The annual report 2020 Not-for-Profit Governance and Performance Study: The COVID-19 Edition, produced by the Australian Institute of Company Directors, highlights how Australian NFPs have begun to steer a course through the financial fallout of the pandemic.
Proclaimed as the world’s largest study on NFP governance, the report offers valuable insights into organisational management during the global pandemic plus the particular issues faced by Australia’s NFP and charity sector.
Providing a snapshot of business as usual during 2019, followed by the early months of the pandemic, the report was compiled from surveys and focus groups in July 2020.
It reveals local NFP reactions to the onset of COVID-19. Key findings include:
- The onset of COVID-19 brought “immediate change” – 77 per cent reported their organisation “significantly changed the way it operates”.
- 87 per cent of directors stated “they are worried about the Australian economy and there is also a high degree of uncertainty about the future”.
- Respondents expecting to make a profit dropped to 48 per cent this financial year – more than half (51%) “expected to make a loss, break even or come close”.
At the point of the survey (July 2020) there had not been mass wind-ups but some NFPs had to place their organisation into hibernation or get by with “vastly reduced services”.
A substantial drop in donations and philanthropy revenue – a 37% decrease in philanthropic funding and a 34% decrease in own-source funding – had “significant impacts” on NFPs that rely on these revenue sources. Those largely funded by government sources were “far less impacted”.
Across the different types of NFPs, sporting clubs were one of the more heavily impacted as they had to temporarily cease games. Despite being lean, volunteer-run organisations, the clubs had outgoing costs that continued while sporting activities were on hold. The study found, “These ongoing expenses, coupled with the loss in revenue, caused 93 per cent of all clubs to lose money.”
The report notes that “timing of the crisis, location and, in some cases, luck have all played a role in the severity of the financial impact on NFPs”. For example, “If major events took place prior to COVID-19, or after the first lockdown, then those organisations were in a much better financial position than those NFPs whose major fundraising events have been cancelled.”
There are also definite signs of resilience across the sector. The report records some positivity, “When asked to rate the effectiveness of their organisation in achieving its stated purpose, sentiment was higher (94 per cent) than in previous years.”
Cash reserves came into play, with 46% of organisations able to access them but likely to use more cash reserves than planned.
At the point of the survey a third of respondents stated that their financial position was not negatively impacted by COVID-19. For some NFPs involved in social services and delivery, their level of activity will actually rise: “44 per cent of respondents expect client numbers to increase and 45 per cent predict service volumes will increase.”
With 90 per cent or respondents agreeing or strongly agreeing that “their organisation has responded well to COVID-19”, it suggests that a key factor in the resilience of NFPs was the willingness to step up to the challenge.
“Many of the focus group participants spoke of their admiration for their organisation’s resourcefulness and the speed at which individuals coped with the changing environment. Directors noted that their board responded with clear thinking, determining what immediate steps needed to be taken and then plotted what the coming weeks and months may look like.”
Virtual meetings quickly became the norm. Working and delivering remotely also helped, “A number of directors told us their organisations were able to transition quickly to remote service delivery models for clients.”
Some organisations were guided by their Business Continuity Plans (BCPs); however, these were often “developed for natural disasters such as bushfires and did not address the challenges that are brought on by a pandemic.”
NFP Boards took a more active role in operational issues in the first few months of the pandemic, and the report notes that “Chairs, in particular, were heavily involved in stakeholder engagement.”
Other examples of proactive adjustments since COVID 19 include more regular meetings of the audit and risk committee to support executives and more frequent monitoring of the figures – “Many are now more actively watching financial forecasts and cashflow.”
Despite directors’ optimism, many had concerns about the “ongoing fatigue of their workforce”. In this reporting period Australian NFPs actually had to contend with a series of crises. The report notes, “For those who had been impacted by bushfires prior to the pandemic, many were concerned about the health and well-being of their staff.“
Of the NFP directors surveyed, 38% reported as female, 61% male. Only 18% of the NFP directors were paid a director’s fee; 67% were unpaid, 11% had expenses covered and 3% received an honorarium.
The next big reset
Funding from the Australian government, such as the JobKeeper program, was described as “instrumental in the survival of many organisations across the sector”.
The phase out of major government support programs is expected to have a critical effect.
“Respondents were firmly of the view that both mergers and winding up discussions will resume once government stimulus measures such as the JobKeeper subsidy scheme come to an end. “
You can read a copy of the report here.