Sharing FinancialAdminstrationA Feasibility Study ofPotential Models for SmallNon-Government OrganisationsResearch ReportCouncil of Social Service ofNew South Wales (NCOSS)
The Council of Social Service of NSW and Matrix On Boardacknowledge the generosity of Zurich Financial Services Australiain funding this research.First published March 2007© 2007 Council of Social Service of New South Wales66 Albion Street Surry Hills NSW 2010tel: (02) 9211 2599fax: (02) 9281 1968email: email@example.com: www.ncoss.org.auThis publication is copyright. Non-profit groups have permission to reproducepart of this book as long as the original meaning is retained and proper creditis given to the Council of Social Service of New South Wales (NCOSS). Allother persons and organisations wanting to reproduce material from this bookshould obtain permission from the publishers.ISBN 1 875326 79 0Printed by Allans PrintersThis report is based on research conducted by Matrix On Board Pty Ltd. Thefinal report was prepared by the Council of Social Service of NSW (NCOSS)
1Summary of keyfindings• Small non-government organisations in NSWcurrently employ a range of different modelsto undertake their financial administrationand financial management functions. Mostcommonly they are done “in-house” by parttime staff or volunteers, and are areas wheremany small organisations struggle.• The long-term financial viability of smallernon-government organisations is guidedby the extent to which they adopt efficientpractices and take advantage of economies ofscale, cooperative practices and optimal use ofresources.• There are various models for sharing backoffice functions that are starting to emerge inthe not-for-profit sector.• From this research, four models have emergedthat are all promising options for small nongovernmentorganisations:• Outsourcing back office functions to aspecialist provider;• Partnering with a larger communityorganisation;• Co-location with other small nongovernmentorganisations; and• Joining back office and governancefunctions with other small nongovernmentorganisations.• Each model carries various risks and benefits,and individual organisations will need toconsider their own situation to determinewhich model may be appropriate for them.• In any sharing arrangement there must begood relationships between the participatingorganisations and a great deal of trust.• To ensure the success of a shared servicesarrangement it is essential that the setupphase is appropriately resourced so that all thenecessary work can be completed.• There is a high need for information aboutvarious models for handling financialadministration and financial managementwithin a small organisation, and for accessto expertise to support the implementationprocess.
2 IntroductionThe Council of Social Service of NSW (NCOSS)stresses the importance of valuing existing localservices and recognising their knowledge andexpertise within their local community. NSWDepartment of Community Services (DoCS),which funds many small NGOs, is committed “tosupporting a diverse community services sectorand working with small organisations to ensuretheir viability and capacity.” 1While it is widely recognised that small nongovernmentorganisations (NGOs) excel atdelivering services to communities, manysuch organisations struggle with their backoffice functions and particularly the financialadministration and financial management aspectsof supporting the delivery of their core services.For this reason Matrix on Board (“Matrix”),NCOSS and Zurich Financial Services AustraliaLtd have partnered to undertake this research. Theresearch examines the feasibility of small NGOssharing their financial administration and financialmanagement functions. Potential models havebeen developed with the aim of finding means toensure these functions are fulfilled in a way thatmaximises efficiency and allows small NGOs tofocus on service delivery.Most large NGOs have a substantial financeand management infrastructure to support theirservice delivery. However many small to mediumorganisations do not have such an infrastructure andtheir financial administration functions depend onproject funding. Since such organisations are oftenforced to compete with larger NGOs their futureviability will depend on how efficiently they areable to deliver their infrastructure functions. Thisproject aims to find ways for small NGOs to achieveefficiencies in their financial management.2.1 MethodologyThe research for this project centred on consultationswith two cluster groups of representatives fromsmall NGOs in two different regions in NSW: southwestSydney and the Central Coast. Participantswere recruited by both Matrix and NCOSS throughtheir networks within the not-for-profit (NFP)sector. A total of 30 organisations participated inthe project.In preparation for the consultations Matrixconducted 30-minute telephone interviews witheach of the participants. The purpose of theseinterviews was to identify the participatingorganisation’s needs and issues around financialmanagement. Additionally, questions were askedabout the organisation’s attitude to sharing servicesand – if the organisation was not already sharingservices – the participant was asked to comment onvarious aspects of hypothetical models. This processallowed Matrix to gain an understanding of how theparticipating organisations are currently handlingthe functions in question. It also contributed to thedevelopment of some preliminary models for usein the consultations.Concurrently, Matrix undertook a literature reviewand conducted research interviews via telephonewith key individuals who were identified ashaving specialised knowledge relevant to theproject. We also contacted Council of Social Serviceorganisations across Australia to seek examples ofmodels. These various avenues of research alsocontributed to the development of the preliminarymodels that were used in the consultations.During the consultations participants representingsmall NGOs worked through the preliminarymodels, scrutinising various elements of theirstructure and considering issues relevant to theirimplementation.1 DoCS website: www.community.nsw.gov.au
SHARING FINANCIAL ADMINSTRATIONIn summary, this research was informed by datacollected from the following sources:• Relevant literature and reports in the not-forprofitsector;• Telephone interviews with participatingNGOs in advance of the consultations;• Telephone interviews with key individualsidentified as having specialised knowledgerelevant to the project; and• Consultations with two cluster groups ofNGOs to workshop different scenarios andfine-tune potential models.The resulting data is qualitative, empirical datarather than quantitative. The discussion in thisreport is based on our analysis of that data.The interview and consultation process with allparticipants was effective in eliciting valuableinformation for the project, especially in relationto the practical aspects of implementing models.Matrix On Board wishes to acknowledge allparticipants who contributed to the research andthank them for their honest, constructive andthoughtful comments.2.2 DefinitionsFor the purposes of this report we have definedcertain key terms as follows.Small NGOA non-government organisation with up to15 full time equivalent (FTE) employees.Financial administration and financialmanagement functions or “backoffice” functionsThe functions involved in the financialadministration and financial managementof an organisation, defined for thepurposes of this report as:• bookkeeping,• payroll,• accounts payable and receivable,• insurances,• tax compliance,• financial reporting,• budgeting,• financial planning,• grant acquittals and• audits.Peak bodyFor the purposes of this report a peakbody is defined as an NGO that exists toserve the needs of other NGOs, ratherthan individuals. Most peak bodies’members are from a particular subsectionof organisations, for example thoseproviding a particular type of service, orin a certain geographic region.
