Voluntary sector in Australia: Aussie Rules

The Australian voluntary sector is thriving: as well as employing 7 per cent of the population, it is well-established as a provider of public services. But fundraising legislation is still a problem. Three experts explain how the system works.

THE WAY DOWN UNDER

What has the sector in Australia learned from its history of public funding? Mike Hudson found out.

In September, I had the privilege of spending two weeks in Sydney, Canberra and Melbourne to interview 30 chief executives of large service delivery non-profits, intermediary organisations and their government funders.

One topic I wanted to explore was public service delivery. I knew the Australian non-profit sector had a more extensive history of public funding than the UK's and I wanted to discover what they had learned. Funded by a small grant from the Centre for Charity Effectiveness at Cass Business School, London, I set off with a heap of background papers on the sector, a gruelling interview schedule and the now obligatory laptop.

I learned a lot, not least that the sector can deliver. A significant proportion of health, education, employment community services and 'human services' (care for older people, disability and children's services) are delivered by non-profit organisations. One estimate suggests that more than half of all welfare services are provided by non-profit bodies.

In one example, the £4bn per annum Department of Human Services in the state of Victoria contracts out 75 per cent of its services (by value) to 2,600 agencies, 2,000 of which are non-profits.

The biggest voluntary sector providers are huge. The top five have incomes ranging from £300m to £760m, so the largest is twice the size of the National Trust. Nearly 7 per cent of Australians are employed in the sector, compared with 2 per cent in the UK.

Putting services up for tender has worked in certain circumstances. As part of the global trend of the 1990s, there were moves at both federal and state levels of government to subject many services to competitive tender. The most common view is that tendering is appropriate where there are many potential suppliers.

But in fields where the supplying organisations are not strong or where there are few potential suppliers, many funders have concluded that a partnership approach is needed to develop the capacity of the sector.

As one funder says: "We went through a complex and expensive process and ended up with the same providers we had in the first place." Although many public sector funders want to spend more on non-profit providers, they now stress the importance of building capacity and working together to achieve shared objectives.

In many fields, organisations must be accredited by government before they can tender for contracts. This has proved valuable but expensive, often requiring organisations to provide substantial evidence that they can meet quality standards and involve independent assessments of performance.

Both funders and funded organisations agree that the process of accreditation does help to strengthen non-profits, even though it can be seen as bureaucratic and expensive. They have learned that the system has to be dynamic and developmental, incorporating a strong commitment to continuous improvement to ensure it delivers enduring benefits.

This also means being tough on poor performance. Jane Herrington of Victoria's Department of Human Services says: "We have to be willing to end the funding of organisations that do not meet the required standards."

When it comes to funding, Australian experiences show that block funding is not the only option. Although it is required for some services, in other cases it is proving possible to purchase outputs, such as 'episodes of care', 'hours of service' and 'bed nights provided'.

For common services such as care for older people and pre-school education, some funders establish a 'unit price' for the service and then agree the volume to be provided by the supplier. These prices can take account of people's different needs and, for example, provide greater funding for frail, elderly or chronically unemployed people.

Interestingly, outcome funding does not necessarily mean payments are made only after results have been achieved. The best funders make prospective payments and reconcile funding at the year end to ensure that organisations are not constrained by a lack of money.

While funders in the UK battle with the concept of full cost recovery, in Australia it is often accepted that voluntary organisations make a profit. Like Britain, the sector in Australia grew from a tradition of expecting voluntary income to top up government funding, and this is still the case in some social welfare services. But in others, such as employment services, where there are now many providers from the public, private and non-profit sectors, it is entirely accepted that the more efficient suppliers can make profits from these services.

The Salvation Army, for example, sees its employment services as a profitable enterprise. Payments depend on achieving agreed outcomes, and the profits are used to fund other services the charity provides.

A common theme in my interviews was the need for prevention and early intervention. The Brotherhood of St Laurence is an established organisation that provides welfare services and advocates for social justice. It focuses on providing assistance during critical life transitions, such as moving on to further education or retirement. It works with people most at risk of not making these transitions successfully because they lack income, transport, education, health or personal support networks.

Similarly, the federal Department of Family and Community Services encourages early intervention. Evan Lewis, the department's programme director, says: "We are trying to shift non-profits into taking more preventive approaches."

There is much to learn from our friends down under. Although they don't pretend to have all the answers, they are driving an agenda of greater public service delivery by non-profits and making interesting discoveries along the way.

Mike Hudson is director of management consultancy the Compass Partnership.

Case studies from his research will appear in the spring edition of Third Sector's Interaction supplement.

