New member firm in Bosnia and Herzegovina joins the UHY network
We welcome, Revident d.o.o., our new member firm in Bosnia and Herzegovina to the global accountancy network UHY, extending our coverage within Europe. The firm is in the process of adopting the UHY branding and will soon be known as UHY Revident d.o.o.
Established in 2006, the firm’s main office is based in Mostar with further offices in Grude and Sarajevo. The team brings wide-ranging experience in audit, advisory, corporate finance and tax services to a portfolio of domestic and international clients primarily represented in the art & entertainment, hospitality, manufacturing, mining & quarrying and retail sectors.
Senior partner, Božo Vukoja comments: “Being part of the UHY global network underpins our commitment to deliver quality services and enhances the services and advice we can offer our clients. The global presence of the network combined with the expertise and knowledge shared among UHY’s 8,200 colleagues around the world, not only strengthens our own capabilities, locally and internationally, but also these of our current and potential clients and their operations.”
Rick David, chairman of UHY comments: “We are delighted to welcome Revident d.o.o. to the UHY network. Bosnia and Herzegovina, is embarking on a new growth model and continues to embrace economic change including its impending membership of the European Union. Revident d.o.o.’s membership extends our footprint in the Europe and strengthens UHY’s regional market expertise and capabilities to serve our international clients who have business interests in this country and the wider region.”
UHY liaison office for Revident d.o.o
Notes for Editors
UHY global press contact: Dominique Maeremans on +44 20 7767 2621
New member firm in Paraguay joins the UHY network
We welcome, Consultoria Integral Del MERCOSUR (CIME), our new member firm in Paraguay, to the global accountancy network UHY, extending our coverage within the Americas region. The firm is in the process of adopting the UHY branding and will soon be known as UHY Consultoría Integral Del MERCOSUR (UHY CIME).
Consultoría Integral Del MERCOSUR (CIME), was established in 2000. With a team of 26 staff and two partners, the firm is based in Coronel Oviedo, with additional offices in the capital city of Asunción, as well as in the cities of Villarrica and Ciudad del Este. The team brings wide-ranging experience in audit, accounting, tax, insolvency and corporate recovery, corporate finance, management and IT consultancy to a portfolio of domestic and international clients.
Managing partner of Consultoría Integral Del MERCOSUR (CIME), Miguel Vera comments: “The UHY network’s collaboration, combined with the reputable UHY brand, will give our firm a competitive edge in Paraguay and the wider region. The global presence of the network combined with the expertise and knowledge of UHY’s 8,200 people around the world, not only strengthens our own capabilities, locally and internationally, but also these of our clients and their operations. We look forward to elevating our business through a successful cooperation with other firms operating within the UHY network.”
Rick David, chairman of UHY comments: “We are delighted to welcome Consultoría Integral Del MERCOSUR (CIME) to the UHY network. Paraguay has economic advantages of a young population, strong agricultural industry combined with vast hydroelectric power generation capabilities. Consultoria Integral Del MERCOSUR (CIME)’s membership extends our footprint in the Americas region and strengthens UHY’s regional market expertise and capabilities to serve our international clients who have a business presence in this country and the wider region.”
UHY liaison office for Consultoría Integral Del MERCOSUR (CIME)
Notes for Editors
UHY global press contact: Dominique Maeremans on +44 20 7767 2621
New member firm in Egypt joins the UHY network
We welcome two full member firms to the global accountancy network UHY, extending our coverage within the Middle East region: United For Auditing, Tax, Advisory & Financial Services, and in Alexandria, Waled Mounir and Muhammad Arafa. The firms are in the process of adopting the UHY branding and will soon be known as UHY United For Auditing, Tax, Advisory & Financial Services and UHY Waled Mounir and Muhammad Arafa respectively.
Our Primary office in Egypt based in Cairo, United For Auditing, Tax, Advisory & Financial Services, with a team of 27 staff including four partners, previously partners with Big 4 audit firms, bring together over 30 years of professional and wide-ranging experience in audit, tax, advisory and transaction services to a portfolio of domestic and international clients primarily represented in the banking & financial services, construction, manufacturing, oil & gas and tourism sectors.
