The Role of Financial and Accounting Reporting

In spite of their general altruistic motivations, social enterprises have been predominantly governed by the prevailing managerial ethos that requires monitoring of activities with a careful eye on controlling costs to ensure that expenditure is kept within the budget (Bagnoli & Megali, 2011). By demonstrating a financial profit, there is the obvious indicator of successful engagement with the market resulting in the attendant rewards of income generation and profits (Parenson, 2011). But the important distinction between social enterprises and traditional businesses, is the ability of social enterprises to demonstrate that their operations are not only financially sound, but also achieves the social aims set out in mission statements. Accordingly, social entrepreneurs prioritize the notion of social value and welfare creation which is the goal for the business beyond the economic value that is achieved. Nevertheless, it is generally accepted that the pretext for achieving social value is on the basis that the enterprise is income earning, self-sufficient and selfsustaining (Hadad & Gauca, 2014). This duality of income generation and social welfare outcomes represents a hybrid value chain business model that is similar to a public sector commitment to the common good, and private sector principles of efficiency and financial stewardship. Therefore for most social enterprises, questions of efficiency and profitability are usually answered by instituting a financial accounting system to ensure internal control of costs, and also to provide accountability to funders and to meet standards of national and international legal funding compliance (Bagnoli & Megali, 2011). But performance management is generally not reducible to the establishment of a financial accounting reporting system. The measurement of the performance of social enterprises also usually includes some notion of social accounting that provides a quantitative and qualitative summary of the beneficial social outcomes and impacts on the wider community (Hadad & Gauca, 2014).

Essentially, the rationale for performance management is to clearly demonstrate that the proposed interventions and actions of the social enterprise have some alignment with associated outcomes, and furthermore have been effective in the amelioration of the problem that was initially targeted. So the evaluation process is rooted in the fundamental principle of the logic model or logical framework that demonstrates how the resources that provide the Inputs relate to the Activities undertaken, that leads to direct Outputs, resulting in the Outcomes that have an extended Impact on the community (Hadad & Gauca, 2014; Liket et al., 2014). But performance management may become hazardous in accurately measuring the results at the level of outcomes and impacts. Hall and Arvidson (2014:143) point out that it is relatively straightforward to identify and monitor the inputs and outputs defined as hard indicators which are tangible. But the outcomes and impacts or soft indicators of a project are intangible and therefore more difficult to capture and measure. Soft indicators such as skills and competencies; dignity and self-worth; community pride and cohesion may emerge as unintended results from a project, that are oftentimes not measured and hence not valued. In such cases, positivist methods such as RCTs may not be effective in identifying the unintended impacts.

Another major challenge for the implementation of performance measurement is to demonstrate the validity of the process in ensuring that the data collected do in fact relate to and measure the indicators or constructs relating to outcomes and impacts. This involves some consideration of data selection and design so that they are clearly aligned with the outcomes and impacts of the project. White (2009: 274) advocates a theory based impact evaluation (TBIE) approach that maps out the casual link between inputs and outputs within an overarching program theory that indicates how the proposed change may be only attributable to the intervention. White (2009:276) also contends however, that TBIE in evaluation is dynamic, involving an iterative process of continuous testing of the assumptions of the causal links between inputs and outputs of the programme represented in the logical framework (log frame) plan.