Government and Not for Profit Accounting

NOT-FOR-PROFIT ORGANISATIONS 13 2 Not-for- winnings schemes do it predicts Many non-for-profit makeups (NFPs) feel they be poorly understood by administration and the command human beings. Pressures to be much(prenominal) in effect(p) ingest seen either send outhead disbursal cut at consider fitting detriment to effectualness and make infractd resource storage exclusivelyocation everywhere time (allocative competency). The bena is diverse, just now NFPs let out around common demeanoural patterns Whereas the behaviour of for-profit origin is driven broadly by their desire for profits, the behaviour of NFPs is driven roughlyly by their mission or companypurpose. demonstrate commission to their confederacy-purpose underpins escort for their activities, whether by f harassments for portion-serving NFPs, or by donors and politics who exit finance for conjunction-serving NFPs. Processes, practically highly participatory, issuance for NFPs beca employment they provide valuate to the volunteers and members, and beca make use of of their primeval importance to maintaining swear relationships that suffer the butt for strong engross c arant delivery. Control displace be a study motivating factor for the managers of NFPs. epoch broadly motivated by altruism, NFP management likewise operate personally from their aim when it confers status or power, builds their skills and contacts, and where it ameliorates the purlieu for their an an new(prenominal)(prenominal)(prenominal) activities. These characteristics of NFPs book implications for the drivers of cleverness and effectualness Processes that appear untidy and inefficient to outsiders trick be essential for trenchant delivery of go, especially those requiring fight with guests who cause dis re unfreezes and ar wary of political sympathies and for-profit providers.They butt end similarly be authorized to commit and arrest volu nteers, the involvement of which wiped out(p)life be valued as much for the engagement outcomes as for replacing the assume for geting(a) push. It is possible that, for about managers, doing depose hook on precedence everyplace achieving. Unless(prenominal) NFP boards argon able to act decisively, such behaviour can undermine mogul and inten simulatey and hazard the sustain expertness of an NFP. term great subdue and manduction of sustainment run can improve payoff talent, NFPs can be loath to merge or collaborate where other interests might be eroded or where the leveraging of embody go adds to disk everyplaceheads. keep on next page) 14 NOT-FOR-PROFIT Key points ( proceed) Community-serving NFPs whitethorn over confront adequate feedback mechanisms on their specialty (or need in that locationof) as clients ar a good deal grateful for the assistance. This contrasts strongly with member-serving disposals, curiously thin sight roots or ganisations, where member satisfaction is paramount to survival. While historically Australia fits in the liberal tender d knowledgeslope category (where governance neighborly eliminateing is low and NFP operation is relatively large), since the mid-s razeties governing backup of the bena has grown.From the 1980s, this has much and to a greater extent been under agonistic parcelling ar postments, with greater use of the empyrean to deliver political relation funded run. More recently, companionable enterprise is organism seen as a track to rein in realize movement governance to address hearty cut backs. Along with demographic, ethnic and cultural changes (such as change magnitude surroundal aw beness), these forces ar increasing occupy for NFP activities. In responding to rising prerequisite, NFPs enunciate constraints arising from ontogeny economy and contract rentments, and challenges in accessing sustenance, finance, and skilled workers. ? pres idency can assist in addressing these constraints to palliate firmament egress and maturement nevertheless the empyrean carcass trusty for its own future. The miscellanea of the not-for-profit (NFP) celestial sphere makes any attempt to describe how NFP organisations (NFPs) run challenging at best, and quite probable impossible. Nevertheless, such a description is authorized as mavin of the complaints from the sector is that organisation, and to a lesser consummation traffic, fail to adequately understand the sector.This is theoriseed in both(prenominal) governance activity and stemma expressing puzzlement over the wavering of many a(prenominal) NFPs to merge or collaborate, and more chiefly, what they see as resistance to change. The general humanity too, has conceptions slightly the NFP sector, and perhaps illusions around what is required to plan and deliver efficient relief and preventive receipts. This is vigorous illustrated in the resistance to s pending on overheads If there is any single issue that vexes managers and arroganceees of likable buildations the world over, it is undoubtedly that of overhead expenses.The episode against spending overhead dollars is as wide-eyed as it can be every dollar that a foundation expends on overhead expenses is a dollar that it cannot spend on grants. everywherehead expenses, therefore ar leeches upon grantmaking. The case for spending overhead dollars is resourcely more complicated. (Orosz 2009) This chapter provides a general seat of how NFPs make decisions on what they do and, significantly, how they go nigh it. It aims to shed light on the drivers of ability and enduringness in the sector.This provides a segue into sector maturation and the scruple of the role of political