3Backgroundandliterature reviewThis section describes some issues small NGOscurrently face and gives some background tothe practice of sharing “back office” financialadministration and financial management functionsas found in the literature and as observed inpractice.3.1 Context for Small NGOsSmall NGOs, defined as having less than 15full time equivalent staff, are operating in anincreasingly challenging context. The currentfunding environment has a strong theme ofeconomic efficiency, as it is clear that “governmenthas made a clear choice to introduce a competitiveelement into funding.” 2 This competitive elementpotentially erodes the atmosphere of cooperationthat facilitates service provision. Cooperation isnot only ingrained in the spirit of the NFP sector,it allows organisations to operate more efficiently.Therefore small NGOs need to find ways ofcooperating while still surviving in a competitivefunding environment.The burdens on small NGOs in terms of financialadministration and financial management aresignificant. Funding bodies have stringent reportingrequirements which are often onerous for a smallorganisation to fulfil, particularly if they onlyreceive a small amount of funding. Over the yearsCPI increases in government funding have notcovered the cost of changes affecting the sector. Forinstance, insurance costs for NGOs have escalatedin recent years, but funding has largely remainedstable. Organisations generally attempt to provideservices at the same level, which means that theirback office functions get eroded.A 2005 study 3 found surprisingly little isomorphism(structural similarity) across a random sample ofAustralian NGOs. The author concluded thatsince different organisations still have manydifferent ways of structuring their operations,“best practice … has not yet swept through thenonprofit world.” This implies that “ultimatelyefficient and productive organisational methodshave not yet been discovered, disseminated, andinstitutionalized.” 4 This reinforces our findingthat there is a lack of information on best practicesfor NGO financial administration and financialmanagement, and that small NGOs have asignificant need for such information and accessto resources and expertise to help implementpromising models.The “Small Non-government OrganisationsWorking Together” (SNOW) project in westernSydney was designed to explore the strengths,issues and challenges facing small NGOs in theMount Druitt / Blacktown area. The project alsoidentified a range of strategies to support smallNGOs in responding to the challenges and to allowthem to develop and enhance their potential. Oneof the key recommendations of this project was thatgovernment provide funding for the developmentof “reasonably priced bureaux services” 5 . Clearlythis is another indication that the areas of financialadministration and financial management providesignificant challenges for small NGOs. It is thereforeessential to explore options for how better to handlethese functions.Kohm (1988) also identifies a lack of informationon existing models as a significant challenge toplanning and managing any cooperative venture.“Without knowledge of the failures and successesof similar efforts, those involved in cooperativenonprofit ventures rely on trial and error.” 6 Thisproject is an important step towards developinga body of evidence-based information that will be2NCOSS, 2005, p.53Leiter, 20054Leiter, 2005, p.275Bradfield-Nyland Group, 20046Kohm, 1998
Sharing Financial Administrationeconomies of scale of large organizations whilemaintaining the character, philosophies, flexibility,and community responsiveness of small ones.” 11One group of examples are co-location modelsthat allow small NGOs to share some of their fixedcosts. Another type of collaboration is contractingbetween NGOs, in which one provides back officefunctions to another – an arrangement that mayresult in a merging of administrative systems whileretaining distinct governance.A study in the United Kingdom has examinedcollaboration between large and small voluntaryand community organisations, with a specificeye to the role of large NGOs in building thecapacity of small NGOs. 12 The study found thatthere were mutual benefits to such partnerships.Smaller organisations benefited from access tothe intellectual property of larger organisations,especially their systems, policies and resources.Large organisations drew benefit from closerconnections with the community and with localservice providers via the small organisations.All the organisations involved found that thepartnerships increased trust between them andfostered a more collaborative approach.There are also examples of sharing services withinAustralia. Outsourcing to a specialist serviceprovider is quite common. An example fromTasmania illustrates a typical scenario. In this case abookkeeper operating as an independent contractordoes payroll, accounts, etc. for a range of disabilityservice providers. He has specialised in this areaand his client organisations rely on his expertise fortaxation issues, payroll technicalities, knowledge ofthe Disability Service Providers Award, etc.It is also becoming more widely recognised thatthere is great potential to achieve efficiencieswhen NGOs collaborate. The Queenslandgovernment has specific funding allocatedthrough the Strengthening NGOs project (SNGO)for NGOs implementing shared and collaborativearrangements. This project aims to increase NGOcapacity by reducing the administrative burdenon NGOs. Three pilot multi-tenant service centresare being established in McKay, Toowoomba andCaboolture, with some variety in models aroundthe extent of amalgamation. These are still in thesetup phase and will be evaluated in 2006-07. 13The Regional Outreach Support Program (ROSP)in Cairns, Queensland trialled a partial cogovernanceand co-location model involving 4partner agencies in the women’s services sector.One of the partner agencies was the legal auspicefor the shared entity, ROSP, which was run by amanagement sub-committee. The managementsub-committee was made up of 4 coordinators and4 committee members (one from each agency forboth categories). The benefits of the trial includedhaving one “front of house” contact point forreferrals and phone calls. Co-governance createda new sense of identity in ROSP which was foundto be a positive outcome: it raised the profile ofwomen’s issues and services in the area and wasthought to have “the potential to be a powerfulvoice.” 14Ross House in Melbourne is another example of a colocationmodel in action (it is not entirely dissimilarto Parkside on the NSW Central Coast, which isdescribed as a case study in Appendix B). The RERoss Trust purchased a building in inner Melbourneand renamed it Ross House. A 5 storey house, ithas the capacity to house up to 60 organisations.Tenants are all community organisations andpay less than market rental rates for space in thebuilding. There are additional facilities such asmeeting rooms, photocopiers and faxes, which arealso available to other organisations that are nottenants of the building. The Ross House Associationis an incorporated body that runs the facility, andalso fosters the development of community amongthe building’s tenants. All the tenants are requiredto be members of the Ross House Association. Anongoing community consultation process was builtinto the planning stages.These examples from the literature and aroundAustralia highlight some key learnings for NGOslooking at implementing a shared services model,many of which are reinforced in the current research.These considerations are outlined in the sectionImportant Factors for Successful Implementation.11Kohm, 1998..12Mitchell and Drake, 2005..13Queensland Government, Department of Communities..14Earles et al., 2005, p. 12..
4Currentpractice amongsmall NGOs in NSWThere are a range of different financial administrationand financial management practices currently usedby small NGOs in NSW. The most common modelis to employ a part time bookkeeper, with hourstypically ranging from just a couple per month to 2-3 days per week. The bookkeeper may be expectedto undertake a range of additional administrativeduties, or there may be an administrative workerwho performs the more general administrativetasks. An organisation with such a setup wouldusually call in extra support around the end of thefinancial year, often requesting extra hours fromthe bookkeeper as well as bringing in an auditoror accountant.In addition to this typical scenario, there arevarious sharing arrangements already being usedby small NGOs. A few organisations outsourcesome functions such as payroll or bookkeepingto an off-site service provider or a larger NGO. Insome cases this works very well, with managementfeeling that a burden has been lifted and that the jobis being done by a competent person who possessesthe required expertise. There have been cases ofoutsourcing that have not been successful, in whicha payroll company consistently made mistakes incalculating pay.Some organisations share a bookkeeper and/oradministrative worker with other organisations,with varying degrees of success. In some casesthe organisations involved feel that the situationis of mutual benefit and enables them to accessexpertise that they could not otherwise afford. Invery few cases there is a feeling that one or bothorganisations’ needs are not being met in a sharedworkerarrangement. A sharing arrangementcan also lead to confusion in terms of reportingrelationships and “ownership” of staff.4.1 StrengthsThe primary strengths cited of current financialadministration and financial management practicesare the quality and dedication of individualsinvolved. Relationships are extremely important,and small NGOs rely heavily on networks ofsupport.The typical arrangement described above has somebenefits. Often the bookkeeper tends to stay withorganisations for many years. This can result in ahighly competent individual in the position, whohas built good relationships with the organisation’smanagement and auditor. A good bookkeeper willusually develop systems over the years to makethings run more smoothly. They may also havetransferred some skills to the organisation’s otherstaff, for example so that an administrative workeris able to do payroll if the bookkeeper is away.Additionally, it is quite common for a bookkeeperto work for more than one small NGO on a parttime basis. This allows for cross-pollination ofideas, for instance the bookkeeper may observe thatone of their clients has particularly efficient systemsor procedures, and could implement them withinthe other organisations they work for.Where positive sharing or outsourcing arrangementsexist, these are cited as enormously beneficial tothe organisation as a whole and often very costeffective. Sharing arrangements that are successfulhave usually been properly researched, are built onexisting good relationships where there is a lot oftrust and have procedures and agreements in placethat are very clearly documented and understood.For more detail about existing models of sharedservices see the Case Studies in Appendix B.
Sharing Financial Administration4.2 WeaknessesIt is clear that small NGOs face challenges in theareas of financial administration and financialmanagement. Lack of expertise is something thatmany small NGOs face. Legislative responsibilitiesand funder requirements place a reporting burdenon NGOs that is onerous for a small organisationto fulfil. Often the expertise required to meet therequirements is lacking within the organisation andexpensive to purchase. In addition the expertiserequired for certain regular tasks such as payroll andbookkeeping often resides in just one staff memberwho is not always onsite. This dependency on oneindividual makes the organisation vulnerable.An organisation with a system like the typical onedescribed above is very dependent on the individualbookkeeper. Some do not have adequately qualifiedbackup staff so the bookkeeper simply never goeson holidays for more than one week, in order not tomiss a payroll day. The extra workload at the endof the financial year end is often a struggle. SmallNGOs usually do not have the flexibility in theircapacity to absorb the additional hours of work.Time in lieu is sometimes given instead of pay forthe extra hours worked, which the bookkeeper thenhas trouble taking since they are so indispensable.Some organisations also rely heavily on theirmanagement committee and the treasurer inparticular, to undertake extra hours of volunteerwork around the end of the financial year endOther challenges have to do with funding andcapacity. Many organisations build administrationcosts of 10-25% into any project funding, althoughsome – especially smaller organisations – feel thatdoing so may make their bid less competitive. Thereis a level of anxiety among small NGOs and a sensethat funders are favouring larger organisationsand are unwilling to fund the capacity of smallerorganisations. Without adequate funding forcore functions like financial administration andfinancial management, stability of an organisationis threatened. For example, it becomes difficult toretain staff when the position is unstable and hasan uncertain future.A challenge that small NGOs face with respectto capacity is the perception among funders thatlarger organisations are more efficient. Measuringorganisational efficiency in this context is extremelydifficult and even agreeing on a suitable definitionis not straightforward. It cannot be stated as afact that larger organisations are more efficient,however there is a definite sense within the sectorthat this perception exists among various fundingbodies.Responding to these challenges is something mostorganisations would like to do but either cannotafford to or do not know where to begin. Many – ifnot most – smaller organisations express interest inchanging how they are currently handling financialadministration and financial management. Theevidence suggests there are better ways of handlingthese functions for organisations that are struggling,but often it is a matter of finding the time andresources to effect the change. There is a great needfor guidance as to how better to handle financialadministration and financial management.This section outlines the dominant models thathave emerged from the research and consultationswith small NGOs in the two cluster groups. Theyare arranged in increasing order according to thelevel of integration of the organisations involved.For each model the benefits and risks to NGOsare outlined. Variations on the models are alsodiscussed.
