Top 10 tips for nonprofit annual reports

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A social profit’s annual report is one of the most important documents that it creates. Making the most of it is critical since it’s a chance to inform your key stakeholders.

In January, I wrote a post on the 10 best practices for annual reports. While it received some attention and a decent number of views at the time, it is over the past few months when it became consistently one of my most read posts.

That post was based upon a report by the Queen’s Centre of Governance and the Chartered Accountants of Ontario about their joint Voluntary Sector Reporting Awards. These organizations issued a 2012 edition of the Best Practices in Charity Annual Reporting. Since my last post continues to be widely read, I thought that I should take a look at their 2012 edition.

As I did last time, I will list each of the top ten tips recommended by the judges of the Voluntary Sector Reporting Awards. I will then comment on them from the perspective of a communications professional. My focus is to cover new ground and not repeat my comments in the last post.

1. Provide a strong introduction

The report suggests six questions that your introduction should answer. I agree that two must be answered upfront: “What is the vision/mission/purpose of the organization?” and “What were some of the financial and non-financial highlights during the year?”

I wouldn’t suggest that all the questions need to be answered and I wouldn’t put them in a section called “Introduction.” I’d highlight your mission, vision and values in their own section and then address the type of information answered by the questions in the message(s) from your board president and executive director.

2. Provide accurate & transparent financial information in the annual report

I agree that the financial information in the annual report must agree with your audited financial information. Apparently, that is not always the case. I would not go as far as including the full set of audited financial statements including the auditor’s report. I prefer their alternative to include summarized financial statements with a separate audit opinion. Personally though, I’d still recommend putting the audited financials with the auditor’s report online and making sure people know that. You could also include a link (especially if you will have an online version of the print report) or a QR code (if a sizable number of your readers will see a print copy).

3. State performance objectives

The report states, “Most annual reports that were reviewed did not explicitly state the organization’s financial and non-financial performance objectives and targets.” One suggestion is to provide your budget since it is a key planning tool. I don’t believe that I have ever seen a budget in an annual report and I’m not sure that they belong in one. On the other hand if we are moving towards more transparent organizations such as Beth Kanter recommends, I can see value in making your budget public. I still would not include it in your annual report though you may want to put it online and make a reference to where readers can find it.

I do see the value in including objectives and targets especially non-financial ones. A chart that shows projects, objectives and results is one way this could be done.

4. Disclose the risks, issues and challenges

“Organizations must do a much better job identifying, assessing, monitoring and informing the reader of key risks, issues and challenges.” states the report. Risk management is becoming a more common part of how charities operate. A transparent organization will want to find ways to address this type of information in its annual report. How you might do so I think depends upon how your organization handles these issues.

The report makes some very specific recommendations such as to identify how your organization identifies and manages risk. I suggest that doing so almost certainly ensures your report will suffer from information overload. I’m not suggesting this information isn’t useful but it is likely better in a document developed for a smaller, targeted audience that is also available online.

5. Disclose the Governance Structure

According to the report, “The organizational and governance structure must be provided in the annual report. The reader must be provided with enough information to understand how decisions are made.” While I concur that this information is important to outside decision-makers, I disagree that the Annual Report is the best place for this level of transparency. An organizational chart and board subcommittees are examples given that I believe are better suited to your website. If you want to cover this in your annual report, you might include a short description some where that describes your governance philosophy such as “We are governed by a policy board.”

6. Provide transparent fundraising information

Here the judges have put their finger on a thorny issue since there is a strong school of thought that criticizes high fundraising costs. The judges believe that greater transparency helps to mitigate (there’s a word not used by your average donor) any negative reaction. Maybe but I don’t believe we’re there yet. There are many good reasons why fundraising costs may be high such as start up costs. I believe we also want to ensure the social profit sector is not risk adverse. We must be innovative and that means being willing to take risks that could cost funds in an effort to try something new and different to better achieve our missions and visions.

The answer lies in being transparent and letting supporters and donors know what we are doing and why. Education across the sector can help build awareness of what needs to happen and why. I see the annual report as a part of the educational awareness effort but I don’t think it is the best tool to lead this change.

7. Include discussion and analysis of the organization’s results

Borrowed from the practice of the for-profit sector, a discussion and analysis section is meant to help readers “understand the significant changes and trends, as well as risks and uncertainties related to the results of operations.” A report for your organization’s leadership may touch upon these elements but often from a good news perspective. The judges want a more comprehensive analysis. Again, I don’t see this level of depth as being appropriate to a charity’s annual report. Sure give an overview but save the comprehensive detail for another vehicle such as your website.

8. Leverage reusable content online

Here’s a recommendation from the judges that I back 100% because as they say, “It is evident that many not-for-profits find the task of creating annual reports onerous. They recommend making the process easier by placing information online and cross-referencing. I just wish this had been the first recommendation and that the report had been written through the lens of this approach.

I also really like the recommendation that you should have 3 years of annual reports online AND that they should be in an easy to access section that can be reach with three clicks or less from your homepage.

9. Identify your audience

“The primary audience is an explicit choice that needs to be carefully made and adhered to by all contributors to the report to ensure consistency of language and presentation throught the report.” Yes! And always for all of your communications materials.

10. Determine your communication strategy

Key tips recommended are;

  • Have a point person responsible for the entire annual report
  • Communicate no more than three messages
  • Avoid too much information or lack of content

In short, this recommendation echoes much of what I frequently say. It is important to have a strategy that helps you determine what you are doing and why and how all the pieces fit together. Taking this time up front makes the success of your annual report much more likely–just as having an overall communications strategy helps your overall communications efforts. I’d even extend this point to consider how you can make the most of annual report by planning how you can reach additional, larger audiences than sticking to traditional distribution options.

The value of these recommendations

These recommendations are useful. I find it important to note though that they come from governance experts and accountants. I wish that they included expertise from professional communicators and also best practices as identified by NTEN, the IABC or professional fundraising organizations. Still these tips are worth considering as you develop a strategy for your next annual report.

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