HSC - Australian Conservation Foundation .: Chartered Accountants Student Challenge :.

HSC

Team members:
Joel Seah (University of Western Australia) ,
Sam Gray (University of Western Australia) ,
Renae Fernandez (University of Western Australia) ,
Jessica Lean (University of Western Australia)

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Synopsis

The Australian Conservation Foundation (ACF), over its 40 years of operation, has built a reputation as one of Australia’s leading non-profit organisations. Supported primarily by individual donors and memberships, this organisation is a strong advocate for national and international environmental issues. By building partnerships with the government, business and the public, ACF campaigns for environmental solutions though research, consultations, education and advocacy, with the overall aim of “inspiring people to achieve a healthy environment for all Australians”.

During periods of economic downturn, non-profit organisations such as the ACF may experience a decline in monetary support due to tightening of spending and shifts in the priorities of governments, business and individuals. This means that organisations are faced with challenges in sustaining their current operations, campaign activity and membership and donation base, as well as meeting unexpected cost pressures and planning for the future.

HSC has developed a risk management plan which focuses on long term strategies to allay the potential impacts of an economic downturn, as well as indicating how the ACF may plan for future opportunities upon recovery of the economy. The plan considers ACF’s key areas of operation in relation to campaigns, donor support, investment and funds management activities and expenditure and supplier management. In recognition of the role of information systems and technology in ACF’s operations, HSC has incorporated specific strategies to ensure that these systems remain up-to-date and well maintained during periods of economic decline.

Specifically this plan incorporates strategies to mitigate external, organisational and operational risks. The devised risk management framework involves three key steps, which are:

1. Identifying and assessing risks
2. Planning appropriate measurement
3. Monitoring and evaluation.

This plan has been developed to ensure that ACF maintains efficient and effective operations during economic downturn, whilst ensuring the integrity of systems and processes. This is important in maintaining ACF’s reputation as an independent organisation of high integrity.

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“Under the expenditure risk section, HSC recommends to lock-in prices now for the future. Well, according to the theory of demand and supply, wouldn’t the price of property decrease as purchasing power is decreased, during an economic downturn? Therefore ACF will still be paying the same amount set in the previous contract, which is higher than the amount during an economic downturn. Wouldn’t this cost ACF more expenses?”

Thanks for your question Martin.

I am assuming when you talk about demand/supply theory that you are assuming that in an economic downturn, demand for office space would decrease (and office space supply would increase) and therefore lease prices would subsequently decrease. However, as you can see in today’s market, even though Australia is experiencing a downturn, the property/office space markets are still quite robust with prices still remaining relatively high.

Hence, HSC recommends to lock-in lease prices, as we are not trying to predict whether lease prices are going to increase or decrease (as this depends on market conditions). Rather we are trying to take out the effects of volatility and build in certainty into ACF expenses. This allows ACF to plan for its core operations with the full knowledge that some of its biggest expenses are fixed for the medium term future.

Hope that helps.

Regards
Joel

By Joel Seah on June 16 2008, 16:14

Thank you for your submission. We were interested in you ideas around multidisciplinary teams. Could you indicate what skills mix would be in these teams, and give us an example of how this would work in practise?

By Judge on June 17 2008, 20:43

Hi to HSC from WA! (the 2nd capital of Australia after Sydney ;-)

A couple of observations on your report:

I liked the graphics and formatting of your report. The report had a clean look and feel to it and was very readable. I found your graphics pleasant to look at and also liked the "blue" theme (green would have been so predictable!)

I also liked the idea of looking at IT issues in a downturn - maybe you are right, one of the other reports points to a fundraising optimisation software vendor who notes that if the website of a charitable organization goes down during the holiday season, they can expect to lose 15% of their intake.

I commend you on thinking of insurance as an idea and would have liked to see this expanded a bit.

You were also correct to emphasis the 'control' factor - ie many reports will just suggest bold and eye catching suggestions but often won't emphasise that one needs to go back and look at whether a stated aim was achieved. This was good thinking.