5 Models5.1 Outsourcing to a SpecialistProviderA small NGO outsources its payroll, bookkeeping,accounts, tax compliance, financial reportingand audits. These functions are performed by aspecialist provider of financial administrationservices. The books are done either onsite when thespecialist provider visits at a set time, or offsite atthe service provider’s premises. They specialise inproviding financial services to the NFP sector.At the end of each pay period the managerelectronically submits all staff timesheets to theservice provider. The service provider performsthe calculations and responds electronically withthe details of the pay. The manager then makes thepayments using internet banking.At the end of the month the manager delivers thenecessary documentation to the service provider,or the service provider comes onsite. The serviceprovider does the data entry and bookkeeping(whether onsite or offsite). The manager receivesa monthly financial report that also goes to themanagement committee.At the end of the year the service provider transfersall the required information to the small NGOsauditor. The auditor spends 2-3 days working onthe audit.The NGO pays the service provider a fixed fee permonth for these services.5.1.1 BenefitsA primary benefit of outsourcing financialadministration and financial management functionsis that it relieves the NGO’s staff of duties whichare not part of their core mandate. Managersor coordinators who outsource these functionsdescribe a feeling of relief that they do not haveto worry about those tasks. Since many NGOsstruggle with these functions, it is reassuringto know when they are being performed by askilled professional. This frees up the manageror coordinator to focus on service provision. Italso frees up any administrative staff to supportprogram staff more effectively.Outsourcing to a specialist provider allows asmall NGO to access a level of specialist expertisethat they otherwise would probably not be ableto achieve. While some management committeeshave a high level of “financial literacy” this is notthe case in all small NGOs. Most organisationswould benefit from the expertise that a specialistsupplier provides.Contracting these functions to an external agencyeases the burden on the small NGO to keep upwith legislative changes, tax compliance issues,industrial relations, reporting requirements, etc. Ifthe service provider specialises in NGOs then theyare likely to be diligent about staying up to date onsuch issues. The NGO no longer needs to do theresearch themselves, although they should verifythat the service provider does keep updated.There is a perception that a higher level of servicecould be attained by outsourcing financialadministration to a specialist. This is due both tothe specialised skills that the external providercould bring to the task, and because the personperforming these functions would not be distractedby other tasks, as is often the case when thefunctions are performed by a staff member whohas additional responsibilities.Outsourcing to a service provider organisationremoves the dependency that many small NGOshave on a particular individual. While thefunctions may usually be performed by the sameperson, an organisation would always have anappropriately skilled backup if the primary workerwas ill or otherwise unavailable. An employee ofan organisation may also be more available to theNGO that could contact them via phone or emailon any day, making them more accessible than abookkeeper who is available only one designatedday per week.
SHARING FINANCIAL ADMINSTRATIONThere are various advantages to having theoutsourcing done either onsite or offsite. The benefitof doing the books offsite is that the small NGOdoes not need to provide space and equipmentfor an additional worker. However having theoutsourcing done “in-house” is easier and moresecure in terms of information transfer since allthe records are kept onsite. Onsite outsourcingalso has the benefit of giving management andstaff regular face-to-face access to the specialistskills of the service provider. However since theprovider only does their fixed tasks, the financialadministration is kept discrete from other generaladministrative duties.Another benefit of this arrangement is that somefunders are encouraging outsourcing over hiringstaff. Using contractors instead of employeesmay reduce the risk and liability for the NGO.Although the NGO’s management committeeis still ultimately responsible, the contractor’semploying organisation (or the contractor themself,if independent) carries some of the liability.5.1.2 Characteristics of organisations thismodel may suitAlmost any organisation could outsource theirfinancial administration and financial managementfunctions to a specialist service provider. Thearrangement may be easier to set up for anorganisation that is not too big, so that it does notbecome onerous for the manager to do the internetbanking and so that the accounts are fairly easilytransportable. In some instances, the specialistservice provider can set up internet bankingtransactions and then nominated signatories loginto the bank account to authorise payments.5.1.3 RisksOne of the risks for NGOs outsourcing financialadministration and financial management functionsis that a typical bookkeeper may not possess therequired specialised knowledge of the NFP sector.Many small NGOs have to produce different typesof reports to meet various funder requirements,and legislative changes have brought increasedcomplexity to issues such as salary packaging andtaxation. Obviously it is essential that a serviceprovider understand the legislative and reportingrequirements to which NGOs are subject. It may bedifficult to find an appropriately qualified serviceprovider. Another risk is that the NGO may feelunable to afford such a service.The cost of setup is a potential barrier to outsourcingfor some small NGOs. As well as the time requiredto find an appropriate service provider, someorganisations may need to spend some time orother resources to get their systems up to thestandard required by the service provider. Forexample, they may need to move to standardformats for various reports and forms or put somenew procedures in place.Some organisations may feel vulnerable withtheir books out of their immediate control.Confidentiality and security are important issues toaddress. There must be guidelines and proceduresin place to ensure that these are maintained,especially when transferring documents or otherinformation. An onsite outsourcing arrangementmay be more comfortable for organisations that areconcerned about transferring documents.If an organisation is outsourcing financialadministration and financial managementfunctions they risk confusion about where financialresponsibility lies. It is essential that both theboard and management understand that they arestill responsible for the financial outcomes of theorganisation, that they are simply outsourcingthe processing functions required to track thefinances.Another risk of outsourcing is that it may diminishthe capacity of the organisation as a whole. If theorganisation had a bookkeeper who also did othertasks around the office they may lose that extrasupport if they let the bookkeeper go in order tooutsource the financial administration functions.This risk may be addressed by determining howmuch of the staff member’s time was spent on othertasks, and trying to retain them for those hours orhire an administrative worker.5.14 VariationsThere are different ways to outsource financialadministration and financial managementfunctions. The organisation needs to decide whichfunctions would be beneficial to outsource, andwhich they would prefer to keep in house. Thesedecisions will be very individual, dependingon the nature and structure of the organisation.Another decision is whether to outsource allfunctions to the same service provider, or whetherto use separate contractors for different functions– e.g. a specialised payroll company, as well as abookkeeper. These decisions will depend moston the types of service providers available in theorganisation’s region.10
SHARING FINANCIAL ADMINSTRATIONAnother variation of this model is for a group ofsmall NGOs to group together into a consortium topurchase services in bulk from a specialist provider.The advantages are that this might achieve costsavings for all the participating organisations. Theyall may also benefit from reviewing their systemsto bring them in line with the service provider’srequirements. This will likely result in the sharingof some best practices, as systems or proceduresthat are working well for one organisation canbe implemented in the others The main risk of aconsortium is the challenge of maintaining it: a greatdeal of careful thought and effort is required to setup all the appropriate agreements. Additionally,time will have to be allocated for maintainingthe relationship. Participating organisationsshould establish procedures to facilitate opencommunication and ensure that they have fair andagreed upon conflict resolution processes.5.1.5 Large / Small NGO PartnershipA small NGO running just a few programs operatesin the same region as a larger NGO. The largerorganisation has well-established systems tohandle all its financial administration and financialmanagement functions. It likely has a bookkeeperwho is close to full time, at least one administrativeworker and has access to an accountant. The smallNGO, on the other hand, struggles with thesefunctions and in particular has difficulty retainingqualified staff.The large NGO offers to do the small NGO’spayroll, bookkeeping, accounts, tax compliance,financial reporting and grant acquittals on a feefor service basis. The fee is reasonable for thesmall NGO because they are accessing the existingcapacity of a larger organisation. For example, thelarger NGO was already sending their bookkeeperfor MYOB training each year. Since this is a costthey have already budgeted for, they do not chargethe small NGO for a portion of the training. Thesmaller organisation pays a fixed monthly fee forthe regular financial administration functions.Other tasks that occur on a more irregular timetablelike grant acquittals, funding applications, etc.are charged at a reasonable hourly rate. Thesmaller organisation can also access the largerorganisation’s equipment such as colour printerand photocopier, binder, etc. for a nominal fee.The smaller organisation may need to changesome of its systems to make it easier for the largerorganisation’s finance department. For examplethey may be required to use standard timesheets,change their accounting software, use standardisedforms, etc.5.1.6 BenefitsThe primary benefit of a large / small NGOpartnership is that the smaller NGO has access tothe larger organisation’s more highly developedsystems and specialised skills (such as an accountant,submissions writer, established accountingprocedures, etc.). It may also have access toequipment that it would otherwise be unable toafford. Research from the UK found that smallerNGOs benefited from access to the intellectualproperty of larger organisations, their systems,policies and resources. 