Date posted: 12/08/2021 10 min read

Can charities survive the COVID squeeze?

COVID-19 put a blowtorch to long-standing problems in the not-for-profit sector. How can CAs help in this forced shake-up?

In Brief

  • During COVID-19, many charities and not-for-profits have faced falling revenue but increased demand for their services.
  • In response, these organisations need to digitise rapidly, revise strategies and perhaps reallocate resources.
  • Chartered accountants are particularly suited to help organisations with these tasks.

By Felicity McLean

The predictions were dire. During the first COVID-19 outbreak in 2020, a survey by the Fundraising Institute Australia forecast a 20-30% downturn in fundraising income during the 2021 financial year. And such a drop in income would put one in six of Australia’s 58,000+ charities at high risk of closing its doors, according to modelling by Social Ventures Australia and the Centre for Social Impact.

At the same time, almost two-thirds of Australian volunteers (66%) were forced to stop their activities as a precaution against spreading the coronavirus, and more than 200,000 charity workers looked set to lose their jobs if the government’s JobKeeper support was withdrawn.

The forecast was similarly grim in New Zealand, which has one of the highest number of charities per capita in the world. (In 2017, JBWere’s The New Zealand Cause Report stated there was one charity for every 170 New Zealanders.)

“Charities and not-for-profits (NFPs) tend to be fairly poorly resourced and there have been particular challenges for them in the COVID environment,” says Catherine Kennedy FCA, CA ANZ’s former manager CA Wellbeing. “Caught between having reduced resources but also greater demand on their services, they’ve been squeezed from both ends.”

Catherine Kennedy FCA, CA ANZ’s manager CA WellbeingPicture: Catherine Kennedy FCA, CA ANZ’s former manager CA Wellbeing.

“Caught between having reduced resources but also greater demand on their services, they’ve been squeezed from both ends.”
Catherine Kennedy FCA, CA ANZ

The tornado effect

But 12 months on, have the worst of the forecasts been realised?

“Some things have not come to pass as much as feared,” says Craig Fisher FCA, a consultant with audit, tax and consulting group RSM and former chairman of the RSM New Zealand group. “Or where they have, it’s not been an equal impact across the sector.

“Think of a tornado going through a town. It completely destroys one building… and then, across the street, other buildings are left untouched.”

Fisher says the economic hit to the not-for-profit sector has been random, and warns against “throwing a blanket” across the experiences of the sector. The Fred Hollows Foundation NZ, where Fisher is board chair, enjoyed a relatively good 2020, financially, he says, thanks to two significant bequests.

Similarly, research for the Australian Institute of Company Directors (AICD) found that almost two-thirds of social services organisations indicated they were likely to make a profit in the 2020 financial year, but more than 60% of health and residential aged-care organisations were just breaking even or likely to make a loss.

“I’ve seen greater inequality across the NFP sector [since COVID-19],” Fisher says. “The sector is incredibly diverse and parts have got further apart.”

There are disparities not only within the sector, but also within organisations themselves. Rebecca Glover CA, senior director, global finance solutions, for Christian humanitarian organisation World Vision, says her organisation has seen significant variability between revenue streams, with some proving more resilient than others.

The 70-year-old charity works with children, families and communities across the globe to overcome poverty and injustice. One of World Vision’s biggest sources of donations, child sponsorship, has held up during the pandemic.

“Having a significant ‘pledge’ donation source has helped cushion some of the impact [of COVID-19],” explains Glover, who oversees annual global revenue of more than US$3 billion at World Vision. “But we have certainly seen impacts in the corporate and high-net-worth-individual revenue streams because we’ve been unable to hold our traditional events that are the sources of those donations.”

World Vision AustraliaSource: World Vision Australia.

Pre-pandemic problems endure

While the immediate impact of the corona-recession may not have been as universally bad as expected, experts warn the charities and NFP sector needs to rapidly reform.

“A lot of the initial dire predictions didn’t come to pass quite as much as they were predicted because of the absolutely gobsmackingly, extraordinary amount of money that has been pumped into our economies by government,” says Fisher. “2021 and beyond is concerning though because that level of government largesse cannot continue.”

