COVID 19 Organisational Survival/Sustainability New Risks & - PowerPoint PPT Presentation

COVID 19 Organisational Survival/Sustainability New Risks & Challenges SA non-profits Prepared by Cathy Masters B Com Hons CA(SA)

COVID 19: New risks & challenges Suddenly not able to operate A strong call to respond A short term crisis • Can we survive ? • Do we continue to pay salaries ? For how long? • How will our funders/donors respond if we can’t meet our commitments? • How do we respond to the crisis? • Where can we source funding and relief ? • What will the future look like for our organisation - if this crisis continues? PANIC!!

COVID 19: New risks & challenges SCAM WARNING If it looks too good to be true, it probably is not true.

COVID 19: New risks & challenges FACING SOME DIFFICULT DECISIONS • Close down some or all of our operation • Change the way we work - restructure • Jump into the relief efforts • Use our reserves or savings to pay staff, critical costs and/or for relief • “Borrow” funds intended for other purposes • Reduce salaries, downsize, dismiss, or retrench staff? What are the implications of our decisions in the short term and the long term ?

COVID 19: New risks & challenges THE TEMPTATION TO BORROW! BANKING & CREDIT PROVIDERS Temporary payment holidays & extension of credit lines Finance costs (interest) and loan conditions may now be more favourable to borrowers but there is a cost and risk that must be weighed against the benefit.

COVID 19: New risks & challenges STEP BACK & BREATHE – LEADERS NEED TO CAREFULLY CONSIDER • The impact on operations, employees, contracts, stakeholders, and finances • The financial plans – revisiting budgets and cash flow forecasts • The new and emerging risks - health, controls, finances • The processes that may need to change, including certain the policies and procedures of the organisation • The control environment to ensure financial discipline • The financial health and future of the organisation - sustainability

COVID 19: New risks & challenges IMPACT ON CONTRACTS: FAILURE TO DELIVER Organisations may not be able to deliver on its contracts: • A force majeure clause • Event or circumstance unforeseen and beyond the control of the parties • Performance is impossible as a result • Clause in the contract talks to what happens • A supervening impossibility of performance • Applicable if no force majeure clause in the contract • No service/no work – No pay • Contract can be terminated if • the performance is objectively impossible; and • the impossibility is unavoidable by a reasonable person

COVID 19: New risks & challenges IMPACT ON EMPLOYEES • What if employees are unable to work? • If we work differently – employees will be affected • There are new considerations - re working from home • Considerations of employees working to provide essential services or returning to work at Level 4 or Level 3. Protocols, protective gear, rotations • What if operations must be closed down or funding is depleted? • What if employees and/or their family members get ill and even die as a result of COVID 19? Understand and follow the law & employer responsibilities – LRA, BCEA, UIF, COIDA, retrenchments Follow clear HR & finance policies and procedures

COVID 19: New risks & challenges IMPACT ON REVENUE & FUNDING • Decrease? Directly linked to activities Lost momentum, contracts not renewed Economic downturn Financial distress of donors/customers • Increase? Supportive partners/sound track record Foreign funding – exchange gains New opportunities re Relief efforts Restricted funds? Existing funding but earmarked for specific activities & purposes

COVID 19: New risks & challenges IMPACT ON EXPENDITURE • Change to activities = change to expenditure • Direct expenditure on activities • Changed expenditure • Tech, connectivity, data, coms • Protective gear and measures • Training, learning and emotional support • Core costs – monthly commitments • Salaries? • Rental? • Coms? • High monthly expenditure commitments – not quick or easy to change!

COVID 19: New risks & challenges IMPACT ON THE CONTROL ENVIRONMENT Crisis situations call for more financial discipline not less • Objectives of the organisation = primary framework for all decision-making • Heart vs head • The needs of the present vs the needs of the future • Clear policies and procedures (adapted) • Delegation of authority - who decides and when? • Accounting and reporting? • Retention of evidence? Document management? • Defend against corruption – real or perceived • Keep a systematic record of service delivery and finances • Caution re accepting tainted funding • Collaboration vs competition

COVID 19: New risks & challenges IMPACT ON AUDITS • Location of audit • Approach – substantive vs systems • Supporting documentation - physical vs electronic • Going concern issues • Audit questions • Report of impact in the annual financial statements

COVID 19: New risks & challenges IMPACT ON FINANCIAL HEALTH & SUSTAINABILITY Know your current financial position and future commitments: • Up to date accurate financial records • Financial position: - end of prior month • Balance in the bank accounts • Plus receivables (if collectable) • Less payables (including balances of any unspent restricted funds) • Equals – Balance of funds available • Financial commitments: minimum monthly • Amount per current contracts – staff, suppliers, funders, SARS Based on funds available – how mnay months can you continue to pay these minimum monthly commitments? The Survival Ratio

COVID 19: New risks & challenges IMPACT ON FINANCIAL HEALTH & SUSTAINABILITY The survival ratio : Balance of unrestricted available funds divided by the minimum monthly commitments equals the number of months you hold in savings. • What is considered a reasonably healthy survival ratio? • 3 to 6 months of minimum monthly commitments as savings • to handle temporary delays or crises • 6 or more months to take advantage of strategic opportunities

COVID 19: New risks & challenges IMPACT ON FINANCIAL PLANNING Changes = the need to revisit budgets Short term and longer terms Short term considerations • Balancing the budget • Revise or explain? • Cash flow forecasts – month by month • VAT implications Longer term considerations • Spending savings? Is this a temporary rainy day? Strategic opportunity? • Building savings – setting aside unrestricted income Communicate with all stakeholders – funders, employees etc .

COVID 19: New risks & challenges IMPACT ON DECISIONS AND ACTIONS • Consider your financial plans in the light of your current financial position? • Are you already insolvent and therefore unable to pay your current debts? o Negative balance of funds o Caution continuing in operation & making further commitments o Reckless trading - board members/leaders may be held liable for debts • Are you realistically able to meet your commitments in the next six months? • If not = financial distress, which can lead to reckless trading • Be realistic - do scenario planning – what if?? • What decisions can or must be made and when? • Set targets or benchmarks for taking action?

COVID 19: New risks & challenges ORGANISATIONS better manage the impact of change and crisis through sustainability strategies such as • Positive stakeholder relationships • Diversity of income/funding sources • Unrestricted income – flexibility of spending & for savings • Building and managing savings & reserves – strategy, policy & practice • Keeping fixed monthly commitments low – lean & flexible • Financial discipline & high ethical standards • Ability to demonstrate social change and impact • Full & realistic costing of programs and activities

COVID 19: Support for non profits

COVID 19: Support for non profits SUPPORT FOR NON PROFITS – A CALL TO FUNDERS When funding the direct delivery of the relief and care products and services, also consider: • the overall financial health and capacity of the organisations providing these services • efficiency, effectiveness and sustainability • the people carrying out the services and the related salaries and volunteer costs • the infrastructure and systems necessary to deliver services • the costs of the necessary changes to operational methods • the possibility that relief efforts may need to be sustained for much longer than anticipated