Before the storm: ACNC Charities Report paints a positive pre-COVID picture

NFP managers and directors may have missed the ACNC’s release of the 2018 Australian Charities Report in the midst of the COVID-19 lockdown. Yet, the findings of the report can be considered relevant when trying to predict the resilience of the NFP sector throughout the current pandemic recession and beyond.

In terms of context, the report is based on an analysis of 2018 Annual Information Statements from 48,000 charities. It breaks down the sector into categories and subtypes related to the activities of the charities, for example, advancing education, social or public welfare, religion, culture, preventing or relieving the suffering of animals, and so on.

The report also paints a fairly rosy picture of 2018, when NFP sector revenue grew by 6.4% – up by $9.3 billion to $155.4 billion – and donations rose to $10.5 billion. The NFP sector employed 10% of the Australian workforce or 1.3 million people. The ACNC reports that the size of the charities, based on their reported annual revenue, remained stable over the past five years.  We know now that this picture has changed substantially.

The current crisis has created the ‘perfect storm’ for charities: their services are needed more than ever, yet decreased donations, cancelled events, and uncertain funding and sponsorships will impact their ongoing viability.

Hopscotch Accounting has reviewed the report and raises the following points for review and consideration:

Size of charities – annual revenue:  The report highlights that 30.4% are extra small (< $50k annual revenue), 21% are small ($50k–$250,000 annual revenue), 13.9% are medium ($250k–$1m annual revenue) and 13.4% are classified as large (>$1m annual revenue), 4% very large ($10m–$100m) and 0.4% extra-large (+100m annual revenue). 

Charity staff and volunteers: Overall, 37.2% of charities employ full-time staff, followed by part-time staff at 35.4% and casual workers at 27.5%. Volunteers outnumbered staff across most charities, except charities with $100m+ annual revenue. Part-time employment of staff appeared to be the preferred option for many charities of all sizes. Significantly, half of all charities in Australia operated with no paid staff.

While many charities may have qualified for JobKeeper, which would assist them in maintaining staff levels, the projected end of JobKeeper subsidy on 27 September will have an impact. Charities should prioritise forward planning and budgeting now to accommodate for the change, including putting in place plans for unplanned cash reserves or limited cash.

Sources of revenue: While larger charities had diversified revenue sources, almost half (47%) of all charity revenue was provided by the government (including grants). Other total sources of revenue included the provision of goods and services (34%) and donations (7%). 93% of extra-large charities received revenue from the government when compared to extra small charities at 14%. The larger the charity the more diversified the income streams.

In the short to medium term Government funding should remain a steady source of funding to the NFP sector, but ultimately Australian government budget deficits will impact future funding. Hopscotch recommends that charities of all sizes should consider plans to diversify income streams.

Moving forward, the adept use of technology will be integral to coping with disruptions to funding, new income streams and changed staffing arrangements.  Sound financial advice backed by cloud accounting is particularly helpful in terms of compliance, analysis and forward planning.

Expenses: The sector reported that in excess of $81bn was spent on employee expenses and $7bn on providing grants and donations. Interest and other operating expenses paid totalled over $59 bn.

There will be an ongoing challenge for NFPs which rely on employees to provide services and to cut through the issue of ‘overheads’.  Outsourcing may provide flexibility and efficiency moving forward.

Income surplus or deficit: The majority of charities had a relatively ‘comfortable level of income compared to expenses’. However, the extra-small charities like environmental charities, philanthropic trusts and those advancing social or public welfare had significant deficits.

A future challenge may relate to a charity’s ability to forecast how long cash reserves will last or stretch. Although charities are well known for finding ways to make cash last longer than expected, they will also be faced with the additional challenge of gaining exposure in an increasingly competitive environment, where they will have to compete for publicity, donors and government funding.

Assets and Liabilities: Overall, total asset ratios were more than three times the amount of total liabilities. There was a significant difference in asset holdings with extra-large charities holding $724m in assets compared to extra-small charities who held less than $200k.

In the current environment, no matter the size of the charity, there is a requirement to regularly report on asset ratios because cash reserves may be depleted rapidly. Forward planning is vital in order to avoid any future issues and to set up an early response course of action.

Number of Registered Charities and DGR status: An update included in the report highlights that as at 26 February 2020 there were 57,900 registered charities in Australia and less than half of the overall charities were endorsed as a deductible gift recipient (DGR).

Online presence: Charities were asked to provide the ACNC with a link to their online presence. Only 34% of charities reported that they had an online presence.

The ability to source donations and attract sponsors will increasingly rely on digital channels. Charities should be actively planning to establish a digital footprint and charities that do have a digital presence should be updating their information and diversifying the ways in which people can engage with the charity and donate.

Compliance: As well as ACNC reporting, 28% of registered charities were also structured as incorporated associations requiring state and territory compliance. Other categories and sub types had compliance requirements such as reporting to the Department of Education, Skills and Employment, the Office of the Registrar of Indigenous Corporations, the Australian Taxation Office or the Department of Health.

There is no doubt that the ACNC 2020/21 charities report will reflect the full weight of the devastating impact of COVID-19 on the charities sector. Rather than waiting for these findings we are actively working with our clients to mitigate the immediate impacts that are being experienced now and putting in place services that support resilience for the months ahead.

Hopscotch Accounting welcomes the opportunity to discuss how strategies like implementing outsourced cloud accounting services could assist the ongoing viability of Australian charities into the future.

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