SOUTHERN COMFORT

Australian non-profits supply employment services, housing and youth work. Tash Shifrin spoke to Mission Australia's Patrick McClure about his experiences.

Australia is always that little bit ahead of us. The time difference means each day dawns hours before daybreak in Britain, but some in the voluntary sector argue that Australia offers a preview of the future in another way too - it shows how charities could play a far greater part in delivering public services. And Patrick McClure, chief executive of the 140-year-old charity Mission Australia, has been telling UK ministers all about it.

McClure has been to Britain as part of a concerted campaign by chief executives body Acevo and the Employment Related Services Association to persuade the Government to open up employment services to the voluntary and private sectors.

He has been telling former work and pensions secretary David Blunkett, his successor John Hutton and employment minister Margaret Hodge how his organisation has become Australia's second-largest employment services provider. The largest is also a charity - the Salvation Army.

Mission Australia, a Christian charity with 2,800 staff, 1,000 volunteers and a budget of A$200m (£84m), is involved not only in employment and training, but also in supported housing, youth work and family support.

But it's the employment work that Acevo hopes will catch the eye of UK ministers.

In 1998, the Australian government created a market in employment services previously provided by the public sector. The new system, whereby private and voluntary sector providers place people in jobs, is called the Job Network. Mission Australia has been there since the start, when an initial contracting round split provision between the state, the voluntary sector and private for-profit providers in roughly even proportions.

Unemployed people are referred to the Job Network by a state-run income support service called Centrelink, and are offered a choice of two or three providers to help them get into a job.

"It's interesting that, over three contracts in seven years, the government provision has been reduced to about 3 per cent, almost out of the market," McClure says. "It's now evenly divided between private bodies and non-profit organisations. In all, the number of providers has fallen from 300 to 100." Mission Australia now handles 8 per cent of all clients; the Salvation Army handles 14 per cent.

McClure says the new system has improved employment services dramatically.

Since 1998, total costs have fallen from A$3.2bn (£1.34bn) a year to just A$1.9bn (£799m). The number of people placed in jobs has risen from 400,000 to 700,000, and the cost per placement has fallen - from as much as A$15,000 (£6,309) to A$5,000 (£2,104).

It's not clear how much of this is down to the change from state to private or voluntary provision and how much to other measures such as the 'mutual obligation' system introduced at the same time. This requires unemployed people to take up part-time work, voluntary work or training in return for benefits, with tough sanctions against those who fail to comply. It was this change that the Organisation for Economic Co-operation and Development credits with cutting long-term unemployment among the young people who were initially targeted. An economic upturn has also reduced unemployment.

But McClure argues that the new system revolves around improving outcomes for unemployed people. "Providers are paid only on outcomes," he says.

"If you get people into jobs, you receive payment." Financial incentives reward providers for keeping people in work for six months and working with particularly disadvantaged clients.

A star rating system grades each Job Network centre every six months.

"If your star ratings are low, you don't get a rollover to the next contract," says McClure. "That's how the market has been reduced to 100 providers."

He can't point to specific reasons behind individuals' choices of provider, but he says: "The third sector brings compassion and a commitment to the individual. It lacks a profit motive in that if surpluses are made - and surpluses are available in the Job Network - they are reinvested in services.

Voluntary organisations bring a more holistic approach." McClure is proud of Mission Australia's achievements as a Job Network provider, despite initial controversy over the switch to private and voluntary providers. Voluntary organisations, he says, had to "really think through" whether or not to get involved, weighing up both financial risks and ethical questions.

The move changed the charity significantly. "Developing a performance culture is a real change," McClure says. "But after seven years, I think it's a good thing. It means we're more accountable and the end result for our clients is positive."

However, the Job Network has not escaped a problem familiar to British charities - short-term contracts of just two-and-a-half years. "It's too short," McClure says. "That's made it very difficult at times."

It is not necessarily the case that a government contract will cover the cost of the service, McClure adds. "If you are successful and you can sustain it, then you can make a surplus," he says. "But there's no guarantee; it's just a fixed-price contract. You have to work efficiently to make surpluses."

Stepping into an area of services long provided by the state brings very specific dilemmas, too. In Australia, benefit can be suspended for people deemed not to be fulfilling their side of the mutual obligation. Voluntary sector providers have to report non-compliance to the government's Centrelink agency. "We had to agonise over that," McClure says.

But the public's attitude to Mission Australia has remained positive, he adds. "We're certainly seen as large and, at times, as corporate - but we're also seen as compassionate and effective," he explains.