15This model may also appeal to small organisationsthat wish to retain their autonomy and identity.Since they are merely purchasing services for a fee,they do not risk being “swallowed” by the largerorganisation. However the access to the largerorganisation’s systems and expertise reduces thestress and pressure on the smaller organisation’smanagement, freeing them up to focus on servicedelivery. Just like in the outsourcing model,this situation takes the financial administrationfunctions that small organisations find challengingand gives them to a specialist who is better able tohandle them.There may also be benefits to the larger organisation.Partnering with a small NGO may give themcloser connections with communities and withlocal service providers. 16 If they partner with anumber of smaller organisations the fees willallow them to increase the capacity of theirfinancial administration division. They may beable to purchase equipment or expertise thatthey otherwise would not be able to afford. Forexample, if they employed a part time accountantor bookkeeper, outsourcing some of this person’stime (while keeping them onsite) makes the personmore available to the larger organisation.Both organisations may benefit from the relationshipdescribed in this model. While a good relationshipmust exist for such a partnership to come about inthe first place, entering into a partnership is likelyto enhance the relationship. It may give rise toopportunities to collaborate on service delivery.Research from the UK has found that partnerships15Mitchell and Drake, 2005..16ibid.11
SHARING FINANCIAL ADMINSTRATIONbetween large and small NGOs increased trustbetween the organisations and fostered a morecollaborative approach. 175.1.7 Characteristics of organisations thismodel may suitThe most important factors for organisationsconsidering a large / small NGO partnership arethat there is a good relationship between the twoorganisations, and that their philosophies match.The organisations must share similar vision andvalues in order for a partnership to work. Apartnership also requires some built up trust, soin the absence of a pre-existing relationship theorganisations would need to find ways of buildingup the required trust.A partnership may work best when the organisationsinvolved offer services that are complementary butnot too similar. This removes the possibility ofcompetition between the organisations. Howeverorganisations with complementary services (e.g.different services aimed at similar or overlappingclient populations) are likely to work welltogether.In terms of operational factors, a smaller organisationconsidering partnering with a larger organisationwill need to ensure that the larger organisationdoes in fact have the necessary skills, expertise andsystems in place to perform the functions at a levelthat will make the partnership worthwhile. Thesmaller organisation may also need to have systemsthat are functioning at a certain level of efficiency– or bring their systems up to a certain level – inorder to be able to outsource some functions.5.1.8 RisksOne of the risks involved in a partnership betweensmall and large NGOs is that of “cultural seepage,”the fear that the organisational culture and valuesof the larger organisation may over time start todominate the smaller organisation. Small NGOsmay feel that a partnership with a larger NGOcould threaten their autonomy and hamper theirability to respond effectively to their clients andthe communities they serve. They may fear thattheir community (and donor base) could start toview them as less of a local, community orientedorganisation if they associate themselves with alarger NGO. This risk would need to be addressedby establishing clear boundaries for the partnershipfrom the outset, and carefully specifying the roleof each organisation in the relationship. Generally,a partnership is also more likely to work moreharmoniously if the organisations involvedshare similar values and philosophies of servicedelivery.When outsourcing financial administration toanother organisation, the smaller NGO risks thesecurity of its information. Systems and procedureswould be in place to ensure the confidentialityof the smaller NGOs financial information. Thismay be difficult if they are using staff of the largerNGO, and could become problematic if the twoorganisations are competing against each other forfunding or service delivery contracts. Competitionfor funding between the small and large NGOsmay pose a threat to forming a viable partnershipin the first place.Another potential risk that must be consideredconcerns the mission of the larger NGO. GenerallyNGOs exist with a mission to respond to their clients’needs. If such an organisation starts providingservices to a smaller NGO in return for fees, thisfunction is a deviation from its core mission. AnNGO considering taking this path would needto consider the impact of such an activity on theorganisation. It may be that supporting a smallerNGO that provides a complementary service isan indirect way for the larger NGO to respond tocertain needs of individuals and communities, butit may not always be the case. Some variations onthis model avoid the dilemma of “mission drift”.5.1.9 VariationsThere are some variations on this model that haveconsiderable potential. Generally they involvedifferent kinds of larger organisations, so thatrather than purchasing services from a larger NGOthe small NGO purchases services from anotherorganisation with appropriate capacity. For instance,some NGOs in the Sydney region are consideringoutsourcing their payroll to the local council. It ispossible that even more financial administrationtasks (such as accounts, bookkeeping, etc.) could beoutsourced to the local council. This arrangementretains the benefit of accessing a larger communityorganisation’s systems and expertise, but avoidsthe risk of “mission drift” for a large NGO. Usinglocal councils has the added benefit that they arecommunity organisations but do not compete forfunding from the same sources as small NGOs, soin many cases the risk of competition is reduced.17Mitchell and Drake, 2005.12
SHARING FINANCIAL ADMINSTRATIONPeak bodies have also been identified as organisationsthat could provide financial management servicesto small NGOs on a fee for service basis. The initialresearch phase of this project raised the possibilityof peak bodies providing practical services toNGOs, and after testing during the consultationsit is considered a feasible option. Peak bodiesalready have the contacts and networks, and couldbuild some capacity as “NGO business centres”offering various services that small NGOs couldpurchase for a fee. A precedent has been set in thearea of training, with a number of peak bodiesproviding training to their member organisationsand beyond. In the US and the UK peak bodies tendto function as “sector infrastructure developmentbodies” rather than just advocacy bodies, as theyare in Australia. 18 A challenge that would have tobe addressed if this scenario were implemented isto ensure that those small NGOs that fall betweenpeak bodies and do not quite “fit in” with aparticular one are still able to access services. Forsuch organisations NCOSS may be the only peakbody with which they associate.5.2 Co-location and forming aCompanyA group of small NGOs are running complementary– but different – programs within the same region.There are various networks of working relationshipsamong the agencies. For various reasons they decideto co-locate. As well as co-locating they essentiallyform a consortium, which means that a group ofagencies develop formal documented agreementsabout the role of each agency. Additionally theyform a company to administer the building.First they find suitable premises that the companyrents (or buys if a capital appeal is able to raisesufficient funds). The company has a boardon which each of the participating NGOs isrepresented. The board oversees all decisionsrelating to the premises and any disputes amongthe occupants are referred to the board.The company hires a facility manager to look afterall the common areas of the building and practicalaspects of maintaining the premises: kitchen,bathrooms, security, cleaners, maintenance, etc.The company also employs a bookkeeper and someadministrative workers who receive training sothey can make referrals to the appropriate agency.They occupy a shared reception area that serves allthe occupants of the building.Each organisation pays rent to the company for thearea they occupy and also outgoings. The outgoingsportion covers not only utilities, rates, etc. butalso contributes to the facilities manager’s salary,proportionate to how much space they occupy. Alsoincluded in the outgoings is rent for the receptionarea and a few hours of the administrative workers’time. It is estimated that the administrative workersspend, for example, 20% of their time on receptionduties so this cost is added to the outgoings, andaccordingly it is split between the organisations inproportion to how much space they occupy in thebuilding.The participating organisations pay for thebookkeeper and administrative staff accordingto how much time they use. Some organisationshave a greater need for administrative supportthan others, and there is some flexibility in howthe hours are allocated. The bookkeeper is alsocharged to each organisation on an hourly basis.Timetabling for the shared staff (administrativeworkers and bookkeeper) is done by the facilitymanager and the board of the company overseesthe process to ensure it is working smoothly, andintervenes to resolve any disputes relating to howthe staff hours are allocated. If there is a need, thecompany may occasionally hire extra temporaryadministrative staff in order to increase the numberof hours they can provide to the tenants.The company is able to negotiate bulk purchaseagreements on insurance, stationery, IT, etc. Theco-located agencies also negotiate a bulk rate froman auditor, and the bookkeeper transfers all theirinformation directly to the auditor at year end.5.2.1 BenefitsThis co-location model has many potential benefitsfor participating organisations. There are potentialcost savings through sharing equipment, sharingspace such as common areas (kitchen, etc.), bulkpurchasing and sharing other fixed costs suchas reception. Also since the company employsa bookkeeper and administrative workers theindividual organisations no longer need toperform these functions using their own staff.This frees up their staff and management to focuson service delivery, and creates efficiencies byhanding financial administrative functions tospecialised staff. There may also be efficiencies18Walsh and McGregor-Lowndes, 2006.13
