06/02/2007 - 22:00

Not for profit: Pressure on small agencies

06/02/2007 - 22:00

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Pressure to consolidate is one of the major issues facing small agencies in the not-for-profit sector, driven largely by government funding strategies and corporate sponsors’ preference for brand names.

Not for profit: Pressure on small agencies

Pressure to consolidate is one of the major issues facing small agencies in the not-for-profit sector, driven largely by government funding strategies and corporate sponsors’ preference for brand names.

 

These agencies are losing ground to larger and wealthier organisations, resulting in a diminishing presence of local providers.

 

For some within the sector, this can lead to compromises being made on service delivery and diversity.

 

Western Australian Council of Social Service executive director Lisa Baker said that, although there had been a trend towards consolidation during the past decade, recent policy decisions by the federal government had accelerated the process.

 

“What we’re seeing happen is a very clear policy decision to drive rationalisation, which is very different from natural attrition through natural demise,” she said.

 

Ms Baker said the funding bias overrode market forces, which would eventually determine the viability of smaller operators.

 

It was a process she believed was eroding social capital.

 

“Many agencies have sprung up through direct support by the people in the neighbourhood. If you take them away, it destabilises the community.”

 

Ms Baker also said many smaller players in the sector felt larger agencies were taking over service delivery without sufficient consultation with local providers, especially in regional areas.

 

In areas such as childcare, she said, the federal government had moved to privatise the industry.

 

“Privately managed businesses have a greater capacity to raise venture capital, so you end up with closures at a local, community level, giving way to big corporations,” Ms Baker told WA Business News.

 

However, there are significant economic advantages in consolidation, according to Brad McVeigh, an audit partner at accounting firm BDO Perth, whose not-for-profit clients are mainly $100 million companies.

 

He said consolidation in the not-for-profit sector was advantageous to the wider community, provided specific interests were preserved.

 

“It enables service delivery at a lower cost and prevents duplication of administrative effort,” he said.

 

“Larger organisations do get an economy of scale in terms of the cost of administration being a lot lower, I’d argue.”

 

Mr McVeigh said that, given the finite amount of government funding for the sector, consolidation was more economic in terms of addressing pure compliance issues, such as auditing and managing asset registries.

 

Director of not-for-profit planning consultancy Toolbox, James Lawton, is cautious in his endorsement of rationalisation, although he says the issue is more pertinent in some service areas.

 

“The industry can be so big and whether there is duplication is a big question within the industry. There might be a need to look at rationalisation,” he said.

 

Mr Lawton said larger organisations had an advantage when it came to sourcing funding, and suggested the government had a responsibility to contribute further.

 

“Certainly, what the state government needs to do is ensure that different sectors get a suitable increase from year to year, at the CPI or over,” he said.

 

Charity Link executive officer Maureen Mawson agrees that current government funding is insufficient and tends to support larger organisations.

 

“Even donors are going to go for the big brands…unless they have a connection to a particular cause,” she said. “The bigger organisations can offer more benefits to sponsors in a corporate way.”

 

Ms Mawson said there was a need for both consolidation in some areas and preservation of local providers.

 

“Organisations such as women’s refuges need to be locally based, but for regional groups there are benefits of belonging to an umbrella organisation,” she said.

 

And there was a need for local providers in regional and metropolitan areas, particularly when the cost of transportation was an issue for some clients.

 

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