NFP directors not ready for future

A recent study carried out by Grant Thornton and Pro Bono Australia reveals a majority of not-for-profit (NFP) directors do not have the financial literacy skills to meet the challenges of the future.

A total of 1,065 respondents were surveyed from many NFP sectors and while almost 60 per cent believed boards had the financial literacy to satisfy current needs, only 40 per cent believed their boards had the necessary skill for future needs. Director education was cited as a way to “bridge the gap” and where it had been undertaken, the skill levels were higher than average.

Both boards and management agreed that financial literacy skills were extremely important for boards. On a scale of one to five, with five being more important, the average importance rated at 4.7 out of 5.

When both directors and management rated the performance of their board against the criteria, the ratings fell to between 3.5 and 3.9 depending on the size of the NFP.

The study also measured board performance along different criteria. For example, paid boards were considered stronger than unpaid boards.

The study highlighted some concerning findings in that 22 per cent of director respondents said they were “completely reliant” on a subgroup and 22 per cent were “completely reliant on management for finance matters”.

In facing future challenges, the area of most concern regarding board financial skills was directors’ lack of understanding of the risks associated with plans for new revenue streams. These skills were considered moderate at best.

The report concludes that “there is a need to improve the financial literacy of NFP boards” and that most respondents believed this responsibility rests with each individual director. However, only 36 per cent of organisations included financial training in their induction process and only 18 per cent had access to training programs (either internal or external).

It was suggested that NFP board evaluations should also include an assessment of financial literacy skills to help identify needs.

The report is available here.