SHARING FINANCIAL ADMINSTRATIONachieved by moving all the organisations to similaradministrative systems, which may consist of morestreamlined processes than they had previously.This co-location model may appeal to manysmall NGOs because it allows them to retain theirindividual autonomy. Each agency continues tooperate with its own management committee asit did before, it just pays rent and outgoings to thenewly formed company. The primary change isthat instead of employing a part time bookkeeperand administrative staff each NGO accesses the“resident” bookkeeper and administrative workersand is invoiced at an hourly rate. This is probably abetter arrangement for many organisations as theirbookkeeper becomes more accessible – being onsiteall the time – if they have queries, and the flexiblearrangements are likely to suit small NGOs withfluctuating workloads.Co-location also has benefits relating to servicedelivery. It becomes easier for participatingNGOs to offer each other peer support and theyhave constant onsite access to the expertise ofthe other partner agencies. Co-location facilitatescollaboration and better communication amongagencies. It is also beneficial for clients to co-locatecomplementary services. They may find it easierto access multiple services they require if theyare all on the same premises (a “one stop shop”),and co-location would also facilitate inter-agencyreferrals. Co-location also reduces the isolationof small NGOs whose workers may otherwisebe alone for extended periods, which could be asecurity risk.Another benefit of this model is that forming acompany to oversee the physical premises transferssome of the risk to another entity than the smallNGO.5.2.2 Characteristics of organisations thismodel may suitA co-location model is most likely to work fororganisations that have a similar philosophy andwhose vision and approach to service deliveryare compatible. It is probably also a better optionfor organisations whose services are not in directcompetition. Organisations whose services arecomplementary rather than the same are not onlybetter placed to collaborate, it is also advantageousfor clients if they can access a range of related butdistinct services in the same location. If their clientneeds and profile are similar then co-location canenhance service delivery. Organisations that haveparticipated in joint service delivery projects orthose that refer to each other may already havea good working relationship that could form thebasis for exploring the possibility of co-location.5.2.3 RisksIn this model the company runs fairly high riskssince it holds the lease for the building. Thecompany is vulnerable if one of the participatingorganisations loses funding. These risks must becarefully managed, with plans for how to managevarious eventualities. It is important to ensure thatthe insurance and occupational health and safetypolicies of the company and the co-located NGOsare consistent and match up without leaving anygaps.From the clients’ perspective there are somepotential risks in implementing this model.It is important to ensure that the co-locatingorganisations’ client groups are compatible. As anextreme example, it would be undesirable to colocatean offenders’ rehabilitation program withchildren’s services. Another consideration fromthe clients’ perspective is the physical location.Considerations like the location’s accessibility bypublic transport and proximity to other servicesshould be taken into account.In implementing this model it is essential toarticulate clearly all the relationships, boundaries,duties and responsibilities of all the organisationsinvolved as well as the company. The legaland functional responsibility of the companymust also be clearly defined. All processes andprocedures must be clearly established from theoutset and must be transparent, to build trustamong participating organisations. There mustbe procedures in place to address security andconfidentiality of information.It is also important to establish conflict resolutionprocedures for resolving disagreements betweenco-located agencies. While there is a potentialrisk of a clash in organisational cultures, this canbe mitigated by careful selection of participatingorganisations and by diligence during theplanning and setup phase. Organisations willneed to recognise existing relationships and powerstructures and work within those to create a robustand enduring partnership.Organisations that have decided to co-locate facecertain risks during the setup phase. Aside fromtime involved in the organisational planning workalready described – which is considerable – the cost14
SHARING FINANCIAL ADMINSTRATIONof fitting out new premises may be prohibitive.It could also be difficult to find an appropriatelocation that all the participating organisationsagree on.5.2.4 VariationsThe variations on this model have to do with thedegree of linkages between the co-located agencies.With weaker linkages, there could be less of a rolefor the company. Its function could be limited to theadministration of the building, and participatingorganisations could continue to make their ownarrangements for bookkeepers, administrativeworkers, etc. While it makes sense to share at leastsome reception functions (and of course the facilitymanager), maintaining their former arrangementsfor some of their financial administration may bea way for some organisations to ease into a closersharing arrangement. This appears to be whatis happening at the Parkside location (see CaseStudies in Appendix B), where more organisationsare starting to use the financial services of the leadagency.Going in the other direction, organisations thatfind this model is working well may decide toamalgamate their back office functions altogether.They may transfer more of their staff to theemployment of the central company to facilitatepayroll, shared insurance, etc., and the companymay start to have a role in service delivery. Thecompany could manage the finances for all of the colocatedagencies. While this variation may achievesome efficiencies it carries significant challengesbecause it may be perceived as threatening theautonomy of participating organisations. It alsomakes the company even more vulnerable if anorganisation needs to move out of the premises,and it may be more difficult to find a replacementtenant who would be willing to participate in sucha close sharing arrangement.5.3 Umbrella Organisation(Quasi Amalgamation)A group of NGOs within a region all providesimilar services that are complementary yetdistinct (for example, they may all run women’sservices but each organisation provides a differenttype of service). They decide to form an umbrellaor auspicing organisation to handle all theirgovernance and back office functions, whileretaining the distinct “front of house” identities oftheir respective services.The organisations form a joint managementcommittee by amalgamating their existingmanagement committees. They place emphasis onfinding a range of dedicated and skilled individualsrepresenting the communities in which all theirservices operate.The umbrella body employs an administrationmanager who oversees all the back office functionsfor the service providing agencies. All the fundingflows through the umbrella organisation whicheffectively purchases services from the agencies.Each agency is run by a coordinator responsible forthe programs, who reports to the new amalgamatedmanagement committee.The umbrella organisation also employs abookkeeper and some administrative staff that thepartner organisations share according to a roster.There is some flexibility in the roster so that oneorganisation can negotiate with another for someof their hours. Each organisation pays for the hoursthey get from the centrally employed staff.The umbrella organisation does payroll for all thepartner organisations. It is effectively the employerof all the staff, although their day-to-day supervisionis provided by the coordinator. The umbrellaorganisation also handles all the insurances,bookkeeping, accounts and financial reporting forthe service providers. Each coordinator does theirown budgeting, financial planning and fundingsubmissions, working closely together with theadministration manager.5.3.1 BenefitsThe primary benefit of this model is the increasedstability and viability that it can provide for smallNGOs. By joining together with other small NGOs tobuild a more stable infrastructure, the participatingagencies increase their own ability to survivein a challenging and competitive environment.The umbrella organisation can have the strengthand voice of a larger NGO in terms of applyingfor funding, political voice, etc. However in themodel described, the services retain their “front ofhouse” identity and their close connections withthe communities they serve.Centralising the financial management functions andhaving a manager to oversee all the administrationenables program staff to direct their energy andattention to service delivery. Efficiencies will likelyresult from having specialised staff to undertake thefinancial administration and financial managementfunctions. As the partner organisations move to15
