The Australian Institute of Company Directors annual NFP Governance and Performance Studyreveals that many organisations’ future was under threat even before the challenges of COVID-19.
While most NFPs expected to make a loss this financial year, almost 40 per cent had made a loss in the previous three years.
COVID-19 unsurprisingly dealt a huge financial blow to the NFP sector. However, the study reveals that many organisations were facing considerable financial challenges even before the crisis.
AICD managing director and CEO Angus Armour said many organisations entered the pandemic already facing serious financial challenges and COVID-19 intensified that pressure, pushing boards and organisations to their limits.
“Just when demand for NFP services increased, their revenue took a huge hit. The government’sJobKeeper program has been nothing short of a lifeline for many, but significant concerns remain about how organisations will manage when the current scheme ends”, Said Angus.
“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.”
Angus said that given the vital role NFP organisations play in our society, targeted assistance is required to ensure they survive.
The study highlights the disparity of differing NFP categories to navigate the crisis. Arts, sports, and health NFPs, as well as the aged–care sector see greater impacts than those operating in other areas.
Sources of funding play a significant role, with organisations reliant on government funding faring better than those depending on philanthropy and face-to-face fundraising.
Key findings from the study are:
- In FY20, the number of respondents expecting to make a profit dropped to 48%, with over half expecting to make a loss or break even.
- 55% of survey respondents noted that their organisation was receiving JobKeeper payments. However, more than a third of organisations were ineligible.
- With boards focused on the survival of their organisations, merger activity and discussions on mergers reduced considerably. Only 3% of directors reported that they were in the midst of a merger, down from 5% in FY19.
- One-third of respondents stated that their financial positions were unaffected by COVID-19.
- The onset of COVID-19 brought immediate change with 77% reporting that their organisation significantly changed the way it operated.
- Directors were particularly proud of their NFP’s response to COVID-19, 90% agreeing that their organisation had responded well to the crisis.
- When asked to rate the effectiveness of their organisation in achieving its stated purpose, sentiment was higher than in previous years.
- 87%of directors said they were worried about the Australian economy, and
- 44%of respondents expected client numbers to increase and 45% predicted that service volumeswould increase. Nearly a third of those surveyed expected a decrease in clients.
Revised corporate principles take effect
Revised ASX Corporate Governance Principles and Recommendations apply to entities admitted to the ASX official list and are effective for 31 December reporting periods.
As they reflect a contemporary view of appropriate corporate-governance standards, other bodies might find them helpful in formulating governance rules and practices.
The principles and recommendations adapted for NFPs in summary are:
|Lay solid foundations for management and oversight||Clearly delineate the respective roles and responsibilities of boards and management and regularly review their performance|
|Structure the board to be effective and add value||Boards should be of an appropriate size and collectively have the skills, commitment, and knowledge of the entity and the industry in which they operate to enable them to discharge duties effectively and to add value
|Instil a culture of acting lawfully, ethically and responsibly
|Instil and continually reinforce a culture across the organisation of acting lawfully, ethically, and responsibly|
|Safeguard the integrity of corporate reports
|Have appropriate processes to verify the integrity of corporate reports
|Recognise and manage risk:||Establish a sound risk management framework and periodically review its effectiveness
|Remunerate fairly and responsibly||Pay director remunerations sufficient to attract and retain high-quality people and design executive remuneration to attract, retain and motivate high-quality senior executives, aligning their interests with the creation of value for security holders and entities’ values and risk appetite|
NFPs might wish to review their corporate-governance policies and procedures using ASX Corporate Governance Principles and Recommendations as a reference.
Earlier this year the Federal Court ruled in WorkPac Pty Ltd v Rossato  FCAFC 84 that some casual employees working regular shifts have the right to certain benefits such as annual and personal leave and public holidays usually enjoyed only by permanent staff.
The court also ruled that topping up workers’ pay through casual loading does not offset leave liabilities. This essentially means that some casual employees could be entitled to both paid leave and casual loadings, typically worth 25%t of their pay.
ASIC has issued an FAQ on accounting implications of clarified casual employment rules.
Companies should consider whether they should provide for additional employee entitlements (including annual leave, personal and carer’s leave, compassionate leave, public holiday pay, and redundancy payments) for past and present ‘casual employees’ who were employed in circumstances covered by the recent court ruling.
CPA Australia has collaborated with CA ANZ and the Australian Institute of Company Directors to develop and publish a guide to provide further guidance and background. Click here to download.
Companies may wish to seek legal advice.
