The recently released directors’ report, the Not-for-Profit Governance and Performance Study (November 2021), bears positive signs for Australia’s NFP sector and the quality of governance. However, respondents also highlighted budget, cash reserve and risk assessment issues.
The Australian Institute of Company Directors (AICD) reported a high level of engagement for this 12th edition of their regular member survey, with 1,978 responses. Focus groups of NFP non-executive directors across Australia also explored issues related to the survey. The report revealed several findings:
Directors relations with management and staff
On the positive side for NFP managers, 93 percent of Board Directors surveyed agreed that they were “confident their executive leadership is making good decisions”.
This was despite the strains that the pandemic had placed on connections between board and staff. A respondent from one organisation commented, “Board members haven’t been able to visit our on-the-ground staff at our sites for 12 months. It’s made a disconnect between the board and the operational part of the organisation. Nothing replaces going to the site and having a cup of tea with one of the staff members.”
Managing budgets in a crisis – cash reserves
Directors also dealt with budget issues arising from the pandemic impacts on fundraising or operations and diminished revenue streams in FY21. “Almost three-quarters (74%) of the organisations were above or close to budget.”
One respondent commented “Post-COVID-19, budgets have blown out.”
Many organisations responded to the crisis by accessing their cash reserves. A key finding of the report was that 35 per cent of responding NFP organisations “used their financial reserves to fund operations during the last financial year”.
One of the questions for directors was “Does our reserves policy need to be re-visited?
A respondent commented, “You’ve probably discovered parts of your balance sheet you’ve never looked at more closely than ever before. You get very focused on it. All of my organisations have revisited and redone our cash reserve policies, because of this focus now on recognising and being much clearer on how much reserve we need to carry.”
Risk planning
With many NFPs confronting stark realities, the appropriateness of past risk planning and its fitness for the next crisis is a key focus, with one respondent reporting “Risk has become more prominent in our board meetings than any other issue in the last few years.”
Responses were mixed, as 34% regarded their organisation’s risk frameworks as working only moderately well, and 18% slightly well. Moreover, 7% responded that it did not work well at all.
Another respondent commented, “Nobody on the board put ‘pandemic’ on our risk register. That one hit us – blindsided. Nobody thought we’d have a pandemic and have to shut everything down. It’s opened our eyes to the possibilities and how creative we have to be in risk planning.”
In terms of being more strategic about risk, one respondent commented “For our board, the most important issue we’re dealing with strategically is diversification of our funding.”
Responses and actions
The AICD report confirmed that responding to the new environment and realigning the organisation will be priorities for directors.
“Responding to changes in the operating environment”, “protecting lives and wellbeing of clients”, and “diversifying income sources” were the top three priorities for directors in the next 12 months.
The top five actions responding directors intend to take were:
- regular review to track progress against goals or targets of the organisation
- improve board composition
- develop a new strategic plan
- improve the use of digital technology, and
- review and update risk management plan.
Other actions included “closer monitoring of financial reporting” and “improve emergency/crisis response plans”.
Future outlook
The AICD report notes that, “Many directors will be focused on their organisation’s strategy over the coming months.”
Encouragingly, the report found that almost half (49%) of the respondents believe the post-COVID-19 environment will increase opportunities available to their organisation. The second-largest response (32%) is that little or no impact is expected to organisations post-COVID-19.
Support for NFPs
The 2021 report is available from the website of the Australian Institute of Company Directors.
If your NFP is dealing with some of the issues raised, such as budget blow-outs, cash-reserve management and risk assessment planning, Next Dimension can help.
We have the experience and insight required to support NFPs as we transition out of pandemic conditions.
Get in touch today.