SHARING FINANCIAL ADMINSTRATIONshared systems they can share best practices andachieve more efficient processes.Sharing a bookkeeper will also be beneficial forthe partner organisations. Since the position hasmore hours than if just one organisation wasthe employer, it is a more stable job. This shouldmake it easier to fill with a qualified professional.The partner organisations will probably also havegreater access to the bookkeeper than if theyemployed someone just one day a week, since theperson will be contactable when they are workingfor the other partner agencies.Consolidating the management committee mayalso have benefits. It could lead to more effectivegovernance, since many very small NGOs havedifficulty attracting and retaining managementcommittee members. If they operate in the samecommunities they may be competing against eachother to recruit from a small pool of potentialmanagement committee members. If only onecommittee needs to be recruited instead of severaldistinct ones, the umbrella organisation may beable to attract a management committee with betterrepresentation of the community and higher skilllevels, since these individuals need not be spreadacross several organisations’ committees.This model is also beneficial for smaller NGOsbecause it shares accountability and offloadssome of the risks from the small organisation tothe umbrella organisation. It is a very good modelfor facilitating agencies working together, sincetheir finances are already merged so joint fundingapplications would be easier.5.3.2 Characteristics of organisations thisModel may suitAs for any sharing arrangement it is importantthat participating organisations share a similarphilosophy, and that their vision and approachto service delivery is compatible. This modelwould work best for organisations that have agood long term relationship and are comfortableworking together without fear that one will takeover another. It is also desirable that organisationsprovide complementary services that are not indirect competition with each other.In terms of practical logistics, it may be easier toimplement this model with organisations that aresimilarly funded, although with services distinctenough that they are not in direct competitionfor funding. If they have similar work practices,procedures and systems in place this would alsomake the setup phase easier. Running the sharedback office may also be simpler if the organisationsare not located too far apart. They do not need to beco-located, but it would be less onerous for sharedstaff if the travelling distance between partneragencies is limited and reasonable.5.3.3 RisksOne of the biggest risks of this model is that smallNGOs could feel that their identity and autonomyare threatened by the shared governance andamalgamation of the back office. They may alsofeel that by sharing a management committeethey could lose the focus on their community. It isimportant that each partner agency is representedon the umbrella organisation’s managementcommittee.Taking the time to clarify and document theresponsibilities of each agency and of the umbrellaorganisation is essential. The time involved in thiswork may be a challenge, especially for very smallNGOs with limited resources, but it is essential thatthese details are worked out from the beginning.Organisations that do not take the time to dothe work properly could jeopardise the futureof the whole arrangement. The planning processshould also cover logistics, since informationmanagement across different physical locationsmay be difficult.Since the partner organisations are runningprograms and the umbrella organisation isresponsible for governance and the organisationaloperations, risk management responsibilities needto be clearly delineated. It is also important to beclear on the various agencies’ liabilities if there isshared insurance, and to ensure that occupationalhealth and safety policies are complete.There are a few potential risks involved with thismodel around funding. The partner organisationsmay be vulnerable if one of them loses funding. Itis important that such eventualities are consideredduring the planning process. There is also a riskthat partner organisations may need to competeagainst each other for funding. There would needto be agreements in place to ensure that there is fairrepresentation for each service. Additionally, it isimportant to have rigorous procedures in place toensure the confidentiality of each organisation’sfinancial or otherwise sensitive information.One risk that small NGOs may face if theyimplement this model is that they could lose someorganisational capacity if they no longer employ abookkeeper. It is common for small organisationsto have a bookkeeper who also undertakes other16
SHARING FINANCIAL ADMINSTRATIONtasks around the office. If they move to a partialamalgamation model and instead have a fewhours of a shared bookkeeper, this may result infewer actual “person hours” in their office. Thismay need to be addressed with extra time fromshared administrative staff, or by revising theadministrative processes so that more tasks can behandled by the umbrella organisation.5.3.4 VariationsA variation that may appeal to certain NGOs isto run this model without the creation of anotherlegal entity and without the amalgamation at thegovernance level. This variation could also beused as a prelude to a closer sharing arrangement.Essentially it would be a consortium – in whicha group of agencies develop formal documentedagreements about the role of each agency. A leadagency could hire the shared bookkeeper andadministrative staff and contract them out to theother partner agencies according to the agreementsin place. The agencies could trial things likeapplying jointly for funding, with a lead agencymanaging the finances for the funding. Thisarrangement may achieve some of the efficienciesof the umbrella organisation model, but may poseless of a threat to the autonomy of participatingNGOs.Another variation of this model is completeamalgamation, in which partner organisationsrelinquish their separate identities and form a neworganisation. Just like the umbrella organisationmodel, this variation would require an enormousamount of trust and very strong relationshipsbetween the participating organisations. It has thebenefit of being a less complex arrangement toadminister than the umbrella organisation model,but this is at the expense of the “front of house”identity of the service providing organisations.5.4 Non-model-specific IssuesThere are a number of benefits and risks of enteringinto any kind of shared services arrangementthat are not specific to any model. One factorthat needs to be considered is the organisation’smanagement committee. Management committeesvary enormously across the NFP sector in terms oftheir composition and the expertise represented.They also vary in their degree of involvementwith the daily management of the organisation.As such, some management committees maybe at the forefront of initiating change for theirorganisation, but others may be more resistant tochange. A situation may arise in which employedmanagement wish to implement a particular modelbut have trouble convincing the managementcommittee. The attitude and involvement ofthe management committee are very individualdepending on the organisation, but they areconsiderations that must be managed.A benefit of going through a change process is thatit may highlight governance issues that need to beaddressed. The process may reveal strengths andweaknesses of the current management committee.It is valuable for an organisation to have thisknowledge, as it may allow them to build on thestrengths and address the weaknesses. Additionallythe benefits and drawbacks of current systems,policies and procedures will become clearer as theorganisation considers different ways of doingthings. Awareness of these issues is beneficial forthe organisation and although it may be a difficultprocess, it is a healthy one for an organisation togo through.An organisation considering changing how theydo their financial management may need to clearthe changes with their funder(s). For instance, afunder may have allocated a certain portion ofa grant for wages, but the small NGO may wishto reallocate some of that portion to contractingfees for a service provider (if they are outsourcingsome of their back office functions). Such a shiftmay need to be approved by the funding body,a consideration that must be taken into accountduring the planning stages.For any significant change to occur there is a cost intime and other resources. A risk that small NGOsface is that if they are unable to devote enoughresources to the change management process andinitial setup phase, the whole arrangement may bejeopardised. It is critical that time is taken to clarifythe roles and responsibilities of all parties involved,and to establish good policies and proceduresincluding conflict resolution procedures. This riskmust be carefully managed to ensure that all thenecessary work is done in the initial phases, so thatthe new setup has a good chance of succeeding.17
SHARING FINANCIAL ADMINSTRATION5.5 Regional VariationsThe current research centred around two clustergroups, one in south-west Sydney and the otheron the NSW Central Coast. This was intended toidentify whether there were any variations betweenorganisations based in regional or metropolitanareas. Overall there was a great deal of correlationacross the two cluster groups, with participatingorganisations identifying many of the same issuesand concerns.There were only some fairly minor variations. Whendiscussing the role of peak bodies, the regionalcluster group expressed a preference not to alignwith Sydney-based peak bodies. It was importantto them to be represented by an organisation thatis in touch with the local communities in theirarea, rather than focused on the capital city’smetropolitan region. The regional group alsoidentified distances and logistics as a concern invarious partnership or outsourcing arrangements.If the shared services arrangement requires transferof documents between partner agencies or fromthe NGO to an external service provider then thedistances between the organisations may add extrachallenges. However this concern is not uniqueto a regional setting, since many metropolitanNGOs have considered partnering with otherorganisations that are geographically removedfrom their own location. Distances and logistics areone of the issues that will need to be addressed inany shared services arrangement.It should also be noted that this research did notinclude a cluster group from a remote or sparselypopulated area. Therefore there is no data fromsuch an area and this research cannot speculateon variations between remote and more denselypopulated areas.18