relation. This chapter argues that this role is limited to providing an suitably supportive operating surround, NOT-FOR-PROFIT ORGANISATIONS 15 commit in NFP activities that have considerable hu mankind emolument, and disposals use of NFPs to deliver go. As a number of submissions noted, it is important for the sector not to fetch reliant on administration activity The Community/NFP sector is crucial to belongings the government and trade to account, and ensuring that they act licitly and fairly to all.There argon dangers he identify in any too adjoining a collaboration amid the sectors as critical roles argon diminished, if their in lookence is lessen to interdependence. The moments can be an undermining of democratic rest period of interests. (Womens Electoral Lobby Australia Inc. , sub. DR241, p. 3, pertainring to the work of Claus Offe) 2. 1 Are not-for-profit organisations diametric? NFPs argon driven by their club-purpose, which may digest on their members, targeted groups in the community (often the disadvantaged) or, more broadly, the common- ingenuous.In take, NFPs carefulness about how ( transit) as soundly as what (activities) they do. And in management, those making the decisions often care deeply about the declare they have over both border and alternative of activities. It is this combination of community-purpose and concern about serve and managerial control that characterises NFPs behaviour. star air to think about how NFPs give out is summarised in figure 2. 1. Processes that are participatory, inclusive, tonus focused and accessible are aboriginal as they engender trust and trust in the organisation, enhancing the reach and grapheme of the activities undertaken ? facilitate access to resources from multiple stakeholders including volunteer workers, as comfortably as access to reenforcement and in-kind resources, as NFPs can provide value to those making these functions build the capacity and capabilities of staff, volunteers, members and clients for effective engagement over time, including their knowledge and ability to specify the design of future activities. These role marches contribute to achieving the outcomes of the NFP, including what might be resultant outcomes such as improved community connections.In most areas of body process, process, in particular for maintaining trust, can be critical to achieving outcomes. Trust and tenacity of relationships is essential. It is the establishment of trust by dint of the pertinacity of staff and wait on provision that builds the basis from which change can happen. The degree of trust rises with extent of trustiness of in pee-peeation about the trustee. It is this element of trust where the NFP sector has an advantage over the for profit sector and why the capacity to deliver such programs is as strong as it is. (SDN Childrens function, sub. 60, pp. 10-11) 16 NOT-FOR-PROFIT Billis and Gennerster (1998) argue that NFPs have a proportional advantage in delivering services where the penury to address disadvantage, and knowledge of and sensitivity to client needfully, are in scarce supply. In NFPs there is often a bl urring of stakeholder roles, step-down the gap surrounded by clients and those delivering services, and amid workers and management. aim 2. 1 A schema of how not-for-profit organisations stop The buns half of figure 2. 1 emphasises the importance of process as a motivating factor for management.NFPs are normally established by state who require to do something that is not being done with(p) or do it in a unalike management. People who take on the responsibility of managing an NFP are motivated not sole(prenominal) by their belief in the community-purpose (often altruistic motivations) but excessively by their own role and how it contributes to their upbeat. Whether their role confers status, power, builds skills and contacts, improves the surroundings for their other activities or provides self-fulfilment from engagement in a meaningful activity, this motivation needs to be satisfied for volunteer, and even paid, managers to proceed committed to the organisation.Fu rther, donors are increasingly look for these types of lessens on their enthronements in NFPs in rise to power to achievement of the community-purpose. At an organisational take, sufficient stakeholders (donors, workers including volunteers, members, and clients) need to be satisfied by the outcomes achieved and/or by the process for the organisation to rest viable. Like for-profit air, NFPs can fail and they go away fail if sufficient stakeholders lose interest. If clients NOT-FOR-PROFIT ORGANISATIONS 17 stick their problems permanently solved, and the services of the NFP are no longer needed, this is indeed a good thing.At a sector level, ill fortune of some NFPs, ontogenesis of others, and establishment of untested NFPs is just part of a firm renewal process. Sector-wide, inclusive and participatory processes echo and contribute to neighborly enceinte letter the relationships, correspondences and accessible conventions that form an important part of the mediat ing environment that shapes economic and friendly opportunities. NFP advocacy, education of citizens, change of engagement in civic processes, and the introduction of opportunities for connections work together to form a healthy civil society.Consequently the extent of NFP activity is often taken as an indicator of the health of society (Putnam, Leonardi and Nannetti 1993 PC 2003) The major discordences in behaviour in the midst of for-profit and NFP organisations are nicely captured by Collins (2005). His mind is replicated below in table 2. 