Governance impact of COVID-19: An NFP perspective

Our member survey shows that directors of NFPs are experiencing distinct pressures through COVID-19 and has underlined the need for support tailored to the sector. At the top of the list, NFP directors are looking to government for direct financial support and a cautious phasing out of stimulus polices.

During the last two weeks of May, the AICD polled more than 2,300 members on the governance impact of COVID-19. A summary of the survey findings can be found here, as well as the full data pack broken down by sector.

Charities and not-for-profit organisations perform a vital role in society. The sector accounts for 8 per cent of Australia’s GDP ($155 billion)1 and employs over 1.3 million people.

The pandemic has had a profound impact on the Australian economy and society. With unemployment and homelessness rising and widespread economic and social dislocation, the demand for many NFPs’ services is higher than ever.

With almost 900 members from the NFP sector responding to the AICD survey, this article considers the distinct pressures faced by NFPs, and what needs to happen so that the sector can provide the critical services that communities need, and maintain its contribution to the Australian economy.

Navigating disruption

Our NFP members ranked the impact of government lockdowns, the disruption to the workforce and the reduction in turnover/demand as the top COVID-19 challenges for their organisations.

To remain afloat, NFPs have implemented cost-saving measures for workforce arrangements from the top down, with around 44 per cent expecting to reduce workforces over the next six months.

At the same time, another 37 per cent indicated staffing levels have remained unaffected during the crisis and are expected, for the most part, to remain unchanged in its aftermath. This suggests that measures such as the Federal Government’s JobKeeper Subsidy Scheme have helped organisations ride out the worst of COVID-19.

In fact, the JobKeeper Subsidy Scheme was overwhelmingly nominated as being of the greatest assistance to NFP members’ organisations during the crisis, with over half of NFP respondents (51 per cent) noting that it had provided the most relief.

As might be expected, the vast majority (86 per cent) of NFP members would like to see a cautious phasing out of direct financial support and fiscal stimulus such as JobKeeper. 

Solvency statements and insolvent trading relief

The survey also emphasised the worries of NFP directors on making going concern and solvency assessments (a concern for 41 per cent of respondents). The AICD is preparing guidance for all organisations, including NFPs, to assist directors with reporting on the effect of COVID-19 on their entities, including addressing going concern and solvency issues. We expect the guidance to be released at the beginning of July.

The Federal Government’s temporary relaxation of insolvent trading laws has assisted some NFPs, with 10 per cent of respondents saying it had impacted their decision to continue trading through the crisis. However, this temporary measure has been more important to SMEs (16 per cent) and private companies (11 per cent).

This may be a result of the ACNC’s requirement that a charity must notify the ACNC and its members if continuing to trading while insolvent. This obligation runs counter to the policy objectives of the Commonwealth Government insolvent trading changes which are designed to encourage organisations to trade through the current crisis. Relevantly, companies that are trading while insolvent are not required to advise their shareholders, nor indeed ASIC.

The AICD continues to advocate for the ACNC to drop this notification requirement to ensure charities benefit from the same regulatory relief afforded to for-profit businesses.

Looking ahead

Practical steps to manage a return to work

Critically, managing new health and safety requirements as and when staff return to work featured in the top three of responses for members across every segment (overall 44 per cent of respondents). These results suggest that directors are looking to governments at all levels for certainty regarding the health and safety regulatory environment in which organisations will be expected to operate.

Funding certainty and flexibility

Viewed together with other survey results, the survey paints a picture of an NFP sector that is firmly looking to government for financial support to survive the crisis.

A majority of NFP respondents (75 per cent) nominated accelerated funding for the NFP and charities sector as the area where they would most like to see further reform or relief.

In the AICD’s view, at a minimum, governments should guarantee funding commitments over the next 12 months and confirm that there will be no funding cuts to charities over the same period.

Harmonisation of fundraising laws

Uncertainty about state and territory policy settlings (40 per cent) was noted as one of the biggest challenges NFP boards anticipate facing over the next six months. In our discussions, members consistently raise the lack of harmonisation of fundraising laws across states and territories as an even greater concern given the pandemic. Unfortunately, many NFPs who traditionally fundraise by holding face-to-face events are now constrained in their ability to raise money. In many cases, they are looking to move to an online model of fundraising yet they find that red tape prevents them from doing so.

Until real progress is made, the AICD will continue to publicly call for harmonisation of fundraising laws.

Radical rethink of policy

Close to three quarters (73 per cent) of NFP members would like the Federal Government to radically rethink its policy agenda and develop new policy priorities for a post-COVID-19 world.  NFP members encourage the introduction of pro-growth, pro-innovation policy settings (52 percent) and virtual AGMs as a permanent feature of the Corporations Act (51 per cent). 

The survey also delivers a clear message that AICD members are looking for governments to think twice before imposing new regulation on organisations.

AICD advocacy and resources

Over the coming months, the AICD will use the results of the survey to shape our advocacy efforts and to help create resources and programs to support our members.

In particular, the AICD will intensify its efforts to seek funding certainty and flexibility for the sector, as well as harmonisation of fundraising laws.

We will also ensure members have access to resources to ensure NFPs and charities are able to survive this crisis and be able to focus on better providing their crucial services.