Managing partner, Nabil Istanbouli of United For Auditing, Tax, Advisory & Financial Services comments: “Being part of the UHY global network underpins our own values, commitment to deliver quality services and our vision of partnering with our clients to provide agile and practical solutions. We look forward to elevating our business through a successful cooperation with other member firms operating within Egypt and the wider UHY network.”
Based in Alexandria, Waled Mounir and Muhammad Arafa, established in 2013, brings further wide-ranging experience in audit, accounting, tax, insolvency and corporate recovery, corporate finance and consultancy services to a diverse portfolio of primarily clients represented in the construction, logistical solutions, shipping and transport sectors. The firm’s partners founded a not-for-profit organisation AAIA, an Association of Accountants and Internal Auditors, supporting companies in the Arab world with qualified accountants and internal auditors.
Managing partner, Waled Mounir of Waled Mounir and Muhammad Arafa comments: “We are committed to provide the necessary competitive resources to help our clients operate more efficiently in a global market place. The global presence of the network combined with the expertise and knowledge of UHY’s 8,100 colleagues around the world will also enhance those of our clients and their operations.”
Rick David, chairman of UHY comments: “Egypt as a country has seen many welcomed reforms recently to stabilize and strengthen its economic position driven by public investments, private consumption, and exports of goods and services. We are delighted to welcome to the UHY network two new member firms in Egypt, equally enthusiastic, entrepreneurial and keen to join their efforts. The firms will greatly extend our footprint in the Middle Eastern region and strengthen UHY’s regional market expertise, enhance our values and capabilities to serve our international clients who have investments and a business presence in this country and the wider region.”
United For Auditing, Tax, Advisory & Financial Services
Waled Mounir and Muhammad Arafa
Notes for Editors
UHY global press contact: Dominique Maeremans on +44 20 7767 2621
The list of the top 750 family businesses globally released by family capital in 2019 has many familiar names with a long history of family ownership: US company Walmart, founded in 1945, ranks number one, with brands including Volkswagen (est. 1938), the Ford Motor Company (est. 1903), BMW (est. 1916) and Tata Sons Ltd (est. 1868) all ranking among the top ten.
According to family enterprise and wealth expert John Davis of MIT Sloan School of Management, many of the largest companies in any economy are family-owned. Not only that, but family companies tend to perform better and survive longer than those that are not family-owned. Whether large or small, they are ‘an ecosystem that underpins the economy,’ he says – one that is ‘set to grow even more important and influential in the years ahead’.
Around the world, family-owned businesses are not just important but fundamental economically. They make up over 85% of all companies in Spain, and 90% in Germany, driving both GDP and job growth. They generate over half of GDP in the UK, and in the United States (US) they employ 60% of the nation’s workforce and create 78% of all new jobs. In Japan, family-owned small and medium-sized enterprises (SMEs) account for up to 99% of all companies and employ up to 70% of the workforce.
But neither continued family ownership (or majority ownership) nor long-term survival is guaranteed. Among the many issues faced by family-owned businesses, succession planning is one of the most challenging.
The economic impact of family owned business is significant in terms of both their success and failure. But it seems that succession planning – perhaps key to long-term success – is not always high on the agenda.
“A decrease in the population overall and an increase in people living to older ages, means we are seeing a growing number of SME owners who are 70 years or older,” says Morito Saito, director and COO at UHY Fas, Tokyo, Japan. Business succession has been identified as an urgent issue in Japan, so much so that in 2017 the government’s agency for SMEs announced a five-year plan to help tackle issues around business succession.
Morito continues: “Approximately one third of all Japanese companies do not have a succession plan in place, and many companies go out of business because they cannot find suitable successors. Despite being home to some of the oldest family-owned businesses in the world, around 6.5 million jobs and JPY 22 trillion (over USD 198 billion) in GDP could be lost by 2025 if this trend continues.”
