- Charities are becoming more transparent, accountable and strategically led
- There is increased demand for finance professionals in the sector
- Mel Yates, ACNC, is a speaker at our Audit Conference 2019 Australia
Article written by Tina Wild.
Mel Yates, Director of Reporting, Red Tape Reduction & ACNC Corporate Services at ACNC, talks about being for-purpose, as opposed to not-for-profit, and how finance professionals can add immense value to the charity sector.
Yates' role at the ACNC is to collect reporting from 57,000 charities registered with ACNC, as well as working with other government organisations to harmonise and streamline reporting, reduce red tape and implement initiatives, such as charities providing all the information once to ACNC rather than to multiple regulatory bodies. Over the past year Victoria and New South Wales have entered into streamlined reporting arrangements to remove duplicative reporting for affected entities.
The evolution and purpose of financial statements for charities
There's been a shift in the financial statement requirements for charities. Charities were once required to produce financial statements that told a simple story about expenditure. However, that's just one part of the story. As charities exist to achieve a mission or purpose rather than to create wealth, and because tax payer funding is at stake, people are becoming more interested in how charities are performing. Also, there's more diversity in who's reading the statements as well as changes to accounting standards. This means financial statements now need to tell a more complex story that provides a snapshot of the different facets of the business, where the business has come from and where it's heading.
"There's a slant on not-for-profit reporting. In profit, it's about assessing risk, rewards, where to make investments, where to put my dollars to make most bang for buck."
"I prefer the term 'for benefit' or 'for purpose' rather than 'not-for-profit' because they exist to fulfil a need that's been identified in the community, which the government doesn't want to or doesn't have the resources for."
What does the future look like for charities?
There's a lot for accountants to consider in telling a charity's story aside from the financials. The challenge is to convey how the organisation is being effective in fulfilling its charitable purpose and how the financials can convey the trust and credibility essential for the charity to lobby government and philanthropists for support.
The trust and confidence survey (accessible from the link at the bottom of this article) in relation to charities reveals people feel more comfortable that there is a charity regulator and charities are held to account on reporting. Yates likened this to the analogy of the public feeling safer with knowing police are on the beat, even if they don't see them.
The problem is there's not necessarily an established framework to assess and monitor performance. It's a different paradigm for profit, where there's a framework for professionals to understand. Yates says "for impact reporting and performance reporting, it's an evolving environment, and it's up to professionals to come up with systems to record and capture information, with which to tell the story."
Key considerations for charities
Yates outlines three ways in which charities can become more efficient in a changing environment, with the help of finance professionals:
1. Strategic and operational focus
The need for charities to become more transparent and accountable is having a dramatic impact on the way charities are operating. This will require more finance professionals to support the sector in the future. Finance professionals' knowledge and expertise will be invaluable to educate clients about their reporting obligations, developing models, providing advice, ensuring strategies are based on evidence and data that the charity holds, and ensuring the difficult decisions being made are based on sound judgement.
2. Funding changes require changes in delivery services
There are major shifts in consumer directed care, particularly in relation to aged care reforms and disability services, where funding has changed to a per-person or beneficiary basis.
"Changes to funding will require critical conversations about service delivery and what the organisation is capable of delivering as well as understanding the costs of providing services – a charity will need to consider what it can provide to a beneficiary for the amount of funding it receives to provide that service," says Yates.
Funding changes to beneficiaries are necessitating charities to take a step back and clarify their understanding on what a program is offering. They need to ask themselves if they need to think about changing the way they deliver services, focusing on a different class of beneficiary. Yates cites as an example the willingness for corporate partnerships, amalgamation and the sharing of resources, all of which create efficiencies that can be put back into service delivery.
3. Leverage technology
Exciting opportunities exist for charities to leverage technology, to help with issues and complexities that have manifested within the sector. Yates provides increase in tap and go technology as an example. And the use of drones, for example, being used by Surf Life Saving Queensland to check beaches are safe and free from Crocodiles so Life Guards and swimmers can enter the water.
Yates says that while advancements in technology are a positive, they come with a challenge. If charities invest in technology, that means less dollars towards the mission. In a constrained resource environment, this reinforces the need for charities to be more accountable for their performance.