Managing the Downturn Report - NFPs Under Stress- Government Response

The Federal Government says it will accelerate its Third Sector reform agenda in the wake of the release of the new report called Managing the Downturn which reveals that Not for Profits across the country are under stress.

The first major assessment of the effect of the global financial downturn on the Not for Profit sector in Australia reveals a sector already under stress and expecting conditions to get worse – with an increasing reliance on government funding as corporate donations decline.
 
PricewaterhouseCoopers, the Fundraising Institute Australia and the Centre for Social Impact collaborated in a comprehensive survey of the impact of the economic downturn on Not for Profit organisations (NFPs). 
 
The "Managing in a Downturn" survey was conducted in April and May 2009 and draws upon a similar survey conducted by PwC in the UK last year.
 
The survey describes the sector as an important provider of health, disability, aged care and other social services, and a major contributor to the Australian economy, employing more than 880,000 people and a $76 billion turnover a year.

The study found that significantly, NFP incomes are declining, with only government funding remaining quite stable.

It says the impact of the economic downturn has already been widely felt by NFP’s across Australia, with most respondents experiencing a decline in revenues and expecting continued declines over the course of the next year.

Parliamentary Secretary for Social Inclusion and the Voluntary Sector, Senator Ursula Stephens says in response the Government is accelerating its third sector reform agenda that will reform and strengthen the legal, regulatory and financial framework within which the sector operates.

Sen Stephens says this will enable sector organisations to focus on their important role of minimising hardship and building resilience, rather than being caught up in unnecessary red tape.

She says the third sector has a vast amount of experience in building resilient and vibrant communities and that the government is very keen to listen to, and work with, the sector during this difficult time.

The report says corporate funding has been hardest hit, with three-fifths of respondents experiencing a decrease in income from this source in the past six months, and a further one-third experiencing no growth in income.

Only 7% of respondents experienced an increase in corporate donations in the past six months. Some organisations did indicate that they are anticipating corporates to provide increasing support through non-financial avenues.

Two-thirds of respondents expect their total income to continue to decrease over the next 12 months, with some 30% anticipating a further reduction in excess of 10%. 

In the current environment, government funding has been quite a stable source of income, while investment incomes have suffered the most.

It says the reductions in income have been felt across charity sectors and, both the experience over the last six months and that anticipated over the next 12 months is broadly comparable across all sectors.

The study also found that expenses look set to increase.

Many NFP organisations are being squeezed from both sides, with two-thirds of respondents expecting an increase in operational costs over the next year. With most respondents expecting income streams to reduce, the fact that costs are increasing is a concern in itself.

It says NFPs will either need to rely upon reserves or find efficiencies in order to maintain service levels.

The study says most NFPs are taking direct action to combat the effects of the downturn.
 
Three-quarters of respondents are taking action in light of the deteriorating economic situation. The preferred option for most NFPs is increasing fundraising activities, with a particular focus on growing government income.
 
Half of the NFPs responding to this survey expect to increase their volunteers and many are planning specific initiatives to attract and retain them. Marketing and brand awareness is also a major focus.

30% of NFPs have already implemented cost reduction measures, and more are planning cost reductions in the next year. The top three planned cost reductions are staff recruitment, IT projects and consulting services.

Most NFPs feel they have adequate systems in place for budgeting and planning, but many are planning to increase their commitment to strategic planning and management.

Areas of focus include proactive detailed scenario planning, detailed activity-based budgets and management accounts, and board and trustee involvement.

Large organisations are coping better with the economic downturn. Their revenues have declined less than smaller organisations and they typically have larger accumulated reserves. Large organisations have been more proactive in introducing measures to deal with the economic downturn  and perhaps as a result, fewer are anticipating cost increases over the next 12 months.

This study is the precursor to activities by the Productivity Commission which is currently reviewing the  contribution of the NFP sector to Australian Society, and is due to report at the end of the year.
 
Managing the Downturn can be downloaded at www.csi.edu.au