‘Increased costs of compliance, changing government priorities, high administration costs are just some of the challenges which are being faced by the not-for-profit sector.
The fallout has seen an increasing number of voluntary liquidations and mergers over the past several years in these organisations. Many organisations which relied largely on government funding had grants suspended or funds were held pending determination of new government priorities following the last election. This resulted in enormous uncertainty for boards, many of which had limited surplus reserves.
Not-for-profit boards, many of which are unpaid and voluntary positions, must take enormous care in these circumstances. As a minimum any financial reporting to boards of not-for-profit organisations should always consider a wind-up outcome to ensure that any non-balance sheet items such as redundancy and lease payouts are provided for, not just the current balance sheet position. In the event that future funding is not forthcoming, and the organisation needs to close, if reserves are not sufficient to meet the non-balance sheet items, it could leave those board members personally exposed.
Many of the very small not-for-profit organisations in the disability support sector have faced the additional impost of trying to gear for the implementation of the NDIS. Smaller providers tend to focus largely on front-line service provision and with limited administration resources, the challenge of implementing and adapting to an entirely new charging methodology have been huge. Similar challenges have been met in the child care and aged care sectors around their reporting obligations.
There can be advantages of mergers in the not-for-profit arena, however it is essential to ensure that the objects of the merging organisations can continue to be met, and accordingly finding the right partner is essential. The advantages can include reduction in administration and compliance costs, and leveraging from the combined reserves available can be advantageous to the newly merged entity in the provision of front-line services for client and increased security of employment for staff.
Obtaining professional advice is essential to ensure a smooth transition. RSM can assist organisations to identify the issues they need to consider in any merger or voluntary liquidation. It can be tough going, particularly where the merging organisations have a long history or for financial reasons are somewhat reluctantly taking the merger or liquidation path. RSM has many years experience and understanding of voluntary (solvent) liquidations in the not-for-profit area, and are available for an obligation free discussion.
For further information, please contact Frank Lo Pilato, Director of RSM’s Restructuring & Recovery division in Canberra, on 6217 03009 or [email protected].