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Accountability - A Study of Irish Credit Unions
Oak Tree Press, Oct 2001, Pages: 119
An overview of accountability and credit unions
Credit unions are member-owned, voluntary, self-help democratic institutions that provide financial services to their members. Over the last decade they have achieved remarkable growth levels and, currently, there are over 600 such organisations in Ireland. As member-owned, not-for-profit organisations (NFPOs), they are value-driven. Traditionally they have been seen as serving the financial services needs of disadvantaged communities and individuals, many of whom have been abandoned by mainstream banking, although as the movement has developed credit unions have increasingly appealed to the professional classes.
Given the social consciousness of credit unions, an obvious question relates to their accountability, particularly to members. Accountability has been defined as ‘being obliged to explain one’s actions, to justify what has been done’ (GASB, 1987, p. 21). Discussions of this concept in the context of NFPOs have been commonplace in the last decade (Likierman and Creasey, 1985). This is an important issue for credit unions as they are currently constituted, and is becoming of greater importance as they are provided with greater freedom to expand the provision of financial services. Research in other NFPO sectors (for example, charities) has indicated that the discharge of accountability is weak, focusing as it does on the audited financial accounts at the expense of wider information, and this has significant potential adverse consequences (Connolly and Hyndman, 2000). No similar research relating to the accountability of credit unions has been undertaken to date.
The research project
The main objectives of this research project are:
- To review the development of the credit union movement in Ireland
- To review the importance of the accountability of credit unions, particularly to their members, and to identify principles of good practice in reporting
- To conduct a critical analysis of recent annual reports of credit unions, from both a financial-accountability perspective and from a wider social-performance perspective
- To identify the perceptions of key stakeholders (‘Managers’ and ‘Regulators’) with respect to the discharge of accountability by credit unions.
Chapter 2 focuses on the first objective. It is argued that the development of credit unions in Ireland (both in the Republic of Ireland (RoI) and Northern Ireland (NI)) is ‘historically specific’ and these differing historical influences are considered. This chapter also details the present structural characteristics of the credit union sector in Ireland and the legislative frameworks in each jurisdiction. Chapter 3 discusses the meaning of accountability and the way in which accountability can be discharged through the medium of the annual report. Financial accountability is contrasted with performance accountability, and the importance of providing both financial information and wider social information, including performance information, is explored.
Chapters 4 and 5 deal largely with the third objective. These chapters contain an explanation of the methodology used to identify the current state of credit union reporting via the medium of the annual report with respect to both financial statement information and ‘other information’. The results from these aspects of the research are presented and discussed. To explore further these issues, Chapter 6 presents an analysis of interviews with ‘Managers’ and ‘Regulators’, who are identified as key stakeholders. Overall, the research report provides detailed evidence of the way accountability is discharged by Irish credit unions.
The report is structured as follows:
- Chapter 2 outlines the historical development of the credit union movement in Europe and the manner in which it transferred to Ireland. The distinctive historical features in both the RoI and NI are addressed, and the current legislative frameworks are presented, along with the asset structure, liability structure and key financial ratios of the sector. Following Ferguson and McKillop’s (1997) typology, it is argued that the credit union movement in Ireland is in the ‘transition’ stage of development and this may have ramifications for accountability.
- Chapter 3 reviews the concept of accountability in the context of NFPOs. Stewart’s (1984) ‘ladder of accountability’ is presented, and financial accountability is contrasted with performance accountability. It is argued that inadequate accountability can give rise to significant adverse consequences, and it is suggested that well-structured annual reports can provide a valuable medium through which accountability is discharged to members of credit unions. Suggestions as to appropriate information disclosures are detailed by reference to other NFPO research.
- Chapter 4 outlines the methodology used in the empirical analysis to assess the quality of the financial statements of credit unions. Results from an analysis of 178 annual reports are presented and discussed.
- Chapter 5 outlines the methodology used in the empirical analysis to identify the information, other than financial statements, included in the annual reports of Irish credit unions. Results, using the same data set as in Chapter 4, are presented, followed by an analysis and discussion of their significance.
- Chapter 6 presents the results of a series of interviews with key stakeholders in the credit union movement. The views of ‘Managers’ and ‘Regulators’ were sought to provide additional insights into some of the empirical findings identified in Chapters 4 and 5. Their views were also canvassed regarding broader issues of accountability identified in Chapter 4. Overall, this part of the research provides a more in-depth understanding of the accountability of credit unions.
- Chapter 7 details the main conclusions of the research.
About the Authors
Noel Hyndman is Professor of Management Accounting at the University of Ulster, having previously worked at the Queen’s University of Belfast and the University of Ottawa in Canada. A fellow of the Chartered Institute of Management Accountants, he was awarded a PhD by the Queen’s University of Belfast for his research in accounting for not-for-profit organisations. He has published widely in the area of public sector and not-for-profit accounting.
Donal McKillop is Professor of Financial Services at the Queen’s University of Belfast. He has undergraduate and postgraduate degrees from the University of Ulster at Coleraine. His teaching specialism is derivative markets and instruments. With respect to credit unions, he has published a book entitled The Strategic Development of Credit Unions (1997) and numerous research papers on US and UK credit unions.
Charles Ferguson is currently Senior Lecturer in Business Organisation at the University of Ulster at Coleraine, following posts at the University of Lincoln and Humberside as Lecturer in Human Resources Management, and in the Northern Ireland Civil Service. His key research interest is in the area of mutual financial institutions and he has published widely in the field.
Tony Wall is currently Lecturer in Accounting at the University of Ulster at Jordanstown, where he graduated. He entered academic life in a research capacity following a career in public administration and the financial services sector. He has a particular interest in financial accounting in the public sector, and has published in this area.
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