A recent decision by the full Federal Court will result in many contractors previously considered to be outside the scope of compulsory superannuation payments being entitled to them.
In Dental Corporation v Moffet, Dr David Moffet provided his services as a dentist to Dental Corporation under an agreement. Upon termination of the agreement, Dr Moffet brought proceedings asserting that he was an employee of Dental Corporation and was entitled to be paid annual leave, long-service leave and superannuation.
The Court found that Dr Moffet was not an employee of Dental Corporation but was an independent contractor conducting his own business. He had no entitlement to annual leave or long-service leave. However, on the issue of superannuation the Court was required to consider section 12(3) of theSuperannuation Guarantee (Administration) Act 1992.
Section 12(3) defines an ‘employee’ to include a person working under a ‘contract that is wholly or principally for the labour of the person’. Section 12(3) can therefore apply to an independent contractor.
The court found that Dr Moffet was entitled to superannuation and this finding was upheld on appeal by the full court.
Casual workers’ overtime updated
The Fair Work Commission has issued its final determination on overtime for casual workers in its four-yearly review of awards.
Under this determination, the overtime clause for casuals has been varied in 97 modern awards. As a result, the way that overtime for casuals is calculated might change.
Any changes to overtime calculations for casuals will come into effect from the first full pay period on or after 20 November 2020 for 96 of the affected awards.
Changes to the remaining award (Aged Care Award 2010) will not come into effect until 1 March2021.
Under these clauses, overtime for casuals may be calculated in one of the following ways:
- In substitution for casual loading
- In addition to casual loading (cumulative approach), and
- In addition to the sum of an employee’s minimum hourly rate plus casual loading (compounding approach).
To view further details, visit the Fair Work Australia website.
ACNC urges charities to prevent fraud and cybercrime
The ACNC has urged charities to take steps to prevent fraud and cybercrime.
Commissioner Johns said charities were vulnerable to fraud and cybercrime, especially as fraudsters try to exploit national and global crises.
“As I meet with Australian charities, it is clear many are affected by the global COVID-19 crisis,” said Dr Johns. “It is perhaps more important now than it has ever been to safeguard against the risk of fraud and cybercrime as charities face unprecedented challenges.”
In 2019-20, the ACNC received 2102 concerns about charities, most received from the public or members of a charity. The most common were about perceived mismanagement of funds or individuals obtaining a private benefit from a charity.
“It takes time and hard work for charities to build their reputations but falling prey to fraud and cybercrime can quickly dent or damage it, particularly if a charity failed to put in place preventativemeasures”, said Dr Johns.
“It’s better to get on the front foot by establishing good governance to prevent fraud rather than take remedial action after it happens.”
The ACNC provides many resources to equip charities to increase awareness and to implement measures to prevent fraud. The resources are of value to everyone involved in the sector including directors, board members, trustees, staff, and volunteers, as well as accountants, auditors and solicitors acting as professional advisers.
A Governance Toolkit includes resources to help charities manage risks, including financial abuse, cybersecurity, and working with partners. Click here to access the toolkit at the ACNC website.
ACNC urges PBIs to check their details
The ACNC is urging charities with deductible–gift–recipient endorsement to check their registration details.
The commission has begun reviewing DGR reforms announced by the federal government in 2017.
The review is designed to strengthen governance arrangements and bolster confidence in the NFPsector by ensuring that tax concessions are held only by eligible charities, that the integrity of the ACNC register is protected, and donors are confident that donations are used for a charitable purpose.
The commission will review about 500 charities a year to assess whether they are still eligible to be registered as a charity, charity subtype, and for DGR status. An initial focus will be on publicbenevolent institutions.
PBIs are the biggest demographic in the DGR population (about 11,000). They can access the highest rate of tax concessions, and, because they service such a diverse section of the community, have a substantial impact on trust and confidence in the sector.
They will be reviewed according to a risk profile, which will include that they were registered as a charity and PBI before 3 December 2012, that they are not regulated by the Office of the Registrar of Indigenous Corporations, and have no, or only one responsible person listed or no governing document.
Dr Gary Johns, ACNC Commissioner, said there should be no impact on charities under review unless an issue is identified.
In line with its commitment to transparency and education and to ensure procedural fairness, the ACNC is encouraging charities to self-assess using an online tool available.
“By using our self-assessment tool, charities will be able to identify and rectify most issues, such as nominating responsible persons and uploading their governing document to the register,” said Dr Johns.
“Charities don’t need to notify us of those changes or send us their self-assessment. They can make changes easily through the ACNC charity portal.”
“To promote good practice, we encourage charities to assess themselves periodically.”