Craig Fisher FCAPicture: Craig Fisher FCA.

“2021 and beyond is concerning though because that level of government largesse cannot continue.”
Craig Fisher FCA, Fred Hollows Foundation NZ chair

The COVID-19 crisis has also exposed systemic problems in the charities and NFP sector that existed before the pandemic.

The AICD’s Not-for-Profit Governance and Performance Study 2020 reported that almost 40% of surveyed organisations made a loss in the three years before the pandemic. As one survey respondent, channelling Warren Buffett, noted: “COVID-19 was the tide that went out and showed all those who were swimming naked.”

Fisher agrees. “As horrible as COVID-19 has been,” he says, “its main impact on the sector has been putting a blowtorch on existing issues and pressures.

“For instance, if you had an ageing donor base, COVID’s impact has been that instead of dealing with this over the next five years, you’re possibly going to have to deal with it over a much shorter period of time. It’s supercharged existing problems.”

Those existing problems can include outdated operating models and a failure to digitise or even adequately invest in technology. That’s been especially damaging in a landscape of rising costs and smaller margins.

A lack of diversity, including on boards, may also be slowing required changes. In 2019, AICD research found 77% of NFP board directors were aged over 50 years and only 5% were under 40 years old. While the skills and experience of these older directors are useful, increased cultural diversity is needed.

Strategic decision-making has also been lacking in some NFP organisations, as have diversified income streams.

After the global financial crisis (GFC), it took six years for Australian charity donations to recover to pre-GFC levels according to research by the Queensland University of Technology (slower than in the US and the UK). And yet the sector has failed to make fundamental changes since then.

A radical rethink to bounce back

“COVID-19 has been a reality slap for some organisations,” says Fisher. “It’s made more people look up and look out. They’ve realised we need to radically rethink some things here.”

“COVID-19 has been a reality slap for some organisations. It’s made more people look up and look out.”
Craig Fisher FCA, Fred Hollows Foundation NZ chair

He says it’s the one real positive to arise from the COVID-19 crisis and that chartered accountants can help charities and NFPs with this reform.

“CAs are a perfect party to help a governing body and its management take a look in the mirror and pose some hard questions. This is because they [CAs] are objective – they’re independent professionals within an organisation.

“They can take organisations out of the day-to-day and into the bigger picture in terms of: Why is it that we exist? How are we delivering on that? Is this the best way?

“I personally think CAs should be duty-bound to help organisations in this way.”

Two areas that need urgent reform

Among CA ANZ members, 2-5% are directly employed in the charities and NFP sector, and many more volunteer their expertise.

For accountants working in the sector, CA ANZ’s guide Steering Charities and Not-for-profit Organisations Through the Pandemic has advice that will be useful beyond the pandemic.

Few, if any, charities and NFPs will return to their pre-COVID-19 operating models, and the CA ANZ guide highlights two key areas where charities and NFPs must reform:

1. Strategic thinking

There’s nothing like a global pandemic to trigger some strategic soul searching. For charities and NFPs, this means going back to their fundamental objective. Organisations should revisit their core mission regularly and look closely at resource planning, scenario planning and governance (including accountability and compliance).

“The challenge for accountants is that they’re generally focused on the numbers or the dollars, and yet, that’s not why these organisations exist,” emphasises Fisher.

“The people who donate to the Fred Hollows Foundation NZ don’t donate because of our balance sheet or our profit and loss. Ninety-five per cent of donors have no interest in that at all.”

What they are interested in is what the foundation is doing to achieve its raison d’être of ending avoidable blindness, says Fisher. They want to know: How many doctors and nurses were trained? What’s the backlog of eye conditions awaiting surgery? Are there sufficient medical resources in the community?

“That’s what’s important. That’s impact,” he says.

World Vision’s Glover adds that: “Chartered accountants have an incredible opportunity to bring strategic thinking to some of the fiscal challenges that organisations are facing.

“CAs are trained in strategic thinking, and in the analytical skills needed to connect different data points and see where the opportunities are.

