NFP Boards Not Ready for Financial ‘Future Shock’

A majority of Australian Not for Profit Board Directors do not have the financial literacy skills to meet the changing challenges of the future, including the impact of new funding models,  according to the findings of the Grant Thornton Financial Literacy Survey.

The Financial Literacy Survey  in collaboration with Pro Bono Australia set out to understand the state of play in the Not for Profit sector in terms of the impact of new funding models and the ability of senior managers and Board Directors to deal with emerging financial issues and future sustainability.

The survey found that only 59 per cent of Not for Profit Board members feel their Board has the right level of financial literacy skills to meet the needs of their organisation today and even less, 40 percent, believe they have the skills to handle the financial challenges in the future.

The findings of the survey reveal that across all skills, there is room for Not for Profit Boards to improve and when asked to rate the strength of each Board’s skill level participants only assessed their strength as ‘moderate’.

“The reality is that the changes underway won’t be reversed and the challenge will be how organisations bridge this gap,” the national Head of the Not for Profit Industry Group at Grant Thornton, Simon Hancox said.

Some 1065 respondents from small, medium and large organisations provided feedback for the survey.

“The results of the survey clearly indicate that there is a need to improve the financial literacy of Not for Profit Boards, particularly to deal with the challenges of the future. This raises questions such as, ‘Who is responsible?’ and ‘How can it be done?’ Survey respondents gave clear responses to what they thought,” Hancox said.

“When the question was posed ‘Who is responsible for ensuring financial literacy?’, 71 per cent  per cent believed the responsibility rested with the individual Board member and with the support of the organisation.

“The answer to the second question, ‘How can it be done?’ didn’t come from a direct response to a question but rather from an analysis of the results from a series of questions on director education. That analysis showed that where there was a focus on director education the level of financial literacy was assessed as being higher.

“Of concern is that the survey showed only a small percentage of organisations focused on financial literacy education for their Directors. For Director induction, while 75 per cent of respondents said their organisation had such a program, only 36 per cent said that it included financial training,” Hancox said.

The report found that percentages were very similar for Board evaluations, with 62 per cent performing evaluations but only 25 per cent including an evaluation of financial literacy. These results vary with the size of the organisation; however, the highest percentage of organisations conducting financial literacy evaluations was only 38 per cent.

“The poorest result was recorded in relation to providing financial training for directors, with only 18 per cent of respondents saying their organisation did so,” Hancox said.

“Ideally, Directors’ financial education begins with adding a financial element to the new director induction process to ensure incoming directors understand what drives the organisation’s financial performance.

“It also involves including a financial literacy component to the Board evaluation process, which helps identify Directors’ needs. Finally, it involves organising training, either internally or externally, to address those needs.”

The survey found that the overall performance rating of Board Directors increases as the size of the organisation increased, with the biggest differences occurring in the ‘Strategic’, ‘Critical’ and ‘Legally aware’ skill sets.

“Across all eight skill sets the performance level is lowest where the Directors are appointed solely from the member base,” Hancox said.

“Another area of discussion within the Not for Profit sector, and one that has been evident for some time, is whether Directors of  Not for Profit organisations should be remunerated.

“In the survey we sought to assess whether a paid Board exhibited higher financial literacy traits. An analysis of the responses indicated that the paid Boards’ performances was only marginally stronger than the unpaid Boards across the eight skill sets.”

In looking to the future, the survey sought to identify those financial literacy skills required by Boards to face the challenges of change and to ensure their organisation’s future financial viability. The survey also asked respondents to assess the importance of certain characteristics of financially sustainable Not for Profit organisations.

The Grant Thornton Not for Profit Financial Literacy Survey is a public study undertaken to help understand whether today’s Boards have the skills necessary to guide Not for Profit organisations through the challenges and changes ahead.

The project commenced with interviews of approximately 20 NFP Directors and Chief Executive Officers across Australia, to gauge areas of focus. The survey was then conducted online and respondents were invited to participate through invitation emails sent out by Pro Bono Australia and Grant Thornton Australia.

Summary of respondent demographics:

• 35 per cent of respondents were Board members, 63 per cent were management and 3 per cent were advisors to the sector.

• Only 7 per cent of the respondents said their Boards were paid.

• 84 per cent of respondents were from registered charities.

Download the free survey results HERE.