Not-for-profits are feeling the big squeeze

Not-for-profits are feeling the big squeeze | Illustration: Carolyn Ridsdale

No charity wants to cut its services, so NFPs are finding innovative ways to keep programs in spite of shrinking incomes.

Just one week before Christmas last year, an official from the St Vincent de Paul Society lamented on ABC television that the charity’s annual Christmas Appeal was only halfway to meeting its target, while at the same time calls for help had risen substantially. They were far from alone.

The not-for-profit sector has been struggling to do more with less – or at best remain static. Public donations have fallen at the same time as governments have cut spending and costs associated with regulation and compliance have grown. These are the latest findings from consulting and accounting firm Grant Thornton’s annual survey of not-for-profits (NFPs) in Australia and New Zealand.

At the same time, charities in the UK have shed jobs at double the rate of the public sector and, in the US, some NFP leaders have argued for a bailout for the sector and help with strengthening their fundraising skills, according to The International Journal of Not-for-Profit Law. 

One of the more alarming results of the Grant Thornton report is that 40 per cent of Australian and New Zealand organisations surveyed said their financial situation was so precarious it meant they couldn’t plan beyond the next six months – a scenario especially acute for smaller NFPs. 

It’s taxpayers’ dollars and we have a great responsibility to ensure that our organisations are as sustainable as any.

Oxfam Australia

Helen Szoke of Oxfam Australia applauds as children at Ndabezitha Day Care in South Africa sing 'Happy Birthday' to Oxfam | Photo: Xavier Vahed/OxfamAus

Helen Szoke of Oxfam Australia applauds as children at Ndabezitha

Day Care in South Africa sing 'Happy Birthday' to Oxfam

Photo: Xavier Vahed/OxfamAus

Oxfam Australia is emerging from a period of restructuring that has included making savings of A$2.7 million in operational costs and reducing its international program support costs by A$2.1 million. The charity has been mainly scaling back management costs rather than its programs, which span the Pacific from relieving hunger in Timor Leste to providing assistance to survivors of the typhoon that ripped through the Philippines last November.

Helen Szoke of Oxfam Australia applauds as children at Ndabezitha Day Care in South Africa sing 'Happy Birthday' to Oxfam | Photo: Xavier Vahed/Oxfamaus
Helen Szoke of Oxfam Australia applauds as children at Ndabezitha Day Care in South Africa sing
'Happy Birthday' to Oxfam | Photo: Xavier Vahed/OxfamAus
In her first year as CEO, Helen Szoke is steering the organisation out of choppy waters.

“We had been dipping into our reserves and hadn’t managed our costs at the same time that revenue was dropping,” she says.

Hard choices were made about which programs to scale back along with staff losses and some shop closures. Investment in fundraising dropped and improvements were made in Oxfam’s foreign currency exchange management.

A similarly bitter pill was swallowed at Oxfam UK, where 125 job losses and the closure of regional offices were announced after a drop of more than £17 million in donations in 2012. The charity admitted it was “spread too thin” and said it would be focusing its efforts on the world’s poorer countries in the future.

Oxfam Australia receives the majority of its income from public donation (62 per cent) with 33 per cent from government grants. But with AusAid budget cuts and Australians spending more cautiously, Szoke says there now has to be a shift towards increasing fundraising investment “to ensure we have a long-term, sustainable funding source for our programs”.

Building partnerships with the corporate sector where there are shared objectives is something Oxfam already does, but this has to increase says Szoke.

“We have strong pro bono support facilitating corporate staff to volunteer and fundraise and we run campaigns such as Behind The Brand to change the behaviour of corporations, but the third way is partnering more directly on the ground. It might be that in Cambodia, in our work around water and sanitation, a private company could help us with that program as well as promote and distribute their goods.”

Generating new income is one of the key challenges identified by NFPs, according to a 2012 survey by Deloitte. Their ability to do this rests largely on having skilled management in place – an issue that Oxfam has been tackling since 2012 with a slimmed-down executive team and greater emphasis on professional development. Senior management completed a program encouraging a more strategic, proactive focus rather than being task-oriented and reactionary, which led to a 13 per cent improvement in effective leadership.

