Submission in response to ‘Sharpening the focus: a framework for improving Commonwealth performance’

  1. About ACOSS

The Australian Council of Social Service is the national voice against poverty and inequality in Australia and the peak body for the community services and welfare sector. Established in 1956 with a membership representing over 3000 community organisations, ACOSS has a long standing record of policy and advocacy about the not-for-profit sector.[1]

In recent years, ACOSS has previously made submissions and contributed to the Productivity Commission Study into the Contribution of the Not-for-Project Sector, the development of the National Compact, the establishment of the Australian Charities and Not-for-Profit Commission, commonwealth contracting arrangements, governance standards, equal pay supplementation arrangements, charity law and NFP tax reform.

ACOSS participates in a range of Government advisory processes including the Australian Government NFP Sector Reform Council and the Prime Minister’s National Panel on Economic Reform.

The Commonwealth Financial Accountability Review provides the opportunity to address a range of reforms relating to government-funded community services, and in the context of the work of the Department of Finance and Deregulation. This submission is in response to the CFAR position paper, ‘Sharpening the Focus: a framework for improving Commonwealth performance’ (the position paper). While we do not address each and every aspect of the position paper, we have followed its structure in so far as it relates to key issues of concern to us.

  1. Introduction[2]

The community sector has long called for improving the processesof contracting for funding,and the broader regulatory frameworks that govern charities and not-for-profit organisations in Australia.The Productivity Commission’s (PC) landmark 2010 report picked up many of these calls and has become a blue print for the sector’s reform agenda.[3]The sector’s support for this agenda remains as strong today, a point that was reiterated clearly to the Australian Council of Social Service (ACOSS)at our member policy forum in 2012.

The position paperoutlines the following as key issues for charitable and NFPorganisations engaged in the delivery of community services:

  • ensuring the independence of charities and NFPs is preserved and valued;
  • developing simplified, consistent and useful performance measures;
  • recognising that competitive tendering processes can hinder the development of cost effective and efficient collaborative partnerships among charities and NFPs;
  • supporting the development of innovation through a dedicated innovation fund;
  • providing alternatives to the prevalence of risk management frameworks, with their outdated focus on financial risk, for instance through strengths-based frameworks;
  • clarifying the minimum requirements of the ‘earned autonomy’ model; and
  • recognising that there are risks inherent in advocating dual and multi-party accountability, as partnerships between governments and charitableor NFP organisations are rarely equal or result in shared accountability.
  1. Independence (Chapter 3)

The independence of charitable and NFP organisations is a vital element of their role and ought to be valued by Governments. In supporting the independence of the charitable and NFP sector, the PC emphasised that the role of government should be limited and, in particular, the sector should be largely responsible for its own development and future direction.[4]The lifting of ‘gag clauses’ from government-funded contracts by the Federal Government in 2007 was greatly welcomed by the sector; and the current commitment to strengthen this policythrough legislation is also widely supported. Nonetheless sector independence needs to be continually guarded strongly in the context of government funding for services.

Examples of current contracting processes that can undermine sector independence include:

  • a lack of clarity about the intellectual property rights associated with Government-funded work;
  • funding Departments expectations that public statements and media releases by a funded charity or NFP will be approved by the funder; and
  • demands for access to the organisation’s bank accounts in addition to audited financial information, should a funding department wish.

Often such constraints are unwarranted.Where they do exist, they should be exerted only and specifically in relation to a contractual agreement about a particular piece of funded work, not about the additional or general activities of the charity or NFP.

Contracting arrangements for the community sector should foster the independence of the organisation, rather than its control by government. For example, the intellectual property in government funded work should be owned by the organisation unless there is a public interest to agree otherwise. Yet ACOSS continues to identify examples in current Commonwealth Government funding contracts that presume IP rests with the funding body.

Recommendation: Government-funded contracts for community services should preserve the independence of funded organisations with specific regard to intellectual property, independence of media and other public statements, and of financial arrangements, except where there is a specific public interest otherwise.

4.Accountable Performance (Chapter 4)

As we submitted to the PCstudy[5], ACOSS and its members strongly support the need for transparency and accountability in the delivery of community services, including but not limited to the effectiveuse of Government funds for the clients and communities that access government-funded services.

Government continues to use competitive tendering as the framework for many government-funded programs involving charitable community services and NFPs, contending that processes such as competitive tendering improve transparency and accountability. However,our sector’s experience is that such contracting processes can lead to onerous and unnecessary reporting requirements, often at the expense of useful performance measures and the potential for collaboration across the sector.Competitive tendering often undermines collaborative work, which is vital to achieving good social outcomes and value for money. The tendering process for Medicare Locals is one such example where the model for funding risks fracturing the relationships upon which the program’s effectiveness depends.

