Not-for-profit financial vulnerability and accountability relationships among key stakeholders in an outsourcing setting: evidence from the Australian aged care sector

The Australian aged care sector has come under considerable scrutiny over its service quality and accountability to the elderly in recent years. In 2021, the Royal Commission into Aged Care Quality and Safety’s (RCACQS) Final Report (2021) raised grave concerns over the financial vulnerability (FV) of aged care service providers. A large proportion of the aged care sector service providers tend to be not-for-profit organisation (NFPs), and the not-for-profit sector as a whole is also seen to be facing growing financial and human resource threats. Increasing FV signals higher risk of poor financial health which constrains an organisation’s resources and capabilities to carry out its day to day operations. Nevertheless, research on measuring and understanding the determinants of FV within the NFP sector is both scant and limited. Past studies have largely focused on FV within the for-profit sector and there have been a range of criticisms of the empirical frameworks used to date for the measurement of FV. There are also concerns over the accountability relationships between the state, aged care service providers and service recipients in Australia, many of which are highlighted in the RCACQS reports, and so a more in-depth enquiry is needed to inform organisations and policymakers on managing the FV of NFP aged care organisations. To address these gaps in the literature, this thesis offers three distinct yet interrelated studies focusing on the FV measurement, the drivers of NFP FV and the accountability demonstrated by aged care NFPs in Australia. The studies are undertaken from both the positivist and the interpretive research paradigms with the key conceptual underpinnings drawn from resource dependence theory (RDT), signalling theory, and institutional logics. Data for the study is taken from two publicly available databases, the Australian Charities and Not-for-Profit Commission (ACNC) website and the RCACQS website, and both qualitative and quantitative approaches were adopted in assessing the key research issues. The first research paper aims to interrogate the dimensions and financial measures utilised to characterise FV in the NFP sector. In addition, the paper assesses the extent of FV in the Australian aged care NFP sector. The study reviews past approaches to FV measurement and suggests a theory-based multi-dimensional FV framework, FV index and FV scores, taking into consideration the distinctive nature of the aged care sector. This FV measurement package provides the study’s major methodological contribution. The results further suggest that aged care NFPs hold a limited capacity to survive during any financial shock and provide an alarming message on the high level of FV risks faced by all NFPs. The paper also provides insights on how FV risks differ across service specialisations (in-home care vs residential care), organisation size (medium vs large) and geographical location (rural vs urban). The second research paper explores the organisational and environmental factors affecting FV in the Australian aged care NFP sector. Quantitative content analysis was conducted using data collected from audited annual reports, individual websites, and annual information statements issued by 200 aged care NFPs registered with the ACNC. The guiding theoretical frameworks include RDT and signalling theory. Panel regression results indicate poor board governance, inadequate disclosures in reporting non-financial performance measurement (NFPM) and risk information, audit quality, and collaborations with other organisations are associated with FV for NFPs in the Australian aged care sector. The third and final paper examines accountability relationships between the state, aged care service providers and service recipients in Australia to explore the impact of the state’s outsourcing of aged care services to NFPs on their FV and on the overall quality and safety in the sector. Thematic analysis was undertaken using data obtained from multiple sources – from NFP audited annual reports, the RCACQS Final and Interim reports, submissions received by the RCACQS and transcripts of its public hearings. Further, the study employs an analytical framework that uses an institutional logics conceptual lens and the notion of accountability. The results show an underlying contradiction between the state’s market efficiency logic of low-cost service and the NFPs and other providers’ professional logic of high quality community care within the bounds of resource constraints. The paper also reveals that this contradiction is partly implicated in the FV issues among Australian aged care NFPs, which impacts the low service quality that attracted a Royal Commission inquiry. This study provides several contributions to the literature in terms of (1) examining the conceptual and empirical disjuncture among the dimensions developed for measuring the financial health of NFP organisations, (2) providing empirical evidence to add to the limited literature on measuring the extent of FV in the NFP sector, especially that related to the Australian aged care sector, and (3) extending the literature on the risks associated with outsourcing public sector service delivery. The study contributes to the RDT literature for NFPs by identifying that independent directors, female directors, directors with finance and aged care related competence, audit quality, and collaborations assist organisations in attracting resources from the environment which in turn reduces the extent of FV in the aged care NFP sector. Further, the study contributes to the RDT literature for NFPs by identifying that not all types of NFP reporting disclosures contribute to attracting resources from a competitive external environment. Indeed only beneficial NFPM reporting (where NFPs achieve performance targets) and beneficial RM information (where NFPs perceive risk as an opportunity not a threat) helps reduce the extent of FV in the NFP sector. The study also contributes to the Signalling literature for NFPs by recognising that NFPs issue positive signals through their NFPM and beneficial risk disclosures to resource providers, which in turn reduces the extent of FV in the NFP sector. Overall, this study contributes to developing a comprehensive framework that identifies key stakeholder expectations in relation to FV in the Australian aged care sector. Consequently, the study will inform policymakers, particularly the Australian Government and regulators, on ways to refine governance structures and enhance the sector’s accountability architecture for a more financially resilient aged care service system.