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Financial Management in Non-Profit Organisations : An Exploratory Study

Financial Management in Non-Profit Organisations : An Exploratory Study. Barry Strydom & Timothy Stephen School of Economics & Finance, UKZN Presented at the Southern African Finance Association Conference, 18 – 20 January 2012 University of KwaZulu-Natal.

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Financial Management in Non-Profit Organisations : An Exploratory Study

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  1. Financial Management in Non-Profit Organisations: An Exploratory Study Barry Strydom & Timothy Stephen School of Economics & Finance, UKZN Presented at the Southern African Finance Association Conference, 18 – 20 January 2012 University of KwaZulu-Natal

  2. Financial Management in Non-Profit Organisations Importance of NPOs

  3. Financial Management in Non-Profit Organisations Importance of NPOs major shift in development funding from government agencies to NGOs (Goddard and Assad, 2006: 377). 56 237 registered NPOs in 2009 (Dept. Social Dev. 2009: 7) total income in 2004 estimated at R14 billion (Dept. Social Dev. 2009: 30) NPO’s key role in tackling the challenge of social development in South Africa (Conradie, 1999: 291). NPOs made a significant positive impact at a community level in combating poverty (John Hopkins 2002 report in Dept. Social Dev. 2009: 30)

  4. Financial Management in Non-Profit Organisations Importance of financial management Financial management is critical for the economic sustainability of an NPO (Pajas and Vilain, 2004: 342) The current reduction in available funding has highlighted the importance of financial management for the sustainability of NPOs in a difficult economic environment (York, 2009: 1).

  5. Financial Management in Non-Profit Organisations Focus on Short-term financial management Budgeting & Forecasting Management of cash resources Performance analysis Ratio analysis Variance analysis

  6. Financial Management in Non-Profit Organisations Research Questions To what extent do NPOs in the Pietermaritzburg area apply recommended financial management practices? What is the relationship between demographic factors and NPOs’ use of financial management? Does a relationship exist between the NPOs’ application of sound financial management and their financial vulnerability?

  7. Financial Management in Non-Profit Organisations Sample and Data Collection Survey instrument - questionnaire July – September 2010 Sample frame, list of NPOs registered in greater Pietermaritzburg area between 1997 and 2007, 330 NPOs

  8. Financial Management in Non-Profit Organisations Filters – reduced to 250 NPOs NPO operated to benefit society as whole and not only members of the organisation NPO has its head office in the greater Pietermaritzburg area NPO had been operational for at least three years Sampling technique – combination of probability and non-probability methods, every 5th NPO on the list – 16 usable responses Survivorship bias Expert opinion Snowball technique – further 16 usable responses, 7 of which had either ceased to operate or were facing imminent closure

  9. Financial Management in Non-Profit Organisations Findings & Analysis Respondent profiles Mean age 8.16 years Size Table 1: Size Characteristics of NPOs

  10. Financial Management in Non-Profit Organisations Table 2: Individual(s) Responsible for Day-to-day Financial Activities & Financial Management

  11. Financial Management in Non-Profit Organisations Table 3: Educational Qualifications of Day-to-day Financial Administrator and NPO Size Kruskal-Wallis: no significant difference between qualification or experience across size

  12. Financial Management in Non-Profit Organisations Table 4: Educational Qualifications of Financial Manager and NPO Size Kruskal-Wallis: no significant difference between qualification or experience across size

  13. Financial Management in Non-Profit Organisations Use of Financial Management Concepts Figure 1: Number of Financial Management Concepts used

  14. Financial Management in Non-Profit Organisations Table 5: Existence of Separate Finance Sub-Committee and NPO Size Significant

  15. Financial Management in Non-Profit Organisations Use of Budgets No statistically significant relationship between types of budget used and size of organisation or Financial Manager’s qualification Table 6: Reasons for the Drawing up of Budgets

  16. Financial Management in Non-Profit Organisations Table 7: Use of ZBB Compared to Various NPO Characteristics Table 8: Financial Manager’s Qualification & Usage of Cash Budgeting

  17. Financial Management in Non-Profit Organisations Financial Viability Not Distressed 17 NPOs had never missed a payment Distressed 15 NPOs had been late and/or missed payments 5 on 1 or 2 occasions 8 on more than 2 occasions 2 had ceased operations due to cash shortages

  18. Financial Management in Non-Profit Organisations Table 9: Distressed versus Not Distressed and Usage of Financial Management Concepts NOT SIGNIFICANT

  19. Financial Management in Non-Profit Organisations SIGNIFICANT Table 10: Factors Related to Financial Status SIGNIFICANT SIGNIFICANT

  20. Financial Management in Non-Profit Organisations SIGNIFICANT Table 10: Bi-variateLogit analysis of Financial Status Using Age and Size as Explanatory Variables SIGNIFICANT SIGNIFICANT

  21. Financial Management in Non-Profit Organisations Table 12: The Relationship Between Extent of International Funding and Financial Status No significant relationship

  22. Financial Management in Non-Profit Organisations Table 13: The Relationship Between Operating Reserves and Financial Status Significant

  23. NOT SIGNIFICANT NOT SIGNIFICANT Table 14: The relationship Between Cash Budgeting, Purchasing Procedures and Financial Status NOT SIGNIFICANT NOT SIGNIFICANT SIGNIFICANT

  24. SIGNIFICANT Table 15: Bi-variateLogit analysis of Financial Status Using Size and Finance Sub-Committee as Explanatory Variables

  25. Financial Management in Non-Profit Organisations CONCLUSION The majority of NPOs surveyed employed accepted financial management practices and no relationship between their overall use and an NPO’s financial vulnerability was evident. Age, size of the NPO, and the Financial Manager’s experience significant in determining the likelihood of financial distress level of operating reserves and the presence of a separate finance sub-committee were also significant The use of purchasing procedures, cash budgets, ZBB, and ratio analysis, were not significant the extent to which NPOs relied on international funding was not found to increase their likelihood of having experienced financial distress post the global financial crisis

  26. Financial Management in Non-Profit Organisations CONCLUSION Limitations of the Study Sample size Narrow geographic scope Time period This study provides a valuable starting point for further research on this important topic by identifying a number of factors which impact on NPOs’ financial viability and suggesting productive areas for further research.

  27. Financial Management in Non-Profit Organisations THANK YOU

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