6Importantfactors forsuccessful implementationThere are several factors to consider whenimplementing a shared services arrangement thathave emerged from both the research and theliterature and warrant special emphasis.The importance of relationships andtrust cannot be overstatedIn every instance of a successful shared servicesarrangement the participants cite the relationshipsbetween the organisations as critical to holdingthe arrangement together. This is true whether therelationship is between a group of small NGOs, asmall NGO and a larger organisation from whomthey purchase services or a small NGO and acompany that provides financial management,payroll or bookkeeping services.The ROSP trial in Queensland found that the modelis “held together by goodwill” and is completelydependent on “high levels of trust and confidencein each other.” 19 This was reinforced by the clustergroups consulted in this research project and theresearch literature. Any organisation that hadparticipated in a sharing arrangement of somekind emphasised that the arrangement could nothave been successful in the absence of the trust thatthe organisations shared. Maintaining the goodrelationships between participants is essential ifthe sharing arrangement is to survive.A UK study found that one of the greatest barriersto partnerships was the lack of time and / orresources for developing and maintaining thepartnership. 20 Even if there is an existing goodrelationship between the organisations involved,it usually involves a certain investment of time tomaintain the relationship and resolve disputes. Inthe NFP sector, where resources are scarce, findingthis time can be a challenge, although it is criticallyimportant for the survival of a shared servicesarrangement.There is no one-size-fits-all approachShared services arrangements tend to groworganically out of existing relationships andnetworks. Each organisation is unique, as is eachcommunity. An arrangement that works for onegroup of organisations may not necessarily workfor another. Organisations or communities thatare interested in entering into a shared servicesarrangement of some kind will need to lookcarefully at their existing relationships and thenature of the organisations involved. Their uniquesituation and characteristics will help to determinewhat sort of shared arrangement might work forthem.Mitchell and Drake 21 found that the models andstructures of the large / small partnerships werevaried and not easily replicable. They were mostlybuilt on existing relationships and past experiencesof working together. This reflects our finding fromthe research with the cluster groups that sharingarrangements are highly relationship based andtend to grow organically out of past collaborations.This study also highlighted the importance toa successful partnership of shared values and ashared vision among partner organisations.To ensure the success of a sharedservices arrangement you must do thework during the setup phase.The critical importance of taking the time duringthe initial phases of a shared services arrangementto set it up properly cannot be overemphasised.This was reinforced not only throughout theliterature but also by every organisation that hadparticipated in any sharing arrangement.The ROSP trial in Queensland 22 emphasised theimportance of specifying areas of responsibility,authority and ownership in the setup stages.19 Earles et al., 2005, p. 11..20 Mitchell and Drake, 2005..21 Mitchell and Drake, 2005..19
SHARING FINANCIAL ADMINSTRATIONThey found it beneficial to think through howthese divisions would work in practice, and toincorporate that perspective into their planning.The UK study into large / small partnerships 23 alsofound that the later success of such a partnershipis critically dependent on doing the developmentand setup properly.The reality for small NGOs is that “tying oneorganisation’s fate to another can be a frighteningprocess.” 24 This reinforces the importance ofopenness and honesty throughout the setupprocess and clear delineations of responsibility andauthority. There should also be processes built intothe arrangement to ensure that the relationshipsbetween participants are maintained. Any sharingarrangement must also have clearly establisheddispute resolution procedures and mechanismsto protect the confidentiality of participatingorganisations’ information.Taking the time and doing the work during thesetup phase of a shared services arrangementis absolutely necessary for the future success ofthe arrangement. However finding the time andresources to do it properly can be so challenging forsmall NGOs that it often forms a barrier to enteringinto an arrangement that may be better for themin the long run.Lack of information on existing models is a challengethat has also been identified in the literature:“without knowledge of the failures and successesof similar efforts, those involved in cooperativenonprofit ventures rely on trial and error.” 25 Often,even if a small NGO has a particular model thatthey wish to implement, they do not know how toproceed and cite a need for support and guidance asthey go through the setup process. The NFP sectorneeds more freely available information aboutsuccessful shared services arrangements, and toolsto help small NGOs implement them.Small NGOs need “how to” informationand expertise.One of the most significant barriers to sharing thatemerged from the cluster groups was that smallNGOs lack information about how to proceedand the expertise to carry through the changeprocess. The majority of the organisations struggledwith their financial administration and financialmanagement functions in one way or another, andalmost all of them expressed interest in trying moreefficient models to handle these functions. Howevermost of them did not know how to begin.22Earles et al., 2005..23Mitchell and Drake, 2005..24Kohm, 1998..25Kohm, 1998..20
7Theway forward3 Funding pilot projects of the variousThe research suggests a number of ways to progressthese findings on behalf of small NGOs. Furtherwork could be undertaken in the following areas:1 Providing NGOs with information aboutpotential workable models for sharingfinancial administration and financialmanagement functions.2 Developing tools to provide NGOs withguidance on how to implement the variousmodels. For example, a “start up kit” foreach of the four models. Such a kit couldinclude checklists, examples of documentssuch as memoranda of understanding,sample timelines and other tools to guideorganisations through implementing themodel.models detailed in this report. Pilots shouldensure that the setup phase is adequatelyresourced, with time allocated to maintain therelationships and evaluate progress.4 Linking small NGOs with other organisationsthat have been through similar processes, orwith individuals whose knowledge could helpthem as they implement a shared servicesarrangement.5 Exploring the option of interested regionallybased peak bodies providing affordablefinancial administration/managementservices to small NGOs in their regions.21
8 BibliographyAbramson, A.J. and McCarthy, R. 2002. “Infrastructure Organisations” in Salamon, L.M.(ed.) The State of Nonprofit America. Washington, DC.: Brookings institute Press.pp. 331-354.Bradfield Nyland Group. 2004. The SNOW Project: Tips and Tools. Sydney.Council of Social Service of NSW. 2005. Strategies to assist smaller NGOs in changes fromfunding reform. Sydney: NCOSS.Earles, W., Doyle, J., Lee Ross, A., Malthouse, D., & Selke, H. (2005) Stories from a thirdsector co-governance/multiple co-location trial: The Regional Outreach Support Program.Third Sector Review, 11(2), pp. 117-136.Kohm, A. 1998. “Cooperating to survive and thrive: Innovative enterprises amongnonprofit organizations”. Nonprofit World. Madison: 16(3), pp. 36-42.Leiter, J. 2005. “Structural Isomorphism in Australian Nonprofit Organizations”. Voluntas:International Journal of Voluntary and Nonprofit Organizations 16(1), March.Mitchell, L.J. and Drake, K.A. 2005. 1 + 1 = 3: Does Size Really Matter? London: NationalCouncil for Voluntary Organisations.NSW Department of Community Services website: www.community.nsw.gov.auQueensland Government, Department of Communitieswebsite: www.communities.qld.gov.auResearch, Funding & Business Analysis Division, Department of Community Services.2005. Department of Community Services (DoCS) Funding Policy. Sydney: NSWGovernment.Ross House Association website: www.rosshouse.org.auWalsh, P. and McGregor-Lowndes, M. 2006. Shared Services: Lessons from the Public andPrivate Sectors for the Non-Profit Sector. (Unpublished.)22
9AppendixA:People contributing to the researchThe following people attended the south-west Sydney consultation:NameOrganisationNouha Achmar Rockdale Community ServicesCarolyne Banados Liverpool Women’s Resource CentreDonna Crawford Wingecarribee Family SupportDeborah Deering Family Development ServicesSue DixonPhoebe HouseTanya EadesOuter Liverpool Community ServicesJayne FosterOuter Liverpool Community ServicesLeah Godfrey Western Sydney Community ForumBeth KingTRI Community ExchangeMarnel LaGarde Parramatta / Holroyd Family Support ServicesJane McIvorMacarthur Community ForumKatherine Moores Telopea Family SupportTracy Phillips Joan Harrison Support Services for WomenVeronica Riddell Family Worker Training & Development ProgrammeLee RowelCommunity Links WollondillyThe following people attended the Central Coast consultation:NameOrganisationSeanne Colbert-Smith Family Support CentreCarol FraserCASSY for YouthKate HewittKamira FarmMaryanne Housham San Remo Neighbourhood CentreAlan HurleyRegional Youth Support ServicesAdele JohnsCentral Coast Voluntary Treasurers Support ServiceJoan JonesWyoming Community CentreKim McLoughry Regional Youth Support ServicesNancy Nicholson Central Coast Community CouncilLaraine SieffGosford / Narara Neighbourhood CentreThe following people were interviewed by telephone:NameOrganisationFrancine Bartlett Wingecarribee Family and Community CentreLinda Beltrame Alcohol and Drug Foundation NSWPaula Chegwidden Granville Multicultural CentreMaggie Frawley Heartkids NSWLinda Marasonet Bookkeeper for several small NGOsTirrania Suhood Blacktown Alcohol and Drug Family Services, and Voice forSONG (Small Organisations Non Government)Jackie Wilgress Family Worker Training & Development Programme23
SHARING FINANCIAL ADMINSTRATIONThe following people were interviewed by telephone as part of the research phase,or provided other input via email or telephone:NameOrganisationLynn BearlinManager NGO Program, Sydney South West AreaHealth ServiceWendy Earles James Cook UniversityScott Forsdike Queensland Government Department of CommunitiesLinda FrowSenior Policy Officer, Council of Social Service of NSWLeslie Garton NGO Coordinator, NSWHealthIan KnoxCEO, Paragem PartnersIrena LiddellNorthside Community ForumJenny OnyxProfessor, University of Technology SydneyDavid OwenTasmanian Council of Social ServiceAllan RaisenDirector Service Funding Projects,NSW Department of Community ServicesMark Shervashidze Director of Partnerships and Planning,NSW Department of Community ServicesMark Wischnat Community Sector Development Resource Worker,Queensland Council of Social Service24
10Appendix B:Research tools10.1 Interview Questions forConsultation Participants• Could you briefly describe how yourorganisation handles financial adminfunctions? These include:• bookkeeping• payroll• accounts payable & receivable• insurances• tax compliance• financial reporting• budgeting• financial planning• grant acquittals• audits• In these areas, what is working well for you?Do you have a sense of why it is workingwell?• Where is your organisation straining, what arethe challenges you face in these areas?• How have you responded to these challenges,what strategies have you tried? How havethey worked out?• Have you tried sharing any of these functionswith another small organisations? If so, whatdoes the model look like? What were thebenefits and challenges you encountered inimplementing that model?• Depending on their situation, possiblehypothetical questions, e.g.• If you were to share functions, howwould you choose which organisationsto share with (geographical proximity /similar services / common client base /other)?• Can you think of any specificorganisations you might want to sharefunctions with, and if so why would youchoose them? What is the nature of yourorganisations relationship with them?10.2 Interview Questions forResearch PhaseThe following questions were used as a basis fordiscussion in the interviews conducted as part ofthe research phase:• What do you consider to be the key issuesfacing small NGOs around financialadministration and management?• Do you know of any existing models for smallNGOs sharing financial admin functions?• Flesh out in detail, including possiblevariations.• Are these hypothetical or have they beenimplemented? If the latter, what was learnedfrom the implementation? (benefits /challenges)• Do you know of any relevant literature weshould look at?• Do you know of any other academics orpractitioners we should speak with?25
