Contribution of the Not-for-Profit Sector

Key points

These key points were released with the Contribution of the Not-for-Profit Sector research report on 11 February 2010.

The not-for-profit (NFP) sector is large and diverse, with around 600 000 organisations.
- The ABS has identified 59 000 economically significant NFPs, contributing $43 billion to Australia's GDP, and 8 per cent of employment in 2006-07.
- The NFP sector has grown strongly with average annual growth of 7.7 per cent from 1999-2000 to 2006-07.
4.6 million volunteers work with NFPs with a wage equivalent value of $15 billion.
- More Australians are volunteering, but for fewer average hours, so total hours grew only slowly (2 per cent per annum over the 7 years to 2006-07).
- Most areas have seen a decline in volunteering, although there has been strong growth in volunteers with culture and recreation organisations.
The level of understanding among the wider community of the sector's role and contribution is poor and deserves attention. A nationally agreed measurement and evaluation framework would add significantly to this understanding.
Current information requirements imposed on NFPs for funding and evaluation purposes are poorly designed and unduly burdensome. Reform is needed to meet 'best practice' principles.
- A significant advance would be to establish a Centre for Community Service Effectiveness to improve knowledge on good evaluation practice, and assemble and disseminate evaluations based on the agreed measurement framework.
The current regulatory framework for the sector is complex, lacks coherence, sufficient transparency, and is costly to NFPs.
- A national registrar for NFPs should be established to consolidate Commonwealth regulation; register and endorse NFPs for concessional tax status; register cross- jurisdictional fundraising organisations; and provide a single portal for corporate and financial reporting.
Legislative proposals to reduce reporting burdens associated with companies limited by guarantee are welcome and needed if more NFPs are to adopt Commonwealth incorporation.
- A separate chapter in the Corporations Act dealing with NFP companies should be introduced, as should rules on the disposal of assets.
- More generally, states and territories should seek to harmonise Incorporated Associations legislation in these and other key areas.
Jurisdictional and agency differences have also resulted in a lack of consistency and comparability in financial reporting requirements for NFPs. Australian governments should, as a priority, implement the agreed Standard Chart of Accounts.
Fundraising legislation differs significantly between jurisdictions, adding to costs incurred by the NFP sector. Harmonisation of fundraising legislation through the adoption of a model act should be an early priority for governments.
Enabling the public to provide greater support to a wider group of NFPs is desirable and would be facilitated if deductible gift recipient status were to be progressively extended to all charitable institutions and funds endorsed by the proposed registrar.
- NFP revenue sources would also be expanded by the promotion and support of payroll giving arrangements.
There is potential for greater social innovation but the business planning capabilities and incentives for collaboration need to be strengthened. Further, there is a need to strengthen the capacity for NFPs to access debt financing for social investment.
NFPs and others delivering community services face increasing workforce pressures and long-term planning is required to address future workforce needs.
- For NFPs, less than full cost funding of many services has resulted in substantial wage gaps for NFP staff. The challenges in retaining staff threaten the sustainability and quality of services. Greater clarity about funding commitment is an important step in addressing these issues.
- Volunteers play a critical role in delivering NFP services but rising costs are affecting the viability of their engagement. Streamlining of mandatory vetting requirements and investigation of portability between agencies and across jurisdictions would reduce one source of costs.
The efficiency and effectiveness of delivery of services by NFPs on behalf of governments is adversely affected by inadequate contracting processes. These include overly prescriptive requirements, increased micro management, requirements to return surplus funds, and inappropriately short-term contracts. Substantial reform of the ways in which governments' engage with and contract NFPs is urgently needed.
- Australian governments should choose the most appropriate model of engagement, ensure consideration of all costs associated with use of the lead agency model, align the length of contracts with the period required to achieve agreed outcomes, review and streamline their contracting processes and ensure staff involved with NFPs have the required relationship management skills.
Some current approaches adopted by governments to the management of the different risks involved in the delivery of services on their behalf are not cost-effective. An explicit risk management framework should be prepared by Government agencies in collaboration with service providers as part of their contracting process.
Implementation of government and sector reforms will be best facilitated by a central policy and implementation unit within the Australian government such as through the establishment of a specific Office for NFP Sector Engagement.

Background information
Jenny Gordon (Principal Adviser Research) 02 6240 3296
Paul Lindwall (Assistant Commissioner) 02 6240 3380