Morris-Smith, a social media boffin, was urging people to help. Twelve people replayed the message throughout their own Twitter networks, and by the end of the day, close to 1000 blankets had been amassed. “It’s not something that typically falls within the gamut of the chief financial officer of a $300 million organisation,” admits Morris-Smith, who spent 20 years working in big listed companies such as American Express and TNT before joining Mission Australia three years ago.
Any perception that the not-for-profit sector is softer or less than the commercial sector is rubbish, Morris-Smith says. “The relentless focus on process improvement, cost reduction, structural change all exist here. We benchmark relatively well against the commercial sector given we’re delivering against something like 350 separate government funding contracts, using processes that don’t exist in the commercial world,” he says.
As competition for funding increases, not-for-profits have worked hard to improve the rigor of their reporting, aided by forums like PwC's transparency awards for good disclosure. Being one of the largest, Mission Australia is doing a lot of the groundwork for new funding instruments like “social impact bonds”, which essentially apply a public private partnership model to social projects rather than toll roads.
“Australia is less advanced in its thinking around PPPs in the social welfare space than other countries,” Morris-Smith says. “I think the financial community has an important role to play in advancing that conversation by collecting rigorous data and constructing benchmarks.” Mission Australia has also moved into new business lines, working with liquidators and banks to purchase a portfolio of the failed ABC Learning childcare centres last year.
“Social capital notes, mezzaninc notes, working capital finance, all the stuff you’d find a management buyout – that wasn’t in the job description when I signed up three years ago,” Morris-Smith says, illustrating how charities were having to cope with more complexity as the sector grew.
Charity is a big business in Australia. Industry revenue, generated by some 44,000 entities employing over 1 million workers, in expected to increase by 6.4 per cent to reach $101.5 billion in 2010-11, according to IBISWorld data.
Mission Australia’s income rose 20 per cent to $312 million for the year to June 30, 2011. About 90 per cent of it came from government.
The sector’s growth has attracted the regulator’s attention, promoting two key reforms in the May federal budget. The first, a new national commission to oversee the activities of the sector, can’t come fast enough for Morris-Smith. The compliance burden created by disparate state governing bodies is immense.
“It’s an opportunity to rationalise the legislation that the sector has to comply with,” he says.
The other reform, a tightening of tax rules so commercial entities can’t claim charitable status to dodge tax, is causing more angst. Institute of Chartered Accountants in Australia tax counsel Yasser El-Ansary says this is primarily because the change took effect from July 1 and the government still hasn’t released details on the definition of a charity. “We don’t know what’s in and what’s out,” El-Ansary says.
The fact that Treasury forward estimates include no incremental tax revenue from the reform is being interpreted by some as a sign that the government is not trying to close off profitable social enterprises that reinvest earnings into community programs.
“They’re on the record as saying that they’re not trying to close off those investments by taxing the sector more,” Morris-Smith says.
But questions remain about which activities quality for charitable status. Professional body CPA Australia was in the federal court earlier this month arguing against the ATO’s efforts to revoke its not-for-profit status. “Clarity will be good for the sector,” PwC partner Regina Fikkers says.
Story originally published in the Australian Financial Review on Monday 25 July 2011.
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