Funding is typically provided through block grants or fee‑for‑service arrangements linked to specified inputs, outputs or outcomes, and are underpinned by legislation, policy frameworks and detailed funding agreements.
For Boards and executives, this creates a dual challenge: delivering meaningful impact while managing financial sustainability within a system that is complex, policy-driven and often difficult to predict. Volatility in government policy, changes in personnel, and shifting contract terms can materially affect organisational stability. Effective engagement with government departments and disciplined management of government funding have therefore become key determinants of organisational stability and financial success.
Government funding should therefore be treated as a strategic choice, with consequences for organisational focus, operational capability, and risk exposure. How leaders approach each program can influence sustainability and your ability to deliver impact over time.
Aligning funding with your mission
Without strategic discipline, organisations can pursue funding opportunities that are misaligned with their core purpose. This can introduce governance risks, create stakeholder confusion, and divert resources from strategic priorities. Over time, this can lead to strategic drift, where NFPs grow in size but weaken in clarity and impact.
Increasingly, some organisations deliberately exit certain government‑funded programs where alignment cannot be sustained, prioritising long-term value over immediate revenue. This shows sustainable growth in the NFP sector is rarely about scale alone – being focused drives mission impact.
Assessing financial viability
Understanding of the full cost of service delivery, including direct and indirect costs, overheads, compliance, reporting and set-up and exit costs, is essential. Cost assessments should factor in contingencies, identify efficiency opportunities, and be stress‑tested under plausible scenarios. This transparency supports informed decisions, effective negotiation with funding bodies, and clarity on which costs are covered.
While support and overhead costs have sometimes been viewed negatively, government funding often covers these to varying degrees. Cross‑subsidisation between programs can help when aligned with strategic intent and capacity, but repeated funding shortfalls across multiple agreements create material financial risk.
Only by fully understanding and planning for costs can your organisation make informed choices, protect financial resilience, and sustain meaningful impact over time.
Managing working capital
The timing of funding has direct consequences on cash management strategies. Upfront funding demands discipline to ensure expenditure aligns with budgets and intended outcomes, while surplus cash must be managed to avoid clawback exposure. Arrears-based funding demands robust processes to convert service delivery into timely cash receipts, with high‑volume programs such as the NDIS introducing heightened risk of delays or errors.
Effective working capital management is more than a core responsibility of the finance function – it’s a strategic enabler. The ability to maintain liquidity while meeting operational obligations determines whether programs can run uninterrupted, and whether your organisation can respond flexibly to opportunities and challenges. Strong cash management therefore protects both services and impact.
Contractual tenure and operational impact
The length and predictability of funding agreements directly shape an NFP’s ability to plan, invest and operate effectively. Contract terms influence decisions on workforce structure, employment arrangements, investment in support functions, IT systems, capital expenditure, and property and lease commitments – all of which carry long-term financial consequences.
Longer‑term funding agreements generally provide the certainty to make more strategically aligned and efficient operational, enabling organisations to invest in capability, quality and innovation. By contrast, short‑duration contracts or rolling extensions of one or two years often create uncertainty, discouraging investment and Board risk appetite. This can drive cautious, short‑term decisions which are frequently less efficient and ultimately more costly over time.
Funding tenure and predictability are therefore a core determinant of sustainability. Where funding prospects are uncertain, NFP organisations must balance flexibility with preparedness, ensuring commitments can be scaled if funding shifts.
Termination, refund and clawback provisions
Termination provisions can materially affect both financial stability and service continuity. Organisations need a clear understanding of the circumstances under which agreements may be ended by either party, particularly where termination for fault, termination for convenience, or a combination of both applies. Termination for convenience clauses provide funders with broad discretion to withdraw support, including in response to policy changes which naturally create greater strategic and financial exposure.
Refund and clawback provisions require equal scrutiny, as they may require NFPs to repay funding where services are incomplete, contractual terms are breached, or in instances of alleged or actual fraud. These provisions can take effect suddenly and involve significant amounts, particularly in large or multi-year programs.
While organisational and program‑level controls can mitigate these risks, management and the Board must maintain clear visibility over the potential financial exposures and contingency plans. Understanding these clauses upfront enables you to assess whether risks are proportionate to mission value and financial capacity, protecting both operational stability and long-term impact.
Data reporting obligations
Government funding arrangements increasingly tie payments to demonstrated performance, often requiring financial and non‑financial reporting and may be subject to independent assurance. Meeting these obligations relies on robust systems, processes and capability to capture inputs, outputs and outcomes.
Funding models such as social impact bonds, increasingly link funding to outcomes achieved, reinforcing the need for strong reporting and governance. Organisations that invest in reporting capability are better positioned to sustain funding, demonstrate value, and adapt programs over time.
Key GST considerations
GST practices can create potential hidden exposure if practices are not reviewed regularly, as services and activities evolve. For government funding arrangements, key considerations include whether funding constitutes a taxable supply, the GST status of supplies, the correct use of Recipient Created Tax Invoices (RCTIs), timing of GST attribution, and recoverability of input tax credits.
Strong alignment between legal requirements, system configuration and business activity statements (BAS) reporting, supported by clear documentation and governance, is critical to ensure funding delivers value while avoiding financial leakage or compliance risk.
Commercial fundraising and tax concessions
As NFPs face increasing pressure to diversify revenue, many turn to commercial activities such as selling branded merchandise. Provided these activities remain consistent with organisational purpose, they generally do not jeopardise federal tax concessions.
However, leaders must be aware of differing State and Territory rules – particularly for payroll tax – where commercial operations can affect exemption eligibility. Careful structuring, clear governance, and ongoing monitoring are therefore essential to ensure fundraising initiatives strengthen financial sustainability without creating unintended tax exposure.
Financial reporting considerations
Government funding arrangements can significantly influence reported results and balance sheet position. Understanding key financial requirements ensures decisions, reporting and planning accurately reflect performance and risk:
- Revenue recognition – Determine whether revenue is recognised under AASB 15, AASB 1058, or both. This judgement can materially affect results and includes assessing whether performance obligations are sufficiently specific.
- Principal vs agent assessment – In multi-party service delivery arrangements, determine whether the organisation acts as principal (recognising gross revenue and expenses) or agent (recognising net revenue). Indicators include control, pricing discretion, and credit risk.
- Termination clauses – Termination for convenience clauses affect revenue timing. Approaches vary – some defer recognition until services are delivered, others recognise upfront, recording a liability only if the clause is exercised.
- Accounting for capital grants – Revenue may be recognised progressively for grants used to acquire or construct non-financial assets to ‘identified specifications’ under AASB 1058.
- Accounting for research grants – Consider whether obligations are satisfied over time or at a point in time, ownership of outputs, and funder rights to access or use outcomes.
- Balance sheet impact – Assess funding receivables, contract assets, deferred revenue, and trade payables or accruals to ensure accurate financial position reporting.
A holistic organisational approach
Navigating government funding requires coordinated oversight across governance, finance and operations. Boards ensure alignment with purpose and manage risk appetite, while Executives oversee strategic, financial and reporting obligations, and operational teams deliver services and demonstrate impact.
NFPs that approach funding with strategic discipline are better positioned to achieve sustainable impact. To understand how these considerations apply within your own funding structures, investment decisions and long-term purpose delivery, please get in touch.
