Starvation rations

Not-for-profits are not funded for their “true” costs, finds new research, with unfunded indirect costs stifling their operations and impact.

The AICD is seeking expressions of interest from Aboriginal and Torres Strait Islander members to join its Reconciliation Action Plan Working Group, a critical part of AICD’s ongoing commitment to reconciliation.

The working group is ultimately responsible for the development, implementation, and reporting phases of the RAP including:

• To scope and reflect how AICD can contribute to reconciliation
• To build an understanding of AICD’s Aboriginal and Torres Strait Islander stakeholders and sphere of influence
• To provide guidance and support in development, implementation and evaluation of the RAP.

Nine Australian NFPs opened up their books to analysis by Social Ventures Australia (SVA) and the Centre for Social Impact (CSI) to better understand which funding gaps are having the most significant impact on an NFP’s capacity for resilience and effectiveness. The research participants ranged in size from $100m to $100,000 in annual revenue, operating across arts, disability, and family services sectors.

The new research seeks to understand whether a US phenomenon — the “non-profit starvation cycle” — applies to Australian NFPs and to investigate if there is an evidence base to support changing the practice of funders. The Paying what it takes: Funding indirect costs to create long-term impact report says a key driver of NFP vulnerability in the US is insufficient funding of “indirect costs” such as HR, IT and finance.

The nine NFPs analysed had average indirect costs of 33 per cent of their total expenses, with a range of 26–47 per cent. SVA/ CSI say this could be severely underestimated as NFPs may seek to downplay their true indirect costs in order to appear more attractive to funders.

“Every organisation spoken to said they had difficulty funding the true costs of what it takes to deliver impact. Most believed they were underinvesting in indirect costs, and several acknowledged they underreported their direct costs to funders in order to win funding. By contrast, funding agreements often only included indirect costs of between 10–20 per cent of overall costs. A significant proportion of NFPs stated they underreported their indirect costs to funders due to a pervasive belief that funders are unwilling to fund more than 20 per cent of indirect costs.” The shortfall is driven by funders’ “inaccurate expectations of how much overhead is needed to run a not-for-profit”. SVA/CSI found that as a result of US research, a long-running campaign is active to change perceptions of overheads by philanthropists and government. “This campaign has been taken up by a number of influential funders, and contemporary practice in US philanthropy is moving towards a more full-cost approach to funding.”

In an interview, an anonymous small NFP told researchers: “Funders want good financial systems and governance, but aren’t willing to pay for it.”

This disjunct occurs despite what researchers say are significantly lower indirect costs than businesses. “For-profit organisations are able to spend as much or as little on indirect costs as is deemed appropriate for their organisation. Companies under $1m in revenue, for example, spend on average 48 per cent indirect costs, not including research and development,” the report found, leveraging income statement data on macrotrends for the likes of Apple, Microsoft, Amazon, Facebook, Google, and Tesla.

The report makes recommendations on how to harmonise definitions of indirect costs. The findings were based on: a review of Australian and international research, financial analysis, NFP case studies, interviews with NFP leaders, philanthropic funders and other sector participants.

In a few weeks, almost 25 per cent of Ukraine’s population of 44 invasion. According to UN High Commissioner for Refugees, about four million refugees crossed borders into neighbouring countries, and some six million have been forced to move inside Ukraine. The inter-million has been uprooted, forced to flee in the face of the Russian agency Regional Refugee Response Plan combines UN, NGO and other partners to support host country governments in ensuring safe access for refugees and third-country nationals fleeing Ukraine.