured and reported the combined economic and
social value-added of a nonprofit cooperative organization.
JACK QUARTER is a professor at the Ontario Institute for Studies in
Education of the University of Toronto specializing in the study of non-
profits, cooperatives, and community development. His recent books
include What Counts: Social Accounting for Nonprofits and Cooper-
atives (2003), written with Laurie Mook and Betty Jane Richmond.
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