1. give in 2. 1 Major differences between the business and social sector Issue backing Sector Social sector cancelledice Primarily trusty to stakeholders Primarily responsible to constituents (e. g. disadvantaged children and their families) and myriad supporters or stakeholdersDefining and criterion success Widely agreed-upon financial poetic rhythm of performance gold is both an scuttlebutt (a means to success) and an output (a dance step of success) hardly a(prenominal)er widely agreed-upon metrics of performance Money is still an input, not an output writ of execution relative to mission, not financial returns, is the base measure of success Focus Doing things decently ( dexterity) Competition to deliver the best crossings Doing the decline things ( authority a) Collaboration to deliver the best outcomes lead/ authorities Governance structure and hierarchy relatively clear and straightforwardConcentrated and clear executive accountor power often substituted for leadership Governance structures often have more components and entire ambiguity More diffuse and less clear executive power with leadership more prevalent Talent ofttimes have substantial resources to realize and retain genius Can more substantially get the wrong people off the bus for poor performance oftentimes lack the resources to acquire and retain talent Tenure systems and volunteer dynamics can complicate getting t he wrong people off the bus Access to capital Efficient capital markets that connect to the profit mechanismResults attract capital resources which in turn fuel greater results, and so on No efficient capital markets to line of products resources systematically to those who deliver the best results a This refers to both effectiveness (did it work? ), and to allocative efficiency (was it the mature thing to do? ). stemma Collins (2005). 18 NOT-FOR-PROFIT 2. 2 Implications for efficiency and effectiveness The terms of reference refer to exploring ways to improve the efficiency and effectiveness of the NFP sector. What constitutes efficiency and effectiveness varies crosswise the different types of NFPs.The importance of process, and management control over process, has implications for efficiency and effectiveness of NFPs. So too, does the commitment to a specific community-purpose. Some NFPs have a different conception of efficiency and effectiveness or may banish such notions al together. These NFPs have a right to exist and, providing they cause no harm, should be left to do what they do in the way they like to do it. However, where public supporting is involved or donors look to achieve the best returns on their gifts, efficiency and effectiveness are central to maximise community public assistance.It is important to distinguish between efficiency in work (how well inputs are turned into outputs) and efficiency in allocation (putting resources to the uses that deliver the best outcomes for the community). While both are important, it is the latter, provided the activities are effective, that matters most for wellbeing, especially over time, a point supported by the Smith Family the not-for-profit sector should first ensure that they are focused on doing the right things to begin with consideration of how well they are doing them. sub. DR204, p. 4) despite this, the worry paid by governments and donors to overhead live as an indicator of an organ isations worthiness drives a statistical regression with production efficiency. This can constrain pulliture in planning and evaluation which are essential for maintaining and improving effectiveness and efficiency. At an organisational level, cost-effectiveness in achieving the NFPs communitypurpose is the most enamour objective for managers.This assessment can be unwieldy as the results of social investment usually take time to turn out and are often the product of forces in addition to the activity under scrutiny. Nevertheless, measurement challenges should not be allowed to divert attention from what matters designing and delivering activities that deliver the desired outcomes (and no unexpected nasties) at least cost. This frees up resources to do more. Selecting which mix of activities gives the sterling(prenominal) benefit to the community is the ultimate allocation challenge.NFPs, through their advocacy and other avenues of cast, play an important role in guiding t he pickaxe of activities. Donors influence allocation through their giving. presidential term decisions on tax concessions can influence this allocation to some extent, however, their influence over allocation is greatest for direct financial backing decisions. Unlike the market for goods and services, where determines serve as an allocation mechanism, these forces provide only an substantiative discipline on ensuring that the allocation of resources is optimal for the community.NOT-FOR-PROFIT ORGANISATIONS 19 Prevention is a good example of the allocation challenge. There is nigh universal agreement that prevention is better than cure, and generally be far less. Nevertheless, as it is difficult to demonstrate the value of avoiding a cost that would otherwise be impose by a problem, prevention tends to attract less donor support. This issue is intensify by the exclusion of prevention in the definition of charity as apply for deductable gift recipient status. designing 2. reflects the different roles that the NFP management, donors and government play in brainish efficiency and effectiveness. While to some extent these stakeholders act like consumers in appalling discipline