New study shows targeted support needed for NFP sector

Organisations in the arts, sport, health and aged care sectors have been hardest hit by the COVID-19 pandemic 

The not-for-profit sector needs targeted assistance for the organisations most affected by COVID-19, according to a new report that shows many charities were struggling even before the pandemic.

The Australian Institute of Company Directors’ (AICD) latest not-for-profit (NFP) governance and performance study drew on 1,303 respondents and found the pandemic’s impact on NFPs varied across different sub-sectors.

“While some organisations have seen little negative financial impact, others have been faced with very large drops in revenue and have had to place their organisations into an effective ‘hibernation’,” the report said.

Organisations in the arts, sport, health and aged care sectors recorded greater impacts than those in other sectors, while organisations reliant on philanthropy and face-to-face fundraising also struggled compared with government funded organisations.

The report found that many NFPs were under financial pressure even before the pandemic, with almost 40 per cent of organisations recording a loss in the previous three years. 

Survey data over the past four years also reflects declining profitability in the sector, with the percentage of organisations making a profit falling from 61 per cent in 2017, to 54 per cent last year and 48 per cent in 2020.

AICD managing director and CEO Angus Armour said many organisations entered the pandemic already facing serious financial issues and COVID-19 has only intensified this pressure.

He said the government’s JobKeeper program had been a lifeline for many, but concerns remain about how NFPs will manage when this support ends.

“These organisations need to be able to continue their vital work through the pandemic and on the other side, but unless issues of funding are addressed, it is likely some will be forced to wind up,” Armour said.

“Given the vital role these organisations play in our society, targeted assistance is required to ensure these organisations survive over the long-term.” 

Phil Butler, AICD’s NFP sector leader, told Pro Bono News there were already some overseas examples of how targeted sector support could work.

“The UK culture fund, which they’ve been able to establish through the national lottery system, is an interesting example where they’ve recognised that the arts and culture sector will need some longer-term support,” Butler said. 

“So that sector-by-sector approach is going to be required to think through [these issues] and we know a strong not-for-profit sector is critically important for Australian society to operate effectively.”

COVID has also highlighted the importance of NFPs having appropriate financial reserves.

The report said building reserves will offer an “appropriate buffer to ensure organisations can survive the next big crisis”.

Almost half (46 per cent) of survey respondents said their organisation was likely to use more cash reserves than planned, with these reserves in many cases being used to keep the organisation afloat.

Butler said the pandemic showed the need for organisations to make a profit, so they can put aside an appropriate level of reserves to use in times of crisis.

“Some organisations were lucky enough to have had financial reserves built up for a rainy day and guess what, it’s bucketing down outside now,” he said.

“So those organisations that went into COVID with some reserves were much better off than those that didn’t.”

He added that Australians should understand the need for charities to have a solid balance sheet, and not feel awkward about supporting an organisation that has cash reserves put away for a rainy day.  

More than three quarters (77 per cent) of respondents reported that their organisation has significantly changed the way it operates due to COVID-19.

Butler said while many organisations will undergo a permanent transformation, the level of change will vary across the sector. 

“Telehealth, for example, has been extremely successful and no doubt that will continue, but there has been a bit of a trend at the moment of people still wanting to come back to that more one-on-one personal contact,” he said. 

“So [for some organisations] there might be a bit of a mixture where some things are done differently, and other things will go back to normal arrangements.”

You can see the full report here.