Australian charities – should they merge? Let’s get real

November 29, 2015

Earlier this month, the Community Council of Australia (CCA) Chief Executive David Crosbie said that with an estimated 600,000 not-for-profit organisations and almost 60,000 registered charities, there was a real duplication of work, as well as having to compete harder for fundraising and government contracts.

The answer, according to Crosbie:  cut the number and create efficiencies, especially federated charities, where “charitable cash is being wasted on duplicated management roles, infrastructure and back office systems.”

This statement stimulated lots of media discussion here in Australia.  There’s a lot in this statement, but it’s important to set aside some misleading figures.  First, a very large proportion of the 600,000 not-for-profits mentioned above are very small, community-based sporting clubs, without any ability to make donations tax deductible and only undertaking very minor fundraising (cake sales, sausage sizzles and the like).  In my northern Sydney suburb, I can easily count about ten different sporting clubs, and I haven’t even tried to search for them.  Nobody should be suggesting that somehow they would be more efficient to merge; it would create enormous governance problems:  does the netball club and the Aussie Rules footy club really want to become the same organisation?  No, they don’t.

Second, of the 60,000 “charities” – and I am not a fan of that word, as a very large proportion do not, actually request “charity” from individuals – there are only just under 17,500 organisations that hold full Australian organisational “deductible gift recipient” (DGR) status, and another 11,000 that are part of a larger institution that does not have DGR status, but they have a special DGR fund.  A good example of the latter category is the “library fund” of local primary schools:  while the school is not tax-deductible, donations to the library fund are.  Schools use this tax deductibility to allow/encourage (and sometimes require) parents to make donations to the school that their children attend.  From my experience, very few, if any, of these 11,000 special DGR funds actually engage in “fundraising”, and operate more as passive vehicles for accepting tax deductible donations.

That leaves the final 17,500 full DGR organisations.  But how many of them actually undertake active fundraising?  Have a look at the list – as well as the other DGR list – on this page of the Australian Government’s Australian Business Register.  You will find them all in a simple 5.5MB text file, easy to download and read.  I have not analysed all of these organisations, but from a skim through them, I suspect that only a small minority actively campaign for funds.  How many?  Let’s say about 5,000.  Still a large number, but no where near the “scary” figure of 600,000 organisations all wasting our money competing with each other, or even 60,000 charities (by the way, where did the CCA obtain the 60,000 figure?).

Criticisms of not-for-profit fundraising are fine (and parts of the sector certainly could be more efficient), but not when the criticisms exaggerate the numbers involved.


Funding models for non-profit organisations

November 5, 2015

Early in to my eight and a half year tenure as CEO of the non-profit Rural Health Education Foundation, I realised that I had one primary responsibility – to ensure financial health and sustainability for the organisation. Everything else was secondary.

With financial health, I could hire and keep good staff, and they – bless them – could get on with their work, without fear of budget cuts, or worse – losing their jobs. It also meant that we would have the money for the necessary publicity, promotion, marketing, branding and – most importantly (and all too often ignored) – investing in corporate governance, with a high quality and informed Board of Directors that focussed on strategy, an up-to-date constitution, a CFO (in our case, a great Operations Manager), a good auditor, a good lawyer and impressed partners and other stakeholders.

When I arrived, I inherited a simple funding model that had lasted for some years: the majority of the funds came from the Australian Government Department of Health and Ageing (as it was then called) – some 80%. We also received some money – including important institutional support – from the pharmaceutical sector through unrestricted educational grants, particularly through the foresight and commitment of Merck Sharpe and Dohme Australia (now MSD Australia), which had originally set up the Foundation.

But as good – and as benevolent – as the Department and Merck were, it was not a long term financial strategy, leaving the organisation at risk of relying on only a couple of sources. So we worked hard over many years to develop a new strategy, one that included a diverse range of sources, few of them dependent on each other. These included other national and state professional and peak health and medical organisations, state and territory departments of health, other pharmaceutical companies, foundations and trusts, program sales (we actively sold our DVDs, supplying up to 10% of our income at times) and even license fees when we started to broadcast our educational television programs on SBS TV and National Indigenous Television (NITV, then separate from SBS). We even had plans to commence seeking individual donations (the “Deductible Gift Recipient” status here in Australia is essential for any non-profit).

While we were unable to engage other Commonwealth Government departments, we worked hard to broaden our sources within that Department, ultimately creating funding sources from four branches and some seven different sections. (There’s an interesting guideline here: try to diversify within your funding sources, engaging different sections of a large organisation. It may not guarantee long-term sustainability with that funder, but it certainly can help.)

These thoughts came back to me as I read a valuable article in the Stanford Innovation Review (Spring 2009), entitled “Ten Nonprofit Funding Models”, by William Landes Foster, Peter Kim, & Barbara Christiansen. Although their perspective is American (and thus needs some careful interpretation for an Australian context), their clear writing and analysis is essential reading for any Australian non-profit senior executive, financial strategist or board member.

One of the best insights from this article is that in the non-profit space, “beneficiaries are not customers”. They summarise it thus:

One reason why the nonprofit sector has not developed its own lexicon of funding models is that running a nonprofit is generally more complicated than running a comparable size for-profit business. When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary (for example, integrating a prisoner back into society or saving an endangered species), it has not identified its economic engine. That is a separate step.

Clara Miller, CEO of the Nonprofit Finance Fund … talks about all nonprofits being in two “businesses” — one related to their program activities and the other related to raising charitable “subsidies.”

As a result of this distinction between beneficiary and funder, the critical aspects (and accompanying vocabulary) of nonprofit funding models need to be understood separately from those of the for-profit world. It is also why we use the term funding model rather than business model to describe the framework. A business model incorporates choices about the cost structure and value proposition to the beneficiary. A funding model, however, focuses only on the funding, not on the programs and services offered to the beneficiary.

Their ten funding models:
1. “Heartfelt Connector” – donors and volunteers.
2. “Beneficiary Builder” – donations from people who have been helped in the past (i.e., hospitals and universities).
3. “Member Motivator” – the issue is integral to the members’ lives or beliefs, such as religion, environment, arts and culture.
4. “Big Bettor” – relying on major grants from a few individuals or foundations.
5. “Public Provider” – provide essential social services, reimbursed by or paid for by governments.
6. “Policy Innovator” – creating innovative ways to tackle problems (i.e., homelessness) and thus obtain government grants – and presumably foundation funding as well.
7. “Beneficiary Broker” – providing government services with a fee charged to government.
8. “Resource Recycler” – obtaining in-kind donations and providing them to people in need (a classic Australian example is “Oz Harvest” and food).
9. “Market Maker” – usually in health or the environment, straddling altruistic donors and market forces.
10. “Local Nationalizer” (American spelling used to maintain consistency) – consolidating a large number of local, issue-based community activities with limited funding into a national representative organisation. We sometimes do this in Australia through the state and territory organisations.

*****

I am indebted to my former Matrix on Board colleague Nonie Wales – now at Accounting for Good – for linking to the Stanford article, in her recent (28 October 2015) article “Identifying Revenue Streams for Your Organisation”.