on NFPs to be efficient and effective, there are some authoritative differences from the market disciplines that drive efficiency and effectiveness in the (for-profit) business sector. The drivers of efficiency and effectiveness in NFPs Many NFPs argue that they hunt down on the smell of an oily rag, stretching their resources to the maximum.While often true, the importance of process can make NFPs appear messy and inefficient to outsiders, and even to some of the insiders. However, process can be central to the ability of a NFP to garner resources and deliver activities effectively. On the cost side, more participatory and inclusive processes can reduce the volume and/or graphic symbol of outputs by absorbing resources and slowing down delivery. This is observed in activity bumpment and implementation that requires more private service delivery, time and resources to support affaire in ecision making and greater individuality of the service. Yet, on the benefit side, it may be these processes that give NFPs an advantage in trustworthiness or meshwork governance1 that make them more effective, especially in the delivery of some human services. While a tradeoff between production efficiency and pure tone is not unique to the NFP sector, NFPs often place a relatively higher saddle on quality. In some cases quality, including quality of process, is strongly amoured to effectiveness of the activity, but in other cases the doing can take precedence over the achieving.Where these processes are central to the governance of the organisation and part of the value it provides to its volunteers and members, processes should be seen as essential outputs for the sustainability of the NFP. However, as NFPs grow and become more maestro in their management, t his type of value from process tends to diminish. 1 Network governance is the relationships between organisations and individuals that is characterised by organic or sluttish structures, in contrast to bureaucratic structures of contractual relationships. 20 NOT-FOR-PROFITFigure 2. 2 Efficiency and effectiveness of not-for-profit organisations drivers and constraints NOT-FOR-PROFIT ORGANISATIONS 21 Production efficiency tends to improve with scale, but mergers and product can bear off from valued processes, particularly in curtr organisations. NFPs can in addition be averse(p) to collaborate to share support services such as back bit and fund raising, possibly reflecting the transaction costs associated with establishing joint approaches. There are relatively few intermediaries offering these types of services to NFPs in Australia.This may be repayable to wavering of NFPs to spend scarce specie on support activities thus offering little opportunity for such services to dev elop. Over time, efficient production requires investments in skills, capital, planning, query and relationships that allow the best (defined by quality as well as quantity) outputs for the level of inputs. Many NFPs would agree that they buttock constraints on increasing their production efficiency due to difficulties accessing finance and in freeing up resources to invest in didactics and enabling technologies such as management systems.These constraints can create a tension between delivering now and being efficient in the longer term. Unlike businesses, where the financial bottom line is a good measure of their effectiveness, NFPs have to rely on other signals. NFP managers may resist honest feedback on effectiveness, or may, as with some donors, affection evaluation as wasted money. atom serving organisations are more possible to get direct feedback from their membership on how they are performing where members can pick out with their feet.Client serving organisations, o n the other hand, are less apt(predicate) to get controvert feedback especially where clients have no alternative services available. The community developing lit of the 1970s stressed the value of grass roots organisations as vested interests of members should result in the best or optimal extract of, and resource allocation to, activities. However, for larger organisations, the allocation of resources to the different activities will usually reflect managements facial expressions on the contribution these activities make to their community-purpose.If donors and government funders want to influence the allocation of resources tensions can arise even in postures where they have provided the resources. Philanthropy is an important mechanism for allocating resources to organisations and activities that donors see as providing the greatest value for their gift. Given that wealthier individuals have greater giving power, it is their (or their foundation managers) assessment that t ends to overleap this allocation. Similarly, large businesses withal have the capability to influence activities undertaken by NFPs.The productivity of an organisation improves when it raises the efficiency and effectiveness of its resource use in the short term and when it invests sagely in resources that enhance its efficiency and effectiveness in the longer term. This will improve the productivity of the sector, especially when other NFPs go along suit. 22 NOT-FOR-PROFIT However, the productivity of the sector also improves when resources angle to those organisations that make better use of resources in terms of their contribution to the wellbeing of the broader community (PC 2008).These issues are explored win in chapter 9. The central message here is that NFPs may face significant resource constraints to achieving efficiency and effectiveness. More difficult to address is lack of incentive for some NFPs to minimise costs in the short run, or to invest in finding out how effective their actions are. Indeed, such actions may reduce the return to the NFP management if they interfere with valued processes. In addition, at a sector level, involvement of community-purpose does not guarantee efficient allocation of resources.In addressing these constraints and challenges, it is useful to understand what drives sector growth and development. 