But the challenge is multifaceted, and family dynamics also come into play: “Each family needs to understand that they have a different role in the business – this may be in the management of the business, or they may remain involved as a silent partner,” says Morito.
The story is similar elsewhere. The Institute of Family Business in Spain recently described family businesses as ‘the backbone of the Spanish economy’, but reported that around 68% did not have formal succession plan. Similarly, despite contributing over 60% of GDP, a recent survey of family businesses in the US reported that only 23% had a ‘robust, documented business succession plan’.
Marilyn Pendergast, partner at US member firm UHY LLP in Albany, New York, counts a family business owned and managed by the fourth generation among her clients. She sees succession planning as critical for any business venture – but crucial for the survival of family businesses.
“It is a daunting challenge with many elements involved, and each business and each family will have different solutions,” says Marilyn.
Sometimes there is a clear candidate for taking over the management of the business; other times there may be multiple family members who believe they should inherit the business but do not necessarily have the skillsets or the work ethic to continue it successfully. Each business and each family will have different solutions.
At UHY LLP, Marilyn and her colleagues have taken a unique approach to the succession question: “One of the things we have done for family businesses is to run a succession planning workshop for all family members – those currently involved in the business, those who are not, and their spouses and partners – to provide a clear picture of what the alternatives may be, and to ensure that there are no unrealistic expectations.”
HISTORY AND LEGACY
In Poland, Adam Trawinski, head of the tax and legal department at UHY ECA Group in Warsaw, has a similar experience of the issues around succession: “Succession planning always requires a tailored approach, but it is difficult to lead a family through succession if a succession plan has not been implemented in advance – and, unfortunately, some businesses do not survive.”
However, Poland’s case with regard to family businesses also raises a rather different set of challenges. “Poland has always been an enterprising nation, but the opportunity to run even a small business during the communist era was limited,” says Adam. “Privately-owned businesses only started coming back into the country following the change of political system in the late 1980s.”
The number of family-owned businesses grew significantly from the early 1990s onwards, and as their founders reach retirement age they are now facing the issue of succession for the first time. But this is not the only challenge.
“Many of the businesses that were established at this time were small shops and workshops. Over time, and with the opportunities offered by Poland’s accession to the European Union, many of these have become larger entities that are now able to compete effectively in local and international markets. But while the owners focused on developing and growing their businesses, they did not always focus on ensuring that the formal side of things – the business structure – changed with it. We are finding now that we often need to combine succession planning with restructuring the business.”
Bernard Fay has first-hand experience of working successfully alongside his brother Joseph as co-managing partners and co-chairs of UHY Fay and Co, Spain, for over 35 years. He also sees succession planning as fundamental to the success of a family business, but recognises the challenges of transition from generation to generation.
“The transition from first to second generation requires generosity and understanding on both sides,” says Bernard. “The founder must be prepared to cede power and accept that their successor will want to lead the business their own way; while the second generation must understand that the founder still has an important advisory role to play and ensure that they provide them with the economic security that allows them to step back.”
Bernard believes that the most risky transition occurs when family businesses are passed on from the second to the third generation – or the ‘generation of cousins’. “Around 80% of family-owned companies disappear at this stage, either through sale, merger or simply failure,” he says, the reason being that, at this stage, there is a risk of too many people becoming involved.
“The third generation usually needs to implement a policy of dividends,” says Bernard. “It is not possible for all family members to earn a living from the business, but as shareholders they need to receive a return. Looking after the wider family is important to avoid conflict.”
Andrew Timms, partner at UK member firm UHY Hacker Young in Nottingham, agrees. “One of the big issues to consider is that family businesses do not necessarily need to involve all the family. At some point, each family needs to go its own way and be financially in control of their own destiny. In the best scenarios, once the initial business is created and successful, wealth is also created outside of the businesses through other investments – at that point, it is more likely that, from generation to generation, wealth can be retained across the family. There is a different dynamic between creating the wealth and keeping the wealth.”
