Names aside, sector's objectives remain clear

There are several ways to define the organisations whose primary objectives do not include making a profit – ‘third’ sector, non-government, community profit, and public benefit are among these descriptions.

Yet many argue that the most commonly used term, ‘not for profit’, is a misnomer that creates challenges for the sector.

“I struggle with the notion of the not-for-profit sector, because all the people in my chair who run these organisations have to at least break even or make a profit,” Princess Margaret Hospital Foundation CEO Vern Reid said.

He argues that the sector needs a new title to create equality in the competition for funding between charitable organisations and other groups, like arts and sporting clubs.

“I’m very strong about the phrase ‘community profit’ organisation, because I think if I go to someone for a sponsorship proposal…we need to be able to compete,” Mr Reid said.

Others, like Lotterywest chief executive Jan Stewart, argue that not-for-profit organisations are, for all intents and purposes, businesses that aren’t beholden to financial shareholders.

“Organisations have got to make enough money to invest in their growth. They might not be returning to private shareholders but they’re got to return to their organisation and to their customers,” Ms Stewart said.

“We need to find another way to talk about the sector that isn’t not for profit.”

The term ‘public benefit organisation’ has gained some traction in the sector, partly because it defines the sector by what it is, rather than what it is not.

For Nulsen Haven chief executive officer Gordon Trewern, it is a much more accurate description.

“When I look at the term not for profit, people seem to get stuck on the profit part. It’s very much a financial emphasis about not paying tax,” he said.

Mr Trewern said the term ‘public benefit’ would reflect the quality of service that not for profits, such as his disability services organisation, provided.

“If we were all about profits, we wouldn’t deliver the service we do today. We’d service a larger number of people with less staff, and we wouldn’t be investing in skill development,” Mr Trewern told WA Business News.

National Disability Services WA state manager, Carlo Calogero, said that while the human services sector had been opened up to profit-making organisations, it was logical that not-for-profit organisations had an advantage through not having to generate returns for shareholders or directors.

“I only have to balance the books, not run a deficit, so I can concentrate more on the quality of service,” he said.

Mr Calogero said the term not for profit worked because it was well understood in the community.

“There would have to be awareness raising if we were to adopt an alternative, although it might be useful to pursue,” he said.

Others, such as Activ Foundation CEO Tony Vis, argue that a term like ‘community benefit’ would convey the worth of the sector more effectively.

Mr Vis said a report commissioned by Activ Foundation several years ago showed that, for every dollar of government funding received, the organisation delivered three dollars worth of service.

“We turn one dollar into three, but that’s not recognised,” he said.

Philosophical arguments aside, there are moves to redefine the not-for-profit sector to simplify financial compliance.  

Earlier this year, CPA Australia developed a new accounting definition for the sector, based on research done by the UWA Business School.

CPA Australia claimed that the basic definition of a not for profit – that its principle objective should not be to generate profit – was too narrow.

Its new set of criteria is based on the UWA research and includes the proviso that surpluses or ownership of a not for profit should not be transferred to its members or owners.

The Australian Accounting Standards Board is also considering a new two-tier system for not for profits, to develop different financial reporting streams for small and large organisations.