Exploring the challenges facing Australia’s not-for-profits

In July, the Centre for Social Impact (CSI), Pricewaterhouse Coopers and the Fundraising Institute Australia released a comprehensive survey on the impact of the economic downturn on not-for-profit organisations (NFPs).

The Managing in a Downturn survey, conducted between April and May this year, assessed the impact of the economic downturn on NFP income and expenditure, as well as management actions that have been implemented, or are being planned, in response to the downturn.

A total of 263 NFPs responded to the survey – a reliable sample reflecting the size and diversity of the sector.

Richard Lambell:
What are the key findings from Managing in a Downturn?

Peter Shergold: The key finding is that the economic downturn is biting into our NFP sector – not in a catastrophic way but in a significant way. Almost two-thirds of the organisations surveyed have seen their income fall over the past 6 months and one-third of organisations have seen a reduction in their income of 10 percent or more.

Investment income and corporate fundraising have been particularly hard hit, but thankfully government sources of revenue – accounting for 45 per cent of total income of those organisations surveyed – remain a stable source of income for many NFPs.

Despite signs that the downturn may not be as bad as first thought, two-thirds of respondents expect their total income to continue to decrease over the next 12 months.

Are there particular types of NFPs that have been impacted more than others?

The thing that stands out is size. On virtually every question in the survey the larger NFPs, those with incomes of more than $10 million per year, are doing significantly better and are more optimistic about the future than the smaller organisations, which are far more dependent on recurrent funding.

Larger organisations have more established networks, partnerships with the private sector and reserves they can draw on. This gives them much greater capacity to manage their way through the downturn.

There are a very large number of smaller NFPs that are doing it particularly tough. The survey suggests that 7 per cent of respondents are seriously looking at the option of merging and 39 per cent are looking at other forms of collaboration.

What are some key actions NFPs are taking in response to the downturn?

As you would expect, like other businesses, NFPs are having a hard look at their expenditures. A significant proportion of organisations are halting further recruitment of staff or reducing the numbers of staff, postponing new investment in IT and building maintenance, and reducing expenditure on consultants.

Some charities are also looking at reducing the range of services that they deliver or, where it is possible, charging more for the services they offer. Now that is serious step to take for organisations with a social mission.

Almost three-quarters of respondents are planning to increase fundraising, with a particular focus on growing government income. Given the relative stability of government funding, and recent stimulus packages, this is a logical step for many NFPs. The danger is that government grants and contracts have strings attached.

How have Australian NFPs been impacted in comparison to their UK and US counterparts?

It does seem that the downturn in Australia is biting less in terms of unemployment and social hardship than in the UK and US. And that is obviously of benefit to the NFP sector in this country.

Nevertheless, we need to understand that the cold winds of social distress continue to blow across the green shoots of recovery.

Recent research by the National Council for Voluntary Organisation’s (NCVO), the UK’s peak association for NFPs, paints a bleak picture for the sector in the UK. In its April quarterly survey of NFPs, the NCVO found that 88 per cent of charity leaders are pessimistic about the economic conditions facing the sector over the next 12 months.

Over the last decade, income to the Australian NFP sector has been rising at an average of about 10 per cent a year. Many organisations have accumulated some savings as reserves, which has allowed them to improve the quality of their management.

What do you see as some of the long-term opportunities or positives that could come out of the downturn for Australian NFPs?

While two-thirds of NFPs believe their income will fall in the next 12 months, half of the organisations surveyed themselves think there are positives and opportunities emerging from this crisis through improving the standard and quality of their management. For example, through a greater focus on strategic planning and management, more transparent financial reporting and increased board and trustee involvement.

My view is that this economic downturn will also probably accelerate new forms of collaboration and that could be one of the benefits that come out of these challenging times. For instance, the sharing of back-office administration by larger organisations with smaller organisations may be one simple way for NFPs to reduce overheads. New forms of community-business partnership may also emerge.

The forthcoming Productivity Commission study aims to assess the contribution and effectiveness of the NFP sector in Australia. What do you see as some of the long-term challenges facing NFPs in this country?

As NFP organisations have become more dependent on government funding, particularly during the economic downturn, the issues of regulation become particularly important – oversight of government contracts and regulation of the sector generally

I think there is a significant dead-weight cost being imposed on the NFP sector at the moment by the extent and diversity of government regulation. And I hope that the Productivity Commission will have that first and foremost in its mind when it looks at the issues of the NFP sector. This includes how organisations are registered, how they are accredited and the need for simple but clear accountability and reporting.

I think anything that can be done both to improve the transparency of the sector and at the same time to reduce the compliance and regulatory burden would be of enormous benefit for social ventures in Australia.

Another challenge we have is measuring the performance of the NFP sector. I think it is important that we recognise that many of the organisations we used to call NFPs are now in part, or wholly, social enterprises. The money invested in these organisations is increasingly seen not as philanthropic donations but an investment in their social or environmental mission. The challenge we have is measuring the social returns of that investment.

There are organisations looking at how we develop these metrics and it is one of the issues at the very forefront of the work engaging the CSI.

The other challenge the sector faces is that there are few opportunities for community development investment on a large scale. While NFPs have done much better in creating commercial enterprises and generating surplus which can be invested back into their social mission, it has been very difficult to build up capital and scale-up their activities. NFPs have great difficulty accessing low-interest loans. While here are a few mutual associations and credit unions that provide access to low-interest capital for NFPs, it remains a very underdeveloped market in Australia.

And when you look at the survey it is clear that those organisations that have reserves, that have assets, that have collateral, are much better placed to manage their way through the downturn and, probably, are better placed to scale-up their activities.