Group 7: Written Report HR3A

CSR in not for profit organizations

A not for profit organization is one whose objective is to support or engage in activities of
public or private interest without any commercial or monetary profit. In many countries some will
be charities but there will also be many which are not.

A non-governmental organization (NGO) is a legally constituted organization operating

without any participation or representation of any government.

8.1 Introduction

It is important to consider the nature of the sector. The not for profit (NFP) sector is one which is
growing in importance all over the world.

- The term “civil society organization” (CSO) has been used by a growing number of
organizations, such as the Center for the Study of Global Governance.
- The term “citizen sector organization” (CSO) has also been advocated to describe the
sector as one of citizens, for citizens.

This labels and positions the sector as its own entity, without relying on language used for the
government or business sectors.

8.2 Distinguishing features of sector

There is normally a disconnection between the acquisition of resources and their use; in other
words the money to provide the services normally does not come from the recipient of those
services.

8.3 Types of NFP organization

We can classify NFPs into various types, each with different purposes:

8.3.1 Public bodies

These are related to the government in some way and include such things as a local authority
and a health authority. These all have the function of providing services to members of society
and receive their funding and powers directly from the national government.
8.3.2 Quasi public body

These are also often known as Quangos (quasi autonomous non-governmental

organizations) and serve a public or civic purpose without having any direct relationship with
the government. Many
civic societies are like this and other examples include such things as housing associations.
These too often get some funding directly from the government.

8.3.3 Educational institution

As the name suggests these serve an educational function and include such organisations as
schools, further education colleges and universities. These may be publicly owned
organizations or privately owned and the norm differs between countries.

8.3.4 Charity

a charity exists to fulfill a particular function which involves providing a service.

8.4 MOTIVATION FOR NFP’s

The motivation for the existence of NFP’s is important to consider as it tends to be different to
profit seeking organizations and this has implications for CSR. Firstly a NFP organization is
motivated by some kind of societal concern. Normally this involves the provision of a service to
some part of that society and this service provision is normally unrelated to payment for that
service.

One motivation for an NFP therefore is the acquisition of resources in order to undertake the
provision of those services. Thus, there are a concerns with:

1. The optimizing of the utilization and allocation of what is inevitably scarce and restricted
resources
2. The transaction cost minimisation

Another factor which must be borne in mind is the matter of who decides what is good
performance. For a profit seeking organization the customer will ultimately decide by choosing
to buy or not buy. In a NFO there is no customer and the service beneficiaries do not pay (or at
least not full cost) for the service received.

Thus the determination of measures of performance is important for these organizations. So too
is the setting of standards and the reporting of performance. This is normally done through the
development of performance indicators. Often a variety of measures are used including:

● Budgetary control / cash flow

● Performance indicators
● Non-financial measures
 ● Qualitative factors

For the evaluation of performance then there is less relevance of accounting measures and a
correspondingly greater importance of non-financial measures. This inevitably involves
problems of quantification and a necessity for deciding between alternatives. One technique
which is particular to this environment is that of cost benefit analysis.

8.5 IMPLICATIONS FOR MANAGERS

It will be apparent that there are a number of issues facing managers of these organizations.

1. The acquisition and utilization of resources

2. The setting of objectives and the measuring of performance
3. The influence of stakeholders

As far as the external environment is concerned there are a number of issues which are
important and distinctive.The first is the question of market identification; this is essential for
planning but is not necessarily obvious. Then, as we have implied already there is the fact that
service delivery is not evaluated by its beneficiaries who do not pay for its receipt. There are a
lot of different stakeholders who all have a view about performance and some influence on its
evaluation–a complex situation.

One of the factors in this sector however is that the largest NFPs are most able to acquire
additional resources. Thus there is competition for market share because this leads to easier
resource acquisition. In theory also NFPs exist to fulfill a particular purpose.