As demand for talent increases and forecasts of skills shortages prevail among NFPs, Oxfam is in an enviable position, insists Szoke, in that “everyone wants to work here and we are in a strong position in attracting talent, despite our salaries in no way being comparable to the private sector”. 

Relationships Australia

For NFPs that rely heavily on federal and state funds, such as Relationships Australia (RA), a change of government is particularly unsettling. The federated organisation, independently incorporated in each state and territory, is collectively funded to the tune of A$125 million annually, financing a core program in marriage and relationship counselling and mediation.

Mat Rowell, chair of RA’s national board, has been working in the sector for 15 years and says the competition for funding is greater now than it has ever been.

“Added to which, government contracts are indexed at a low level that doesn’t keep pace with wage or utility inflation, resulting in a real reduction in income for the organisation.”

An upside, says Rowell, is that it has forced the sector to become more innovative.

“We’re moving into new areas of business and large NFPs such as ours all have revenue diversity strategies. In Tasmania, for example, we have 40 contracts with companies such as BHP, where we provide training, counselling and mediation. It makes us less reliant on government funds and we can use the money to invest in IT, communications or infrastructure – as government grants aren’t very friendly towards assets.”

RA’s corporate partnership officer identifies opportunities to work with private companies – recently winning a bid to run Neighbour Day [an initiative to promote friendship and neighbourliness in Australian communities] from its founder, Andrew Heslop. Previous partnerships have included credit union CUA to produce the annual National Relationships Indicator survey.

Rowell acknowledges that NFPs must adapt or die. Deloitte’s report detected a trend among NFPs “moving away from high-cost and/or labour intensive methods of fundraising to deploying electronic communications and effective database management to deliver their fundraising activities”.

Demand for RA’s services exceed supply with more than 120,000 clients attending 150 RA sites every year. Investing in the development of online service delivery is high on RA’s agenda, so clients all over the country can access services that may include video counselling and the use of smart device applications.

“Keeping up with IT systems as they evolve is key to ensuring our services are current, accessible and efficiently run,” says Rowell. “NFPs have to become more like private companies. It’s taxpayers’ dollars and we have a great responsibility to ensure that our organisations are as sustainable as any for-profit organisation because if we don’t, we won’t survive.”

"A deeper understanding must be created within the corporate sector on the links between delivery of aid and stimulating economic development."

Live and Learn Environmental Education

A small NFP with large-scale ambitions, Live and Learn Environmental Education promotes environmental, action-based education in the Asia-Pacific region. Surviving on an annual budget of around A$5 million entails knowing where to focus and having a crystal-clear business strategy says Christian Nielsen, its executive director.

“A lot of time and energy goes into mobilising resources and if you are not successful, it’s a cost that you have to cover. Small and large grants are equally time-consuming [to apply for] so we try to focus on the larger grants. Also, we are currently not spreading ourselves over such a large area geographically, scaling back activities in some countries that are going up the ladder developmentally.”

Live and Learn has a business model that is very decentralised, explains Nielsen. “It’s a flat structure across the region – we maintain very low administration and organisational costs so that we can put most of the money on the ground.” When forced to cut back, reluctantly they reduce staff at the small Melbourne head office.

“What’s concerning is a shift across the world where countries such as Canada, the US and Australia are becoming reluctant to give unless they receive some benefit in return. It’s a new landscape and we must plan how we are going to position ourselves in relation to that” says Nielsen.

One way, he believes, is to develop thematic investment opportunities, such as working to empower and educate women who then boost the economic ability of a country to do business. “We don’t want to build up our empire, we want to build our capacity to respond to need so that we become relevant and effective on the ground in delivering services and building local capacity.”

The world of regulation can also be uncertain. In Australia, for example, the government has announced it’s seeking to abolish the charity regulator, the Australian Charities and Not-for-profits Commission, so the future of charity regulation is unclear.

