NFPs Dealing with Significant Governance Challenges

A new Australian study highlights a number of significant corporate governance challenges facing the Not for Profit sector.

The study, conducted jointly by corporate governance experts, Enterprise Care, and Moore Stephens, found that for many of the 600,000 organisations in Australia’s $60 billion NFP sector, corporate governance is a significant concern.

The study found that nearly eighty percent (80%) of Australian Not for Profit organisations rate the complexity of current financial reporting issues in the sector as moderate or extreme.

The survey of nearly 250 Not for Profit organisations found that they were struggling to cope with the burden of financial reporting, with many finding the systems currently in place were “ever-changing”, “complex”, “costly”, “excessive”, “unclear”, “time consuming”, “inconsistent” and “not fully developed”.

Of major concern to many organisations was the increasing complexity and obligation for reporting to funding bodies, which in many cases differed to the requirements set out in Australian Accounting Standards.

Enterprise Care Managing Director Damien Smith believes that greater focus on the efficiencies and effectiveness of financial reporting, both for the funding body and Not for Profit body, is essential.

Smith says a more robust justification for why the reporting is required, and the particular format the reporting is required in, should be the focus of any review of the sector.

The survey, conducted in March, asked Not for Profit organisations with Finance and/or Audit Committees a range of questions regarding the major issues and challenges facing their organisation.

Overwhelmingly, finance issues were of greatest concern, with budgeting, funding, increasing revenue, risk management, reducing expenses and the declining value of organisation’s assets all major challenges facing organisations in the sector.

Worryingly, the survey found some organisations reported that the skill levels of their Directors was an issue, with some Directors not financially literate or able to read and analyse finance reports adequately.

The survey also found that females made up only 31% of Finance and/or Audit committee members, with the worst performing industries being Art, Philanthropic, Industry/Trade, Youth and Sporting. In only one industry did female representation on the committee exceed 50%, which was Community, with 50.5% female representation.

The survey confirms that there is a gender imbalance on Not for Profit Boards that Smith says requires immediate attention.

Smith argues that with an average of only 31% women on Finance and/or Audit committees, NFPs cannot guarantee the diversity needed for effective functioning committees.

Smith says the survey findings reflect many of the findings of the recent Federal Government Productivity Commission Research Report into the Contribution of the Not for Profit Sector, released in January of this year.

The Productivity Commission found the current regulatory framework for the sector complex, lacking in coherence, insufficiently transparent and costly.

Smith says this latest research confirms that many NFPs, both small and large, are most definitely struggling under the weight of the current compliance and reporting framework, often to the detriment of the good works they set out to do in the first place.

Scott Phillips, an Assurance Partner with Moore Stephens in Melbourne, says it's clear that reform in the sector is critical.

Phillips says what his company is finding today is that NFPs need to divert more and more scarce resources to compliance and reporting.

Enterprise Care was established in 1988 as a provider of governance advisory services and related products. Moore Stephens is a national network of eight independent firms of business advisors and chartered accountants in all mainland capital cities of Australia.

The report, The Enterprise Care Not for Profit Finance and Audit Committee Report, can be downloaded at http://www.enterprisecare.com.au/upimages/Finance_and_Audit_Committee_Report.pdf