SHARING FINANCIAL ADMINSTRATION10.3 Consultation format• Overview of project, including:• Define financial administration andfinancial management functions• Outline key themes from phoneinterviews• Present hypothetical scenarios in detail, andidentify possible variations:• Large / small partnership• Outsourcing• Umbrella organisation / amalgamation• Co-location• Break into groups and work on one scenarioper group to identify:• Potential benefits• Potential risks and how to manage them• Whether it would be a feasible optionfrom which your organisation couldbenefit• What would be the challenges ofimplementation, and how could they bemanaged• What would be the advantages to theorganisation• What would prevent your organisationfrom implementing this model• How could the model be adjustedto suit your organisation better: e.g.which functions to outsource, whichorganisations to partner with, how tosplit functions between an umbrellaorganisation and partner organisations,etc. [questions were designedspecifically for each scenario].• Report back from groups, and discuss eachmodel as results are presented.• Wrap up.26
11Appendix C:Case studies11.1 Kamira Farm: OutsourcingKamira Farm is a residential treatment centre forwomen with alcohol and other drug problems.The organisation has 12 staff with a total of 7.5full time equivalent. Among the employees is anadministrator who works 8 hours per week.Payroll processing is done by a specialised payrollcompany. Each week the director uploads allemployees timesheets via the payrollcompany s website. They calculate pay,taxes, superannuation, etc. and email the detailsback to the director, who then makes the paymentsvia direct deposit (using internet banking).The payroll company provides weekly summariesto the director, who uses them to generate amonthly report on wages. This report details whois paid how much and from which account (sincethe organisation has multiple funders) and includesbreakdowns of tax and salary sacrifice amounts.At the end of each month the director drops off abox to an offsite bookkeeper. The box contains allthe cheque requisitions with attached tax invoices,bank statements, the summary report of wagespaid and the Business Activity Statement (BAS)form. The bookkeeper reconciles the accounts andproduces the monthly financial report. At the endof the year the bookkeeper transfers all the requiredinformation to the auditor, who spends 3 dayscompleting the audit.The director finds that this system is extremely easyto manage, works very smoothly and is surprisinglycheap. It is beneficial to outsource functions likepayroll which are cumbersome and costly to do inhouse, but very easy with the current arrangement.What makes it work well is the diligence of thebookkeeper and the good relationships betweenthe bookkeeper and the director, and the directorand the auditor.11.2 Family DevelopmentServices: Large / SmallPartnershipFamily Development Services (FDS) is a smallfamily services organisation in western Sydney.Previously they had a coordinator position for 35hours per week, which did administration andbookkeeping using MYOB software as well ascoordinating services. They decided to take thefinancial administration out of this position, soreduced the coordinator to 30 hours per week. Theyhave outsourced their financial administration toa larger NGO s bookkeeper. FDS paysfor 5 hours per week of the bookkeepers time.The bookkeeper is located at the larger NGOs office and does FDS s books there. Thisis beneficial for both organisations: the coordinatorat FDS is relieved of the burden to supervise anadditional staff member, and the larger organisationalso benefits because it allows them to have theirbookkeeper onsite for more hours per week. FDSis not the only small organisation that uses theirbookkeeper. The bookkeeper is there 4 days perweek, but 2 of those days are funded by otherorganisations.Good communication and accountability isvery important for the ongoing success of thepartnership. For example, FDS was clear from theoutset about their limited resources. Thereforethey reached an agreement in which they pay for5 hours per week of the bookkeeper stime. Their work may sometimes be completedmore quickly, but sometimes it takes longer. Thelarger organisation has agreed to invoice FDS for5 hours regardless of actual time spent, and bothorganisations feel that the arrangement is fair andthe hours average out over time.The situation works very well, although the initial27
SHARING FINANCIAL ADMINSTRATIONsetup was quite challenging. The arrangementevolved out of a pre-existing relationship betweenthe two organisations, which had collaboratedin service delivery in the past. They sharesimilar philosophies and have the same practiceapproach.11.3 Parkside: Co-locationParkside is a facility in central Gosford where7 youth services are co-located in a formersupermarket that Gosford City Council purchasedin 2000. A steering group with over 10 NGO andCouncil representatives set up the concept ofParkside. In October 2001 Regional Youth SupportServices Inc. ( RYSS ), together with Employmentand Training Australia (ET Australia), establishedthe company Parkside Gosford Ltd. ( Parkside ) toadminister the facility. The organisations all movedinto the building in December 2001.Parkside has a board which includes the managersof RYSS and ET Australia plus the Parksidefacility manager and two other community andNFP sector representatives. The board manageslegal issues, security and deals with the Council.There are also bimonthly tenant meeting to addresscommon issues and exchange information.Parkside employs a facility manager who isonsite for approximately 25 hours per week. Themanager is responsible for looking after the wholebuilding: paying and collecting rent, maintainingthe common kitchen, maintaining the sharedclinic, maintaining the direct relief facilities (suchas showers), providing daily support for theParkside tenants and undertaking the paperworkand administration for Parkside.Tenants pay rent and outgoings to Parkside. Theoutgoings portion includes a management feethat contributes to the facility managers wage.The organisations that are located in Parkside arequite diverse, but they all provide services forchildren or young people. Efforts have been madeto ensure that there are no organisations that are indirect competition with each other. Different tenantsmake different contributions to the building for thebenefit of all tenants: for instance one organisationprovides staff for the front desk, another handlesdrop-ins and information and referrals.Co-location facilitates a lot of informal sharing thatis mutually beneficial for the tenants, for instanceone organisation may borrow anothers boardroom or photocopier. Additionally RYSSemploys a financial manager who also providesfinancial administration and financial managementservices to some other Parkside tenants on a fee forservice basis.Parkside is also currently investigating othersupport services they may be able to offer tenants.They are hoping to develop a website for Parksidewith support for individual organisations todevelop their own sub-sites, and ongoing websupport. They are also looking into the possibilityof offering administrative support and maybeother financial services to tenants on a fee forservice basis.Parkside tenants consider it to be a very beneficialmodel. Co-location with complementary serviceproviding organisations fosters collaboration andcommunication between the agencies. It also makesinter-agency referrals easier and is a one stop shopfor clients. The model offers tenants the benefit of astable long-term location, while the company bearsthe risk for committing to occupy the premises.àTelopea Family Resources: Umbrella Organisationand Co-locationTelopea Family Resources (TFR) is an incorporationthat administers 2 service providing organisations:Telopea Family Support (TFS) and Telopea FamilyDay Care (TFDC). TFR has one shared managementcommittee for both organisations. They are locatedat the same premises and a church also shares theirlocation.TFR employs close to one full time equivalentadministrative and reception position, which isfilled by 3 people on a job share basis. TFS, TFDCand the co-located church all use this staff andare invoiced for their time. TFR also employs abookkeeper for 12 hours per day who does all thebookkeeping, accounts, insurance, tax and payrollfor TFS and TFDC, which are invoiced for thetime. TFR previously employed a centre managerfor 6 hours per week to handle staffing issuesfor the shared staff and other issues arising fromco-location. For the past 1.5 years they have beenunable to fill this position.The main challenge in this situation is the reportingrelationships of staff. Administrative staff report to28
SHARING FINANCIAL ADMINSTRATIONthe coordinators of the 2 different organisations,who report to the TFR management committee.The bookkeeper is responsible to the managementcommittee but usually reports via the 2 coordinators.The bookkeeper may also report to or be contactedby the management committee treasurer. Whenthe management committee makes a decisionit sometimes may not be communicated to thebookkeeper (on the assumption that someone elsewill do it), or else both coordinators may inform thebookkeeper. There are some communication issuesthat still need to be resolved.However there are many benefits to this situation.The bookkeeper does all the organisationspayroll together, which is more efficient. Insurancesavings have been achieved by co-locating andtaking out insurance for the centre rather thanseparate policies for each organisation. The serviceswork well together, and although they providedifferent types of service they all have a similarphilosophy. Co-location is beneficial both for theadministrative functions and for clients who areaccessing more than one service.29