Live and Learn, however, has become adept in negotiating government compliance and reporting requirements, which can be both complex and costly.

“It’s a concern for all NFPs but there’s no shying away from it. The EU is a classic; we’ve been working with them for 20 years and have invested to ensure we understand and comply with EU requirements in implementing programs and acquitting funding. A lot of organisations have walked away because they are very strict but instead of trying to change their demands, we find a smart way of working with the system and it pays off.” 

What can for-profits learn from NFPs?

“One of the amazing things in the NFP sector and certainly at Oxfam is you have a combination of staff with strong values who operate in an energetic way and are very focused on outcomes. It’s hard to replicate that in many private sector companies. It’s the reason corporate responsibility programs began and why corporations want to connect with us.” Helen Szoke, Oxfam Australia

“A deeper understanding must be created within the corporate sector on the links between delivery of aid and stimulating economic development. Aid enables economic growth and is good for business. In the UK, Prime Minister David Cameron has said there will be no cuts in development aid. It’s clever because he is creating business opportunities in places like Cambodia and parts of Africa where the UK is the preferred trading partner. Corporates … [should] focus on the enabling factors that impact on the bottom line. No country is going to have economic growth if their population has no access to sanitation and water or if there is oppression of women, for example. In Chad and South Africa, even though there is still terrible violence, economic growth has improved because of improvements in education and housing. There are now real prospects. Giving is not only the right thing to do but it is also good for business.” Christian Nielsen, Live and Learn Environmental Education

“Working culture makes a huge difference to productivity. By reputation, people see Relationships Australia as committed to high levels of staff development and training and supervision – which in counselling is very important. There are strong lines of communication with regular staff consultation processes and annual get-togethers. It’s something we do very well.” Mat Rowell, Relationships Australia 

The Fred Hollows Foundation: Getting growth right

One NFP not stressing over where the next dollar is coming from is The Fred Hollows Foundation. Next year, the charity that works towards the eradication of blindness worldwide, estimates it will have A$72 million at its disposal. When you ask its CEO, Brian Doolan, what the charity’s biggest challenge is in the years ahead, he replies “growth”. 

Some of the 1242 patients who recently had sight restored in Myanmar by Dr Sanduk Ruit of The Fred Hollows Foundation | Photo: Michael Amendolia

Some of the 1242 patients who recently had sight restored in

Myanmar by Dr Sanduk Ruit of The Fred Hollows Foundation

Photo: Michael Amendolia

Hollows already has operational offices in 20 countries but its new initiative, the Global Partnership Program, will see it team with other organisations whose aims coincide with its own. Recently, Hollows signed an agreement with the International Diabetes Foundation. Diabetes, if left untreated, can cause blindness, and it affects 382 million people. That figure is projected to rise to 592 million.

“We need to build the capacity to provide eye operations for those suffering from diabetes. We will work with the Diabetes Foundation to invest in technology so that local, semi-trained people can detect the development of diabetic retinopathy,” says Doolan.

Knowing what your product is, and focusing on that, is a priority says Doolan. “Then distilling the complexity of what we’re doing into a simple message: ‘Fred Hollows, for $25 we can restore sight’. And that’s the same message we have used over nine years.”

Doolan insists the business of running a development organisation is the same as running a for-profit. “The metrics are important, so we count the people who are operated on, the number who are trained. It’s essential that we get our IT base right and our finance systems are sharp and transparent and that we ensure value for money.”

The enduring personality of Fred Hollows himself works in the charity’s favour, admits Doolan.

“He’s what Australians like to believe is part of their national character, not just a surgeon, a social activist against poverty and racism, the larrikin. It’s all about Fred and his story.” 

Access the following CPA Library items online at the Not for profit: fundraising Information guide: 

  • New business structure could improve not-for- profits, by M T Furick, Journal of Global Business Management, 2013
  • Not-for-profit governance, by K Tysiac, Journal of Accountancy, 2013 

Contact CPA Library on 1300 737 373 or email cpalibrary@cpaaustralia.com.au