The Role of Corporate Financial Control and Governance Mechanisms in the Successful Financial Management of a Small Not-For-Profit Organisation in Australia

Abstract

<p>The topic of this research is, <i>The role of corporate financial control and governance mechanisms in the successful financial management of small not-for-profit organisations in Australia</i>.</p> <p>This research stems from a few pressing issues in the industry that have impacted on the not-for-profit (NFP) sector. Some of these issues are the closing down of valuable services due to lack of funds, the constant survival mode that small NFP organisations are working under and the difficulty in attracting skilled directors for NFPs. Currently, there is only a limited literature in the area of best practice and a model code of conduct specifically for small NFP organisations.</p> <p>The literature also revealed that small NFP organisations have limited governance instruments to protect the interests of the organisation or its membership. Small NFP organisations are also loosely monitored in Australia. They are only required to submit a summary of their financial affairs at their AGM and to the NSW Fair Trading or Australian Securities and Investment Commission. There is also little accountability in this sector in that there is a clear separation of ownership and control.</p> <p>Due to the fact that there is limited governance, low monitoring and low accountability in small NFP organisations, there is a need for the development of good governance instruments in order to attain public confidence and for the long-term survival of these NFPs. During the course of the study, four research questions emerged. They are: <ol><li>What are the significant corporate governance issues that exist in small NFP organisations in Australia?</li> <li>Are there appropriate ‘best practices’ that can be included to develop a corporate governance model of best practice specifically for small NFP organisations in Australia?</li> <li>Are small NFP organisations in Australia in a precarious state of survival and extinction?</li> <li>Will a model code of conduct strengthen the governance of small NFP organisations in Australia?</li></ol></p> <p>In an effort to answer the stated research questions, quantitative and qualitative data were collected using four lines of enquiry, which are literature review, an online survey, ten in-depth interviews and a case study. A mixed-method research methodology was employed because the quantitative method opened the research to the widest possible audience before narrowing it to the scope of this particular study.</p> <p>Validity and reliability were ensured by testing and re-testing results until they were dealing only with issues related to small NFP organisations in Australia. At the end of a long and rigorous process, this research concludes that small NFP organisations in Australia are in dire need of help and guidance.</p> <p>This study revealed: <ul><li>problematic practices, which are comparable to criminal behavior, such as intimidation, harassment, mismanagement of funds and other corrupt practices, such as putting pressure on directors to change their vote and manipulation of corporate records.</li> <li>100 percent of the organisations interviewed had directors that did not know how to interpret financial reports.</li> <li>90 percent of the organisations interviewed were closing down or had been on the verge of closing down at one or more times in the life of the organisation.</li> <li>80 percent of the organisations did not have successful director recruitment process. Some of the comments made regarding the quality of directors were: <ol><li>“We had ‘rogues’ on the board.”</li> <li>“We ‘hope for the best’ when directors are elected.”</li> <li>“We went to ‘hell and back’ because of the previous board.”</li> <li>“Our board was dysfunctional. There was in-fighting and aggressive behavior at board meetings.”</li></ol></li> <li>40 percent of the organisations that were closing down could have continued their operation if they had partnered with other organisations that could complement their services.</li> <li>Transparency, declaration of conflicts of interest, confidentiality, integrity are some of the codes that the interviewees felt must be included in a code of conduct that was to be specially developed for small NFP organisations in Australia.</li> <li>There is a need for a code of conduct for directors that clearly stipulates consequences if directors breech the code of conduct.</li></ul></p> <p>This scenario presents a weak and volatile sector that is in a precarious state. It needs much attention and focus. This study concludes that there is an overwhelming need for mechanisms that will strengthen and provide stability to the small NFP sector in Australia. The corporate governance mechanisms that have been specifically developed for this sector through this research are: <ul><li>A Corporate Governance Model of Best Practice for Small NFP Organisations in Australia.</li> <li>A Code of Conduct for Directors of Small NFP organisations in Australia.</li></ul></p>