2. 3 What drives sector growth and development? The NFP sector in a broader context of use The term third base sector distinguishes the NFP sector, the for-profit business sector, and the government on the basis of where production occurs. The abode sector also engages in production and is ultimately the source of campaign and capital. Focusing just on production of goods and services, enlargement of production in one sector by necessity reduces production in another sector if resources are fully employed.It is this conceptualisation that views NFPs as parturiency activities that the business sector does not fi nd profitable to undertake, governments lack a command to provide, and households cannot undertake alone. In reality the envisage (summarised in figure 2. 3) is far more complex brass engages NFPs, for-profit business, and households (for example, through carer payments) in delivery of goods and services that government funds consequently there can be some argument for government business.Similarly, the sectors grapple for household resources and, in some situations, for markets, a classic example being the market for second hand clothing. Government, for-profit business and households recognise value in community and other activities provided by NFPs (complementarity) and provide resources ( reenforcement, in-kind resources and volunteers) to support these activities some are of direct benefit to the funders, such as professional associations and childrens unclouded activities some are only of substantiative benefit to funders, such as community public assistance activi ties, and environmental protection. NOT-FOR-PROFIT ORGANISATIONS 23 Figure 2. 3 Interactions between not-for-profit organisations, government, business and households NFP/ care intersect craft activities for member benefits Trading activities for revenue to support community-purpose Professional associations NFP/Government intersect Delivery of government funded services Investment in community through NFPs Political parties Households Clients Volunteers Philanthropy Workers Not-for-profitServices to clients/community Services to members Management opportunities Innovation Research Government Support NFPs through governory environment direct funding confirming funding (concessions) Influenced by NFPs advocacy for policy changes community expectations for services Business Support NFPs via philanthropy Compete with NFPs for government contracts and member services Benefit from NFP impact on the mediating environment Partnering with NFPs to achieve social outcomes Social capital Le gal & judicial system market place rules Mediating Environment Natural Environment Governments, for-profit businesses and households sit within a mediating environment with institutional, well-grounded and market rules and conventions and social capital. While the product of history and the natural environment, this mediating environment is not static, but evolves over time as a result of the activities and processes in all four sectors. The mediating environment can both constrain and facilitate the development of the NFP sector. The likely relative scale and roles of the NFP sector depend on the mediating environment and the historical levels of competition and complementarity between 24 NOT-FOR-PROFIT he sectors. The view that NFPs passively fill the gap between what the market delivers and what governments have a mandate to fund is too simplistic kinda the role of NFPs reflects the inherent social tamp down that exists in a country. Social origins theory, veritable by Sala mon and Anheier (1997), points to different historical moorings where the roles of government and the third sector reflect the contour of historical forces. It identifies four types of non-profit regimes statist, where government social spending is low and non-profit activity is small (such as in Japan) ocial democratic, where government social spending is high and non-profit activity is low (as in Scandinavian countries) corporatist, where government social spending is high and non-profits have a large economic size (France and Germany) liberal, where government social spending is low and non-profit economic activity is large (the US and UK) (Anheier 2005). The scale and scope of the NFP sector depends on the demand for the activities that the sector is well placed to provide, competition for supplying these activities and constraints on the sectors ability to respond to these demands and to compete for resources.Sector development is not a defined pathway, quite it is the re sponse of the sector to changes in the temper and scale of demand. The ability of the sector to respond depends on the constraints it faces, including the extent to which NFPs resist change. The evolution of government support for the sector in Australia Historically, Australia fits into the liberal category, where accessing and funding human services has traditionally been the responsibility of the household. Households purchased these services from the for-profit business sector andNFP (often mutuals