Accounting and Financial Reporting by a Late 18th Century American Charity

Abstract

Empirical research to date has neglected accounting and external financial reporting among 18th century American charitable institutions. Contemporary understanding of 18th century American practices is supported by evidence relating to commercial transactions primarily among colonial merchants. Our study examines the accounting and financial reporting of the Charleston Orphan House, the first municipal orphanage in America, from its inception in 1790 through its first five years of operations. The institution was established by city ordinance in 1790 which required the institution “to keep a book of fair and regular accounts of all receipts and expenditures which will be subject at all times to the inspection of the Commissioners.” The ordinance charged the orphanage's Committee on Accounts to “audit” its accounts. The City Council required the institution's board chairman to countersign the financial statements in 1792 before subjecting them to a second “audit.” The Orphan House employed a system of account books that recorded and facilitated the reporting of expenditures and sources of funds. Accounting and external reporting may have been legitimizing factors to overcome the “liability of newness” by promoting a sense of propriety and transparency among benefactors.“I visited the Orphan House at which there were one hundred and seven boys and girls. This appears to be a charitable organization and under good management.”[President George Washington, diary entry, Saturday, May 7, 1791]