Recommendation: Competitive tendering and contracting processes should be reformed to foster, not undermine, collaborative work in the community sector.

ACOSS and other sector organisations have long advocated for reformsto contracting and program evaluation that focus on outcomes and impact, rather thaninputs and outputs, including throughsector submissions to this Review.[6]Similarly, the PC was concerned that a focus on inputs and outputs could understate the sector’s contributions, to which we would add the risk of undervaluing that contribution. To remedy this, the PC study recommended that qualitative and proxy measures (such as outcomes and impact) be applied when a dollar value cannot be assigned.[7] While this approach is being taken up in some areas, it is not yet consistent across all areas of Government.

Where reporting requirements continue to place significant administrative burden on charitable and NFP organisations, Government funding of services needs to compensatefor the cost of meeting these requirements. Program funding should also include provision for evaluation.[8]Many NFPs and charitable organisations who responded to ACOSS’ Community Sector Survey 2012were already struggling to cope withthe demand for their services.[9]It is imperative that reporting requirements do not further redirect resources from this vital service delivery.

Rather than simply regarding performance measures as a method through which compliance is achieved, measures can also be formulated to build organisational capacity and enhance the performance of charitable and NFP organisations who deliver programs that are integral to the realisation of policy objectives.[10]

Recommendation: Government should work in collaboration with charitable and NFP organisations to develop measures of program effectiveness that simultaneously support the independence of the sector; value the sector’s experience and expertise; and guard against unnecessary and overly onerous reporting processes.

The position paper makes a welcome acknowledgment that government funding processes and the current culture of risk aversion can stifle innovation.[11]We re-iterate our recommendation to the PC that governments should dedicate a percentage of community service program funding (possibly 1%) to an innovation fund or pool. For example, the Department of Education, Employment and Workplace Relations has previously established an Innovation Fund to which it allocated $40m, or approximately 0.8% of the total $4.8 billion over three years, from its Job Services Australia contracted services for the unemployed. Another option would be to allocate a percentage of the Future Fund for innovation.An innovation fund or pool would have clear objectives and outcomes, but would enable considerable flexibility around how these were achieved. It would need to factor in a percentage for failure, the price we expect to pay in science, health and business to get leaps of innovation which may ultimately pay off many times over.

In light of recent reviews into the access to capital by charities and NFPs including the Productivity Commission’s ‘Study into the Contribution of the NFP sector’ (2009)and the Senate Inquiry into Finance for Social Organisations (2011),ACOSS also recommends low interest loans or no interest loans for capital infrastructure.

Recommendation: Government should establish an innovation fund constituting 1% of the program funding available for community services in Australia.

5.Engaging with Risk (Chapter 5) and Earned Autonomy (Chapter 6)

The position paper recommends a shift to a ‘risk smart culture’. Through our membership of the NFP Reform Council, ACOSS has been working on the development of a Risk Management Framework to advise good practice in Commonwealth risk management as part of the CFAR review (see Annexure A). A key element of this advice recognizes that risk is not necessarily increased with greater financial value; often organisations bear greater risk when they seek to do too much with too little funding.The Framework highlights the cost of getting contracting processes wrong as both financial and outcome risks for government, contracted organisations and the intended recipients of services.

Risk is often seen to be mitigated through shorter contracts, smaller funding amounts andincreased reporting requirements. Yet for charities and NFPs these are often elements of high risk, particularly where the funding does not meet the true cost of delivering a service or reporting requirements.Shorter funding periods can increase the risk that policy goals remain unfulfilled, ignoring the time it takes to establish a program, recruit staff andbuild trust and relationships within the community. Shorter funding periods can also distract from service delivery, with organisations focused on renegotiating funding and staff recruitment.[12] Maintaining trust and continuity is critical to achieving outcomes and providing the foundation for change.[13]Notwithstanding the efforts to improve the approach to risk in Government funding programs, there continues to be considerable concern that Government contracts shift a significant burden of risk to community services without adequate compensation,thereby undermining the effectiveness of the services themselves. As the Risk Management Framework submissions outline,risk should be borne by the party most able to manage it. Government contracting should aim to ensure the effectiveness of the activities being funded, including the organisation’s capacity to meet its responsibilities appropriately and reasonably. Whilewe can never achieve zero risk, Government should support NFPs and charities to better assess and manage risksthrough a framework that encourages a range of risks(not just financial) to be identified and discussed ‘up front’at the commencement of a program.[14]

Recommendation: Government-funded contracts should ensure that the risks of delivering funded services are borne by the party best able to shoulder them; and that community services are funded appropriately to bear these risks where that is required.

One concern with the risk-based approach is that risk becomes a self-perpetuating framework. Charities and NFPsare increasingly interested in alternatives to risk frameworks, such as strengths-based approaches that are used in a whole range of activities across the community sector, from models of governance to service delivery.The following case study illustrates this point.