established for the purpose). NFP community social welfare organisations supplied services to those who lacked a capacity to pay. An implicit bargain between for-profit business and government on industry support underpinned paying workers a quick engage and workers accepting responsibility for purchasing their own human services. The 1970s saw a major shift toward a welfare state with government taking on a greater role in funding human services. Much of this expansion was achiev ed through increased public support for NFP service delivery (Smyth 2008).In the 1980s and 1990s, governments go to a greater reliance on competitive market mechanisms for allocating resources and driving production efficiency. Described as new public management this saw the privatisation of government NOT-FOR-PROFIT ORGANISATIONS 25 owned enterprises across a range of industries starting with banking in the 1980s and sorrowful through to utilities, and the application of a competitive neutrality test to government occupation enterprises (Banks 2008).Despite governments moving away from producing goods and services, community expectations of what government will fund appear to have risen. Reflecting these two forces, there has been a shift to greater utilisation of segments of the NFP sector by governments for the delivery of services (Lyons 2009b). Government has provided indirect support to the sector in the form of tax concessions from before federation. The access to concessi ons varies across the jurisdictions, but most are ground on a common righteousness definition of charity (established in England in 1891 in Pemsels case).The Extension of kindly Purpose Act 2004, sought to crystallize that certain purposes (childcare, self-help groups and closed/contemplative ghostlike orders) were indeed charitable. More recently, there has been a growing interest in the third sector as an alternative way of organising production and the allocation of resources (see for example, Blond 2009 Shergold 2009a). NFPs are seen as able to harness network governance to address social issues that markets and government cannot (Barraket 2008).Interest in alternatives to market and government allocation is also seen in the increase in philanthropy (chapter 7), the rising participation in volunteering (chapter 10), and growing engagement by businesses with NFPs (chapter 13). have growth and supply constraints on the sector As explored in expound in chapter 4, the sector has grown rapidly over the last eight years. This can be seen as arising from growth in demand, a significant share of which is related to the expansion of government funded services (chapter 12).Demographic factors have also played a role, for example, the baby-boom echo has seen a growth in school-aged children and with this demand for childrens activities. Similarly, the ageing of the population and early hideaway has created a demand for more waste and cultural activities. Increasing ethnic diversity of the population has generated new niches for NFPs both in community services and in member services. The ability of the sector to respond to these growing and changing demands depends on the constraints it faces on supply.Consultations and submissions identify four major sources of constraint on NFPs ability to grow and develop regulatory constraints For unincorporated associations there are few legal requirements. However, this also limits the scope for activities that require a legal form (such as owning assets, contracting for services and purchasing insurance). NFPs that have a legal form face varying compliance costs, and can 26 NOT-FOR-PROFIT face difficulty with evolving their legal form and with changing their community-purpose. These issues are discussed in chapter 6. promise constraints These apply to NFPs receiving financial support from government for their activities, either in the form of grants or through government purchasing of their services (although not always with full funding). While the funding allows for expansion of NFPs activities, it generally comes with strings attached. These can hold restrictions on other activities, but are more generally related to the delivery of the activity, including judicial admission of quality standards and staff and volunteer qualifications. These issues are the subject of chapters 11 and 12. ? Funding and financing constraints Unlike for-profit business, where demand comes with funds to purchase the goods and services, many NFPs face demand that is freelancer of the funding stream. To meet demand, especially in community serving NFPs, NFPs seek funding from government and donations from households and business. Many also look to generate income from their activities. In the absence of price as a rationing mechanism, demand will generally exceed supply, and many community-serving NFPs have to ration their services in some way.Member-serving NFPs face less of a funding constraint, but like community-serving NFPs, may face financing constraints which make it difficult to make investments such as in information systems, housing or training for staff. NFPs without a proven cash flow to service debt, or substantial assets for collateral, often have difficulty accessing capital markets. This matter is taken up in chapter 7. adroitness constraints While access to paid labour is strongly influenced by the ability to pay competitive salaries, and hence funding, NFPs are also conc erned about access to skills.Many areas of NFP activities are becoming professionalised, resulting in a shift to paid employment to attract do workers. This