Financial accounting as a powerful tool to enhance NGOs' performance case study: Zoë-Life South Africa.

Abstract

Many non-governmental organisations (NGOs) in South Africa and elsewhere do not follow the International Financial Reporting Standards (IFRS) for Small and Medium-sized Entities (SMEs). There is thus no standardised process in their financial and accounting practices and preparations for financial statements cannot be compared across different NGOs. This has funding implications as organisations that do not comply with donors’ financial reporting requirements find it difficult to access financial support. However, it is not clear how the IFRS for SMEs can be used to enhance their performance. While many studies have been conducted on the use of the IFRSs among for-profit organisations, there is a paucity of such research in relation to the NGO sector. This study investigated the use of financial accounting in enhancing NGOs’ performance. Drawing on the literature in this field, a case study of a large NGO, Zoë-Life based in Durban, in KwaZulu-Natal, South Africa was conducted. The financial accounting system used by this organisation was examined in order to identify its strengths and weaknesses and offer recommendations for improvement. A qualitative approach was adopted and semi-structured interviews were conducted with 24 purposively selected respondents to capture their feelings, thoughts, and attitudes on the financial accounting system at Zoë-Life South Africa. Employees involved in accounting and finance, and projects/programmes and management were targeted. The data gathered by means of interviews were supplemented by a review of internal organisational documents. Thematic content and transcript analysis were employed to analyse the data. This study found that despite adopting accounting and financial policy and procedures, Zoë- Life finds it difficult to maximise its financial performance due to two major limitations, namely, failure to fully comply with IFRS for SMEs in South Africa, and a lack of financial support from the government. It is therefore recommended that Zoë-Life-South Africa employ qualified accountants and fully adopt the IFRS for SMEs. This would improve performance, authenticity, and accountability and ensure that the organisation complies with both donors and government’s requirements in order to secure sustained financing and promote the country’s development agenda. The study also recommends that Zoë-Life-South Africa procures the services of recognised audit firms in order to boost donor confidence. Finally, recommendations are made for further research.