Crossroads is a community-based bushfire recovery program in Victoria.Crossroads works to facilitate social participation, inclusion, economic independence and resilience in individuals to enable them to recover from the bushfire. The program uses a strengths-based approach which builds on what people have achieved, even if survival is the main achievement. Staff assist clients in setting goals for their recovery and continuously update goals as circumstances change.[15]

The position paper aims to ‘improve accountability and performance through managing risk not through increasing control’.[16] It sets out an ‘earned autonomy’ model, which would run through a ‘core set of minimum requirements across all entities and varying those requirements based on the risk profile of an entity’.[17]ACOSS seeks clarification on what these requirements would be and how they would take account of the significant differences in organisational and program capacity.

Previously, the Commonwealth Government has advocated for a strengths-based approach in terms of disrupting cycles that perpetuate disadvantage and social exclusion. For example, the Australian Social Inclusion Board (the Board) recognised this approach as an organising principle which focusses on the ‘untapped gifts, positive attributes and underdeveloped capabilities of people’.[18] As the Board rightly notes, a strengths-based approach recognises and amplifies capabilities and potential for positive growth, rather than focusing on limitations or ‘negatives’.[19]Such a strategy is highly transferrable and could become the framework through which Government worked with funded organisation to identify and respond to risk.

The discussion of ‘Finance as the Commonwealth CFO’is also interesting to consider in the context of community services. How might such a model of government apply in the context of government-funded charities and not-for-profit organisations? Undoubtedly, it would require Finance engaging with this sector to the extent that it currently engages with the business community. Such engagement would be timely in any event, given that the NFP sector generates 5% of GDP and 8% of employment and is therefore a major force across the landscape of Australian industries. It is also a vital engagement to shore up the effectiveness of government funding in terms of the social outcomessuch funding seeks to meet, such as those discussed in chapter 7 of the position paper.

Recommendation: Government should engage with the charitable and NFP sector in the event that the pursues the model of ‘earned autonomy’ and of establishing the Department of Finance in the role of CFO.

6.Joining Up (Chapter 7)

The PC report notes that, while governments like to talk about working in partnership with charities and NFPs in the delivery of community services, in fact these relationships are rarely equal and rarely involve shared accountability.[20]The position paper’s discussion of ‘Dual and Multi-Party Accountability’ raises some operational questions in this context. Given the tendency for government funding to come with strings attached that undermine sector independence, this approach to accountability could be problematic for charities and NFPs. Any policy needs to recognise explicitly the sector’s independence and the value of its expertise in the areas in which it is funded. We welcome the Government’s commitment to make this explicit through forthcoming legislation. ACOSS has also been preparing a guide to develop the expertise of sector organisations in contracting principles and the skills to assert them, thereby maintainingtheir independence while ensuringother positive outcomes from Government contracts.

The move towards best practice principles in Government grant-making is welcome and recognises there is room for improvement. These guidelinesrefer to grants being guided through‘outcomes orientation’, measured by ‘changes effected in the community’ (p18); and further, highlight the importance of ‘effective consultation, leading to a shared set of understandings and expectations, (which) will help achieve more efficient and effective grants administration’and where ‘it is important to consider the needs and interests of grant recipients’.[21] Nonetheless, a cultural shift within Governmentis necessary to encourage grant administrators to value and strengthen relationships with funded organisations, rather than focusing strictly on compliance. Strong relationships are integral to the functioning of the charitable and NFP sector from both a direct and indirect service delivery perspective. For Government, such relationships can assist with the early identification, disclosure and management of risk. Recruitment and training should also be focused on skills that can assist grants administrators to work collaboratively with organisations.[22]

ACOSS strongly supports the ‘report once, use often’ reporting frameworkadopted by the Australian Charities and Not-for-Profit Commission and which informed further work with Commonwealth agencies about the extent to which they require reporting from funded community organisations. In addition, we encourage work to ensure greater consistency in acquittal processes across the Commonwealth.

To discuss this submission further, contact ACOSS Deputy CEO .

ACOSS submission to Commonwealth Financial Accountability Review1

[1] For a full list of our national members, see Appendix A.

[2]ACOSS gratefully acknowledges the contribution of Hannah Gissane, Policy Intern 2012, on this paper.

[3] Productivity Commission (2010) Contribution of the Not-For-Profit Sector, Productivity Commission,

[4]Productivity Commission, op. cit, p. 28

[5]ACOSS (2009) Submission to the Productivity Commission, ‘Study into the Contribution of the NFP sector’, Australian Council of Social Service,

[6] See submissions from the Australian Centre for Philanthropy and Not-for-Profit Studies, the Community Council for Australia, the Not-for-Profit Reform Council and UnitingCare Australia.

[7]Productivity Commission, op. cit., p. 36.