Choosing an Accounting Method to Explain Public Policy: Social Return on Investment and UK Non-profit Sector Policy

Abstract

We examine why certain accounting methods are chosen by government policy-makers to explain and rationalize their policy actions. We focus on the case of social return on investment (SROI), an accounting methodology that aims to capture and quantify the value created by social purpose organizations, and employs techniques of monetization and the expression of value as a ratio of benefits for investments [see REDF. (2000). SROI methodology: Analyzing the value of social purpose enterprise within a social return on investment framework. San Francisco: REDF; New Economics Foundation (NEF). (2007). Measuring real value: A DIY guide to social return on investment]. In particular, we examine how and why SROI was chosen for explaining and rationalizing the UK Government's policy of greater involvement of non-profit sector organizations in public service delivery. Our central contribution is to propose two important factors, which we identify as the capturability and communicability of accounting methods, that help to explain why a particular accounting method would be chosen by policy actors to explain and rationalize their public policy choices. The research helps further our understanding of the intersection between accounting and public policy by focusing explicitly on accounting's important role in explaining and rationalizing public policy.

Acknowledgements

We thank the Editor, two anonymous reviewers, Al Bhimani, Rob Chenhall, Bob Scapens, participants at EGOS 2012, ENROAC Summer School 2014, BAFA Scottish Area Group conference 2014, IPA 2015, and seminar participants at Schulich Business School for their helpful comments and suggestions.

Notes

1 See, for example, the introduction of the Nonprofit Sector and Community Solutions Act of 2010 (www.govtrack.us/congress/bills/111/hr5533, accessed 11 June 2014) to Congress, and in Australia the Senate Standing Committee on Economics inquiry into the ‘Disclosure regimes for charities and not-for-profit organisations' (http://www.aph.gov.au/~/media/wopapub/senate/committee/economics_ctte/completed_inquiries/2008_10/charities_08/report/report_pdf.ashx, accessed 11 June 2014).

2 www.philanthropyuk.org/quarterly/articles/government-drives-effort-standardise-social-impact-reporting, accessed 29 May 2012.

3 Phil Hope, speech at the ‘Good Deals' Social Investment Conference, 6 May 2008 (http://webarchive.nationalarchives.gov.uk/+/http://www.cabinetoffice.gov.uk/about_the_cabinet_office/speeches/hope.aspx, accessed 29 May 2012).

4 As events transpired, the Labour Government of the time was alleviated of any further need to explain its non-profit sector policy as it was removed from office at the UK general election in 2010. The subsequent Conservative-Liberal Democrat Coalition Government included measures of ‘social return’ in the use of Social Impact Bonds, a key part of the Government's public policy related to investment and development of the third sector (see https://data.gov.uk/sib_knowledge_box/home, accessed 10 May 2016). In addition, the SROI Network (now Social Value UK http://socialvalueuk.org) continued to promote the use of SROI, including the release in 2012 of an updated version of the original 2009 Guide to SROI that was produced by the Cabinet Office during the time of the Labour government (see http://socialvalueuk.org/publications/publications/cat_view/29-the-guide-to-social-return-on-investment/223-the-guide-in-english-2012-edition, accessed 10 May 2016).

5 We opted for face-to-face interviews whenever possible. To note, the literature indicates that while telephone interviews do not reveal nonverbal cues and the immediate context (McCoyd & Kerson, 2006; Novick, 2008), the quality of data collected obtained using this method is similar to face-to-face interviews (Sturges & Hanrahan, 2004; Sweet, 2002).

6 This stems from three documents that were prepared/commissioned by the UK Government: ‘Building the Evidence’ (HM Treasury, 2007a, 2007b), a report by Hart and Haughton (2007) prepared for the Office of the Third Sector; and a third report by Nicholls (2007), also prepared for Office of the Third Sector. The three documents all refer to SROI, social accounting and LM3 as potential accounting methods that could be used by the UK Government to explain its non-profit sector policy. In addition, our interview with Mr K, the person in the Office of the Third Sector responsible for recommending an accounting method to the Government, also commented that SROI, social accounting and LM3 were the main contenders for use by the Government.

7 For further background on the SROI methodology and its development over time, see, for example, REDF's ‘SROI Collection’ (www.redf.org/learn-from-redf/publications/119, accessed 29 May 2012), NEF (2004a, 2004b), NEF (2007), Cabinet Office (2009) and Hall et al. (2015).

8 See www.neweconomics.org/publications/money-trail and www.lm3online.org/LM3_Online_Demo.pdf, accessed 29 May 2012.

9 www.lm3online.org/LM3_Online_Demo.pdf, accessed 29 May 2012.

10 Prove! Improve! Account! The New Guide to Social Accounting and Audit.

11 www.socialauditnetwork.org.uk/learn-more/case-studies/, accessed 29 May 2012.

12 For further background on social accounting, see Pearce (1996, 2001) and Gibbon and Dey (2011).

13 ‘Terms of Reference for the Review of the Future Role of the Third Sector in Social and Economic Regeneration’ (http://www.hm-treasury.gov.uk/d/crs07_charity_tor.pdf, accessed 29 May 2012).

14 See www.parliament.uk/business/committees/committees-archive/public-administration-select-committee/pasc0607pn10/, accessed 29 May 2012.

15 See www.publications.parliament.uk/pa/cm200708/cmselect/cmpubadm/112/112.pdf, accessed 29 May 2012. The Public Administration Select Committee inquiry schedule and press releases do not reveal any other inquiries directed at the non-profit sector over the period 2000–2009.

16 See www.futurebuilders-england.org.uk/index.php?id=35, accessed 29 May 2012.

17 As noted earlier, the two reports were Hart and Haughton (2007) and Nicholls (2007).

18 See www.esrc.ac.uk/_images/Society-Now-2_tcm8-3570.pdf, accessed 29 May 2012.

19 North Ayrshire Fab Pad Project Impact Arts Social Return on Investment Report, see http://www.thesroinetwork.org/publications/doc_details/10-impact-arts-sroi-report, accessed 29 May 2012.

20 As noted above, LM3 also produces a ratio as its output, and thus could exhibit the same beneficial communicative properties that we observed for SROI. However, unlike SROI, in the public policy context that we analyse, LM3 was not viewed as capable of capturing the value of non-profit sector activities. As such, the communicative advantages of LM3 were latent in our context.