Many of the country's not-for-profits will soon be at breaking point, as they grapple with legislative changes, competition for staff, and stiffening economic headwinds.

A new report by consultancy Grant Thornton into the sector, which employs 145,000 people and generates about $21.1 billion in annual revenue, uncovered some major gaps in organisations that would ultimately prevent them from delivering on their purpose.

Its survey shows that financing organisations and attracting and retaining staff sre among the top concerns keeping NFPs up at night.

Funding has consistently been the biggest challenge NFPs faced since reporting began in 2003.

But it's issues that NFPs are less concerned about that are causing alarm.

Grant Thornton partner and co-leader of not for profit services Barry Baker says organisations' understanding of a raft of recent legislative changes is "unexpectedly low".

"For example, nearly a quarter of Incorporated Societies surveyed haven't addressed the impacts of the newly passed Incorporated Societies Act 2022 which is intended to clarify the responsibilities and risks to organisations' governance groups, and a third haven't considered the new reporting obligations required."

Non-compliance with the act carries financial penalties, or in the most extreme cases, prison terms, he says.

NFPs are also slow to adapt to changes that are made to the privacy laws in 2020 which requires organisations to have strong policies in place to protect personal information, he says.

"It impacts all NFPs, but well over a third haven't updated their privacy policies, and even more alarming is the 40 per cent of entities in breach of the Act by not appointing a privacy officer."

It's surprising to find that NFPs are adding this responsibility to the workloads of office managers and even receptionists, Baker says.

Cyber security is low-down on NFPs' priorities, but Baker says the fallout from a breach is enormous, as it will almost always require significant time and money to rectify the issue for organisations that have not invested time and money into their systems.

"That's why it's surprising to find only 43 per cent of NFPs invested in this over the past two years and 27 per cent plan to invest in it over the next two to three years."

Staffing issues

The pressure to secure and retain workers is becoming a burgeoning issue for NFPs, with 43 per cent saying it is among the most significant challenges they face.

"The historic environment when passion made up for shortfalls in remuneration to full maker levels is changing," the report says.

But employees are now demanding market salaries, which could see NFPs lose staff to the commercial sector, it says.

Baker says there's no easy for solution for NFPs wanting to hold onto staff.

"Corporates, and even government, are now offering things that NFPs used to differentiate on, things like flexible working hours, working from home, workplace culture, ability to make an impact on life and society.

"What we used to call the 'love factor' that teams work for NFPs for has disappeared."

NFPs will have to become a lot more commercially focused to be able to offer the pay that workers want, he says.

The report says many NFPs are considering setting up a trading operation or partnering with a social enterprise to boost funding, but this is not suitable for all organisations.

Baker is concerned rising inflation will result in lower donations, which will prevent NFPs from being able to help people when they need it most.

Looking ahead, there's no doubt the sector will face troubled water at some stage, but those who have planned and invested in the future will be the NFPs that will be able to continue to do good work, he says.

"They just need to make sure their oxygen mask is fitted before they can help others."

-RNZ/Nicholas Pointon.