8.6 AVAILABLE RESOURCES

For many NFPs the main source of funding comes from the government. This is certainly true
for public bodies and for quasi public bodies. In most countries it is also true for educational
institutions. For the largest charities it is also true as governments tend to use these charities to
distribute their aid programmes. Other sources of funding include borrowing but this is only
really an option for capital projects when some security can be provided. So for many NFPs the
other main source of funding is from fundraising. This can take the form of seeking donations or
legacies or trusts. For the larger organizations then raising funds through trading is also a viable
possibility and in the UK, for example, the shopping centers have a considerable number of
charities represented.
8.7 Structure of a charity

As charities are a significant number of the organizations in the NFP sector then we need to
consider their structure in some detail. The first point to make is concerning the legal
environment in which they operate.

Ultra vires

Ultra vires organization has the power to do anything which it is not specifically prevented to do
according to either the law or its founding legal articles of association.

Intra vires

Intra vires organization can only undertake those activities which it is specifically empowered to
undertake.

Charities have many tax and regulatory advantages but face restrictions on overt political
activities and direct trading. Many engage in fundraising, often through trading subsidiaries or
third parties. These legal restrictions aim to ensure genuine charitable purposes, with the
removal of charitable status as the ultimate sanction. Charities commonly rely on both
volunteers and paid employees, balancing operational costs and involving diverse stakeholders.
The dynamic between volunteers and employees can occasionally lead to conflicts.

8.8 Accounting Issues

Non-profit organizations (NFPs) face challenges with the mismatch of long-term project
expenditures and short-term fund sources. Fundraising adds complexity, as funds can be
earmarked for specific purposes, creating dedicated funds. However, this specificity poses
issues when there's a surplus after completing a particular project. NFPs also grapple with the
need for general administration funding, which may be less appealing to donors. Consequently,
their accounting focuses on maximizing direct expenditure for specific purposes rather than
indirect costs

8.9 CSR issues in NFPs

CSR is about how an organization conducts its operations and deals with its stakeholders. For
NFPs we can see that there is a different focus and we need to consider this in terms of CSR
implications.

8.9.1 Stakeholders

There are different stakeholders for a not for profit organization and the different stakeholder
groups have different amounts of power to a profit seeking organization. It is inevitable therefore
that dealing with these stakeholders will be a much more important function for a NFP.
Moreover the sources of conflict might be different and the actions taken in resolution of this
might also be different. Inevitably, the decision making process is likely to be different.

8.9.2 Sustainability

Sustainability takes on a unique significance in the context of non-profit organizations.

The traditional notion of sustainability involves doing more with fewer resources. However, for
NFPs the objective goes beyond mere efficiency. These organizations aim to affect the choices
available to future generations by redistributing resources more equitably. Contrary to seeking
continual existence, their goal is to solve societal issues so effectively that their mission
becomes unnecessary. Unlike for-profit businesses that seek ongoing profitability, non-profits
see sustainability as achieving their mission and making themselves obsolete in the long run.

8.9.3 Accountability

For non-profit organizations, accountability holds heightened significance, and the recipients of
this accountability differ substantially. Without traditional shareholders or customers, non-profits
are answerable to donors, beneficiaries, and a diverse set of stakeholders. Effectively managing
this accountability is crucial, especially considering its variations among different stakeholders.
Addressing these varied accountabilities becomes essential for the organization to sustain its
operations successfully.

8.9.4 Transparency

In non-profit organizations, being open about their activities is extremely important due to the
diverse interests of stakeholders. This becomes even more critical when handling funds
designated for specific purposes. However, there's a challenge: non-profits sometimes try to
label indirect costs as direct to make their administrative costs look lower. This goes against the
idea of complete transparency, but it's done to make the best use of resources while trying to
balance transparency with effective resource management.

8.9.5 Disclosure

Companies are sharing more information in their reports to be accountable and transparent to
their stakeholders. Non-profit organizations have always done this to get more funding and
satisfy their influential stakeholders. What's interesting is that businesses are now starting to act
more like non-profits by focusing on openness. This change shows a broader movement in
different sectors, highlighting the value of being transparent and responsive to the varied needs
of stakeholders.

Conclusion

To sum up, not-for-profit organizations face unique challenges related to sustainability and
accountability. These challenges include dealing with uncertain availability of resources,
involving stakeholders effectively, managing conflicting priorities, navigating legal complexities,
and handling ambiguity. To overcome these hurdles, these organizations must concentrate on
sustaining their mission for the long term and meeting the expectations of their diverse
stakeholders.