I liked the references to statistics etc with footnotes at the bottom of the page.. it's always a pain to read a report with statistics that just seem to be 'pulled out of the air'...

I disagreed with your statement that ACF has no exposure to credit risks because even if ACF has an investment in eg units of a property trust, it might still be caught up in terms of indirect credit risk if that property mgmt company were to fail.

I like your idea of a dedicated fund manager - this is how many of the major US educational endowments work although they are investing many many millions in many cases... still might be worth exploring for ACF.

Lastly I think you guys needed to define '10% limit on riskier investments' - ie what is riskier? just shares as opposed to bonds/fixed income or mining share exposure vs holdings in the major banks...

I wish you guys all the best.

Regards,
Dale

By Dale Joachim on June 19 2008, 10:36

Dear Judge,

The multidisciplinary operation teams would concentrate on the operational aspects of ACF campaigns (as opposed to shared services team which support operations). The skills/knowledge mix required for the operation teams include (but are not limited to): project management, accounting, finance, marketing, information technology (IT) and subject-matter-experts (SMEs).

In practice, this would mean that each operation team structure would comprise of a lead project manager, who oversees the management of the campaign, with the support of project officers who would cover specific areas of the campaign such as: campaign budget (accounting), fundraising (finance), advertising and raising awareness of the campaign (marketing), and updating website content of campaign (IT). Furthermore, SMEs are onboard to ensure that other variables (such as social, economic and political factors) are considered in conjunction with any decision made for the campaign.

HSC believes that this would allow ACF to be more responsive in running campaigns. We envisage all operation teams to be equivalent in structure, therefore allowing for some teams to effectively run two or more campaigns at one time. An example is when ACF decides to embark on a new campaign; existing operational teams would initially manage the campaign to determine if more resources need to be employed. This process would ensure that human capital at ACF is fully optimised, to ensure costs are minimised.

HSC firmly believes that by reorientating resources to create “multidisciplinary teams” would ensure that ACF becomes a more efficient and flexible organisation.

Kind regards
HSC

By Joel Seah on June 19 2008, 22:08

Hi Dale

Thanks for your positive comments…We agree that we could have gone into more depth with the ideas we proposed, but we are happy to provide more details if you have any specific queries. We appreciate your observations but we wanted to clarify some points, as outlined below:

Re: Exposure to credit risk. HSC agrees (with you) that ACF has exposure to credit risks. However in our report we proposed that ACF does not have “material” exposure to credit risk. This information was derived from page 35 of the ACF Annual Report 2006/07 under ‘credit risk’.

Re: Definition of riskier investments. HSC proposed that ACF should be exposed to the commodities market, as this is what has been driving the Australian economy, with both soft and hard commodities prices increasing. Hence, this would include mining shares, explorative projects, and agribusiness which would be in line with ACF’s objective of influencing organisations to preserve the environment.

HSC firmly believes that ACF is able to take on more risky and speculative investments as it has a conservative investment base. However, we did place a 10% limit, ensuring that 90% of ACF investments is still based on low-medium risk strategies, as ACF is in the operation of conservation and not speculative trading.

Hope that explains some of your concerns…feel free to get back to us if you have specific queries about our proposed ideas.

Kind Regards
HSC

By Joel Seah on June 20 2008, 10:37

Hi Guys,

Thank you for a very well written and thought provoking report.

I especially like your use of the Risk Management Framework to address the issues. A general approach sounds like a smart move to plan for times of uncertainty such as an economic downturn.

I am very interested in your ideas of strengthening current ACF relationships and supporters through maximizing supporters’ Corporate Social Responsibility and ensure supporters are able to maximize tax benefits.

From ACF point of view, how can ACF “maximize supporters’ CSR”?

And with respect to the tax benefits, how can ACF further increase the tax benefits beyond the usual benefits of being a registered tax-exempt charitable institution?

Thanks and Goodluck!

By Danny Mau on June 21 2008, 16:31

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