Saturday, November 22, 2008

SE session 11: Social accounting and auditing

Today’s session was on an interesting topic called social accounting and auditing. Financial accounting and auditing are tried and tested methods for tracking and verifying the financial status of an organization and finding out if the financial goals are met are violated. Social accounting and auditing is a parallel concept developed on the lines of financial accounting and auditing in order to measure and verify the social goals of a social enterprise.

In case of a business enterprise, when a project is taken up, one sets a financial goal for the project. As the project progresses one tracks certain financial metrics of the project that will help assess the financial performance of the project when financial audit is done.

However a social enterprise has a double bottom line of financial profit and a social impact. So, when a project is taken up in a social enterprise, similar to having a standardized financial accounting procedure that can be used for enterprises catering to different sectors, one may have standard social accounting procedure that can be used be social enterprises irrespective of the sectors they are catering to.

In social accounting, one will set a social objective that complies to the mission of the enterprise, and plan activities that achieve the social objective, while upholding the values of the organization. For each activity planned, social metrics has to be measured that provides feedback about the social impact of the activities when a social audit is conducted. This is the basic idea behind social accounting and auditing. One difference between financial and social accounting is, for the former, quantitative metrics will suffice to accurately assess the financial performance of the enterprise. But for the latter, the both quantitative and qualitative measure has to be captured to assess the social impact.

Social accounting has three steps

  1. Getting ready: Social accounting is process that has to be assimilated as an inherent part of the social activity and is effective in giving a measure of social impact only in a long term (3 years). So, it is important for the members of the enterprise and stakeholders to understand the importance of the accounting. Steps have to be taken to get everyone’s approval to adopt social accounting as part of the enterprise’s initiatives.
  2. Social, Economic and environmental planning: We went through a case study of a social enterprise called Good Crafts that trains women from a Mumbai slum in employment related skills like making baskets, wall-hangings, soft-toys etc., and procures their products to sell it in overseas markets and shares the profit with the women. From the case study write-up we identified the
    1. mission statement of Good Crafts that addresses the purpose for which the organization is formed

Example: Good crafts aims to empower women and thus build sustainable and self-reliant communities in slums of Mumbai.

    1. the values it has to uphold in the organization as it strives to achieve its mission

Example: Being non-discriminatory to the beneficiaries (slum women), etc

    1. Objectives that are aligned towards the mission statement and the activities that achieve the objectives

Example: To empower women through training and creating of employment by

a) Providing relevant skill training

b) Encouraging and supporting self-employment

c) Providing crèche facilities for the working women’s children

    1. Metrics that measure the effectiveness of the activities

a)      Number of courses provided (quantitative)

b)      Number of self-employed women (quantitative) and how satisfactory to the women is the quality of support provided (qualitative)

c)      Number women whose kids are enrolled in the crèche.

During the exercise we learnt that

-         the mission statement should be specific, clear and should remain the same through the completion of the project

-         each activity taken up must  be tied to a specific objective. This is because; the metric that we measure should provide us feedback about the efficacy of the activity in achieving the objective.

  1. Social Economic and environmental implementation: This amounts to ensuring that relevant metrics are measured and qualitative data collected during the activity. Standard ways of collecting qualitative metrics are focus group discussions, questionnaires, surveys, and analyzing the minutes-of-meetings and status reports
  2. Social, Economic and environmental auditing: Once the data is collected, a social auditor may audit the accounted metrics to analyze the social, economic and environmental impact that the social enterprise has caused and provide feedback on how much the objectives are achieved.  Based on the inputs the implementation strategy may be modified for the better. Then the social audit may be repeated the next cycle to measure the efficacy of the modified strategy. So, the minimum recommended period for the audit is two years.


1.      It’s a standard auditing based on a proven model. It can be applied to all sorts of social enterprise, irrespective of their area of interest

2.      Scalable: Can be applied to a whole organization or just one program of the organization

3.      It is a process. It can accommodate other tools of measurement like “Social return on Investment” within itself to make social auditing complete.

4.      Can  be used as a strategic tool; can sell the results of the audit to stakeholders and to generate more support (money or the like)


  1. Need to allocate time, finances and resources
  2. Inaccuracy of surveys or scanty response to questionnaires
  3. Long term project, needs change in business model to accommodate the process

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