“That may be in fiscal management. That may be in strategic opportunity. That may be in resource reallocation. But that’s where chartered accountants can add the most value: asking questions around what could be.”

2. Rapid digitisation

Pre-pandemic, in 2018, only 34% of Australian charities reported having an online presence, according to the Australian Charities Report 2018. Lack of capital is a major barrier to digitisation, and yet many charities and NFPs can’t afford not to invest in technology given the rise in virtual fundraising, e-donor platforms, online auctions, digital doorknocks and other online campaigns.

Governments are recognising this need. In November 2020, the New South Wales government announced its A$50 million Social Sector Transformation Fund, which awards grants to charities and NFPs to modernise operations, with a focus on capacity building and better digital service delivery.

“The sector as a whole is woefully underinvested in technology,” says Fisher. “[Until COVID-19] who knew that everyone could use Zoom!”

Last year, PwC Australia’s Not-for-profit CEO Survey  found the greatest challenge facing NFPs in their upskilling efforts was a lack of resources, with 77% of respondents reporting that the need for digitally upskilling workers had become a higher priority in the context of COVID-19.

At World Vision, Glover says pre-pandemic digital investment proved vital during 2020.

“We’ve been on a journey for the past decade to really hone our global financial data,” she says.

This included investing in building business analytics capabilities, implementing cloud computing, and introducing data visualisation tool Microsoft Power BI to create interactive dashboards updated with live data.

“Having invested a significant effort in developing that kind of capability really helped set us up well to respond to the crisis that developed during 2020,” she says. “Going forward, there is a permanent change from senior leaders as to what they expect from finance, in terms of our capability and our responsiveness in providing analytics to support decision-making.”

With finance teams like this at the helm, the future is looking up for charities and NFPs.

World Vision’s COVID-19 strategy

Glover is helping World Vision shift gears to deal with the pandemic’s effects. From Kuala Lumpur to El Salvador, her 100-strong finance team stretches around the world. This vast group – indeed the whole of World Vision – has been responding to COVID-19 on three fronts: fundraising, the charity’s programs and internal management.

“From a fundraising perspective, we’ve been constrained by the inability to meet face-to-face with our donors. So many avenues have been closed off to us due to lockdowns and restrictions,” says Glover.

Rebecca Glover CAPicture: Rebecca Glover CA.

Those fundraising avenues include retail sites in shopping malls, donor events with high-net-worth individuals, and gala events. Like so many charities, World Vision has had to switch to digital or phone-based fundraising methods in many markets.

Then there’s the programs response. “We’ve launched a global fundraising campaign to fund our programming work, designed to support communities that have been impacted negatively by COVID-19,” says Glover.

“Whether that’s the distribution of PPE [personal protective equipment], or dealing with the economic, educational, health or domestic violence impacts that we’re seeing in the different geographies in which we operate.”

Thirdly, there’s the internal management.

“From a financial management perspective, it fell to my team to identify what the global financial revenue impact was likely to be,” Glover says. “Also, what was the demand from a programming perspective? To what extent could we align the funds that were available to the programming needs globally?

“Could we use money that may have been set aside for Program Design A to use on Program Design B, and would that still be in line with the way in which the funds were legally raised?”

The focus, Glover explains, was on financing global programs.

“We wanted to deploy as many of our resources as possible to our programming work. We employed significant global forecasting and modelling efforts to help us navigate week by week, month by month, how we were aligning resources, and the extent to which we may need to change our activities internally,” she says.

“We wanted to continue to free up those resources for the communities that needed them most.”

“We wanted to continue to free up those resources for the communities that needed them most.”
Rebecca Glover CA, World Vision

Financial resilience checklist for NFPs

  • Is your organisation able to pay its debts when they fall due? Do you have methods in place to ensure this?
  • Do you have short- and long-term plans in place to ensure adequate cash flow? Do these plans recognise hidden costs such as employee leave entitlement provisions?
  • Does your organisation require 10-year forecasts factoring in asset replacement?

Source: Steering Charities and Not-for-profit Organisations Through the Pandemic, CA ANZ, June 2020

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