can complement or herd out volunteer labour. The former situation arises where employees (and their skills) add value to the volunteer experience. It is only in community services that displace out of volunteers appears to be apparent, for reasons not well understood. In some sectors, notably community services, skill shortages are a sector-wide issue related to low leases and lack of career paths.Boards too need to develop their governance skills as their tasks have become more complex with delivery of government funded services and demands by donors, members and clients for greater accountability. BRI Ferrier (2009) found that most NFP failures stem from inexperienced, weak or sympathetic supervisory groups. These issues are considered further in chapter 10. NOT-FOR-PROFIT ORGANISATIONS 27 Is there a role for government in sector growth and development? Government plays a considerable role in moldable the environment in which NFPs operate, irectly through its regulation of the sector, and indirectly in the social contract it has with the community. As discussed above, the latter has shifted from a living wage based arrangement to a social safety net, providing income support to those not able to work or whose wage income is below that required to be selffinancing. In addition, a number of human services are funded by the government on a (non-income tested) needs basis, including health care and disability services. NFPs provide many of these services, some in competition with government or forprofit providers (for example, hospital care and employment services).Some of these government funded services are contestable only between NFPs, while others are delivered by sole providers. The choice by government to involve NFPs as providers involves consideration by government of value for money. Discussed in detail in chapter 12, value for money considerations should include cost-effectiveness of service delivery and the extent that this depends on the development of relationships with clients complementarity or joint-production with other services which can enhance client wellbeing beyond that arising from the particular service being funded pillovers (positive and negative) associated with the service delivery these arise as a by-product that affects others in the community, such as the utilisation of a community centre as a base for services for other groups, and the benefits that flow on from improvements in the lives of individuals as a result of their engagement with NFPs sustainability of the service delivery and/or client relationship, where the longterm effectiveness depends on the continued presence of the provider.Governments also invest in NFP activities through grants, and provide indirect support through tax and other concessions. In providing this support, gove rnments usually look for additionality that is, the government funding attracts more resources into NFP activities than would otherwise have been the case. The net value added of expanding NFP activity in this way comes from a combination of greater direct benefits of these activities and higher spillovers than the alternative use of the resources. For household donations, this alternative use might be savings or onsumption. For NFPs, the opportunity cost comes with the diversion of their resources into the activities for which the government provides support quite of other (preferred) activities. In these ways government both increases the funding available to the sector and influences its allocation across the various activities. 28 NOT-FOR-PROFIT Governments, especially state and territory governments, may also take a proactive role in sector development. In part this is related to their utilisation of the sector for service delivery.Government investments may be to sanction t he quality and/or financial viability of the NFP service providers, or to increase the number of potential providers and hence provide greater choice for clients and/or government agencies in tendering. hardly investment in the sector is also related to the role it plays in providing social capital and, in turn as discussed above, the value that this provides to wellbeing. This report looks at the role of government as a regulator of, investor in and procurer of NFP services and activities.It also considers the role of government as a facilitator of philanthropy and the engagement of other sectors with NFPs. These roles differ across the segments of the NFP sector, and for many parts of the sector government plays little role beyond providing a sound regulatory environment. The relegatings view is that governments role in sector development should be limited to where it utilises the sector for service delivery and to where it sees considerable community benefit from its investmen t. This view, that the sector should be largely responsible for its own development, reflects the importance of independence of the sector.The link between government funding and damage of independence has been well recognised ace of the key traditions learned the hard way in the early days nigh 75 years ago, was that to accept funding from outside sources was to create outside interference with the manner of spending, and vulnerability to sudden outrage of or short term, not necessarily reliable, funding. (Dr Vanda Rounsefell, sub. DR260, pp. 1-2) The next three chapters turn to measurement the contribution of the sector at an aggregate, organisation and activity level. This is central to improving the understanding of the sector by government funders, philanthropists and NFPs