Ministers in the UK have listened carefully to McClure's experience: conversations, he says, have been "very stimulating". But he adds: "I'm very conscious that it's up to various ministers and bureaucrats as to whether they want to pursue an agenda of contestability in the UK. That's for them to decide - I can't advise them on that."

LEGAL LOWDOWN

The charitable sector is calling for reform of a confusing mix of state regulation, writes Sue-Anne Wallace.

When Cherie Blair agreed to speak at charity gala dinners across Australia, it could hardly have been expected that the story would continue to reverberate almost six months later - nor that amendments to legislation would be proposed in South Australia and a charity would be threatened with deregulation in Victoria.

Mrs Blair's involvement hit the headlines both in the UK and Australia.

Critics in both countries questioned the propriety of payments to Mrs Blair, as well as the size of the promoter's fee and the share received by the charity, which apparently resulted from the accompanying auction rather than the event itself.

When Nick Xenophon, a South Australian parliamentarian, heard about the affair, he immediately proposed an amendment to the South Australian Act, which dates from 1939, to require charities to state the percentage of a fundraising event's ticket price that will go to the charity. Apart from the fact that it is difficult to determine this accurately before the final accounting, there are events that cost a large amount to run but also raise significant funds for charities. This amendment would probably see them canned.

Fortunately, Xenophon, an independent member of parliament elected on the strength of his 'No Pokies' campaign against the controversial slot machines that make gambling commonplace in most clubs and hotels in Australia, has not yet drafted the amendment. Perhaps common sense will prevail before he does.

Heading east, things are more complicated. In Victoria, where different legislation prevails, charities are required to register in order to engage in fundraising. There is nothing unusual about this, but the issue here is that the department administering the registration process seems to be applying a new interpretation that requires charities to declare their costs of administration and, if these exceed 50 per cent, to add a statement on all printed materials to that effect - for example, "only 44 per cent of the monies raised from the appeal will go to helping the cause".

Additionally, if the costs of fundraising exceed 10 per cent, then the condition of registration is that no appeal conducted by the registered charity can incur costs above the percentage stated.

Fundraisers know that the costs of fundraising vary enormously according to the type of fundraising appeal, whether face-to-face, telemarketing, acquisition, events, bequest, major gifts or direct mail. This is a fact overlooked in this interpretation of the regulations.

The effect in Victoria is that fundraisers must aim to keep all fundraising costs below 50 per cent - this is where the heavy penalties kick in and where charities can be deregistered. Meanwhile, a parallel strategy has been to introduce creative accounting to ensure that the costs of fundraising are contained.

If there was a national accounting standard in Australia for the non-profit sector, there would be some common denominators in the reporting of fundraising costs. Recent research in Queensland found that the state's government had developed more than 50 different ways in which organisations were required to account for government grants. Reason has now prevailed - the Queensland government recently standardised and created one form, which is of significant benefit to organisations working in that state.

Add to these local issues the fact that the legislative environment encompasses more than fundraising and that there is no overarching national legislation, and you can sense the frustration of the charitable sector, which has been calling for reform for more than a decade.

A large number of charities in Australia work across state boundaries and are therefore caught by the maelstrom of legislation in each state.

The result is that the costs of fundraising are bound to rise in order for compliance issues to be addressed again and again, state by state.

Both the 1995 Industry Commission Inquiry into Charitable Organisations and the 2001 Charities Definition Inquiry called for major reviews of the not-for-profit sector in Australia. But little has happened since then. A major report published through the University of Melbourne in 2004 reiterated that there exist myriad possible legal structures for Australian non-profits, a confusing mix between state and federal regulation and regulators, complexities and inconsistencies as a result of every state having its own fundraising legislation and a lack of consistent national reporting standards.

When parliamentarians focus on the cost of fundraising, we have every right to claim that it is due, in large part, to the inconsistent and contradictory environment they have created for the not-for-profit sector in Australia.

Is a remedy at hand? Perhaps, at least in part. The Victorian government has just completed research into possible improvements to the regulatory environment of the sector. This initiative, examining the state and national framework, is to be presented to the Victorian cabinet this month - it is to be commended.

However, we need more than reviews, and we need more than amendments that complicate the fundraising environment. A number of key players - including the Non-profit Roundtable, a consortium of sixteen national peak bodies - are becoming more vocal in their calls for reform; so it is becoming harder for governments to call for charities to be more responsible on the one hand, while ignoring the regulatory environment on the other.

Sue-Anne Wallace is chief executive officer at the Fundraising Institute of Australia.

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