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Pitcher Partners has warned that not-for-profits (NFPs) in Australia rely too heavily on government assistance, leaving them vulnerable to changes in government policy.
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NFPs too vulnerable to policy change, warns Pitcher Partners
13 March 2015
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According to the inaugural NFP Benchmark Survey, produced by Pitcher Partners and Russell Kennedy Lawyers, few if any not-for-profits have a self-sustaining replacement revenue source should government funding be reduced or withdrawn.
“The reliance on any single source of funding in the short-term highlights the need to have financial buffers against changes of government or policy as well as creating an operational base whose costs are as flexible as possible,” said Pitcher Partners Investment Advisory partner Sue Dahn, one of the report’s authors.
Ms Dahn said that more than half of respondents surveyed rely strongly on government funding and should broaden their sources of funding to commercial activities and develop alternate means of financing and social enterprise.
“They need to ensure that they can maintain solvency in the event of a change in policy or funding by setting aside monies for existing commitments and a fund for short-term operations, together with managing their cost base to be flexible enough to respond appropriately to changes in funding streams,” she said.
Russell Kennedy principal Michael Gorton said while the survey data indicates that most of the NFPs that responded are in good shape overall, there are a few worrying trends that “we will be keeping a close eye on over the next few years”, such as only half conducting significant strategic reviews of their constitutions.
“NFPs need to consider the management of various tax status benefits to ensure no compliance issues arise. Recent Australian Charities and Not-for-Profits Commission (ACNC) and ATO activity evidences a willingness to revoke the tax benefits of NFP entities when non-compliance occurs, which is a risk that most NFPs cannot afford to be exposed to,” Mr Gorton said.
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“The NFP Benchmark Survey is a significant step forward in data collection within the industry as it focuses on areas such as governance, strategy and operations, risk management and volunteers where regulators collect limited data.”
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