THE EXPERIENCE OF YOUTH
Of course, the notion of being in control of your own destiny has another impact on success and succession, as Johannes Bitzer, managing partner at Dr. Langenmayr und Partner mbB Wirtschaftsprüfer Rechtsanwälte Steuerberater in Munich, Germany, explains: “Succession planning is often hampered by the fact that it is now much less common for children to follow in their parents’ footsteps – they want to follow their own interests and go into other occupations.”
This is also seen elsewhere. “Even if they are running well, many family-owned companies in Japan go out of business because there is not a suitable successor,” says Morito Saito.
“The next generation does not always share the vision and interests of their forebears, despite a strong tradition of respect for elders and their values.”
But generational differences and the experience life and work outside of the family business can also bring benefits.
“Differences between generations in business have always been there – but what is new today is that, in general, the younger generations are much more savvy about technological innovations,” says Johannes. “For businesses, this is noticeable not only in IT and communications technology, but also in marketing and sales – the innovative use of new sales channels and marketing strategies is almost always initiated by the younger generation.”
“It is an incredibly good thing for the next generation to have worked for someone else, experienced a different environment, got some professional training and come into contact with a variety of external influence before coming into the family business,” says Andrew Timms.
Marilyn Pendergast agrees: “I see differences between older and younger generations as a positive factor for family-owned businesses – the important thing is that they are committed to the success of the business and are able to communicate openly and positively.”
“Businesses need to constantly adapt and grow in order to survive,” she adds. “New ideas are the spark which can keep the business relevant – and old dogs can be taught new tricks.”
That a family-owned business will remain under family control from generation to generation is far from a given. The issues around succession are complex and careful planning is essential. UHY member firms have a wealth of experience of working with family-owned businesses, often through successive generations, and understand the issues that can arise with areas such as succession planning.
Notes for Editors
UHY press contact: Dominique Maeremans on +44 20 7767 2621
African technology hubs are buzzing with startup activity, but a buoyant sector still has hurdles to overcome
In April this year, online retail marketplace Jumia became the first African technology startup to list on the New York Stock Exchange. The business – dubbed the African Amazon – boasts around 81,000 active sellers and operates in 14 African countries.
The historic listing caps a momentous couple of years for African technology companies. Tech startups broke funding records in 2018, securing USD 334.5 million in investment. More startups in more countries received more funding than ever before.
Tom Jackson, co-founder of Disrupt Africa, the company that compiles the figures, said: “Investment levels are not the only way of gauging the health of local ecosystems, but they are a valuable way of following the sector’s progress and demonstrate that, increasingly, if you have an innovative tech solution to a problem, with a strong business model, there are pathways to funding should you require it to scale.”
NIGERIA LEADS THE WAY
The overall figures remain modest compared to comparable statistics for Europe or North America, but they reveal a concentration of successful startups in a handful of countries. Nigeria has emerged as the most attractive hub for startup funding in Africa, with 58 startups raising a total of USD 95 million in investment in 2018. It is no coincidence that Jumia, along with a number of other major African technology companies, is headquartered in Nigeria.
Lawrence Etukakpan, head of business development at Nigerian member firm UHY Maaji, says the sector is an increasingly significant contributor to Nigerian prosperity.
“Technology companies are very important to the development of the Nigerian economy,” he says. “More technology hubs are being established in the country, giving hope for a knowledge economy and improved job opportunities. Technology innovation is seen as one way out of poverty. Today, technology contributes 11.81% to the GDP of the Nigerian economy,” Lawrence says.
The success of the sector meant that Nigeria was able to overtake South Africa as the top destination for tech startup investment in 2018, with Kenya making up a strong top three. But ‘Disrupt Africa’ notes that new tech startups are emerging across the continent, with Egypt an especially strong contender. Uganda, too, is enjoying a spike in startup activity. Last year the country became the beneficiary of International Trade Centre funds aimed at strengthening the competitiveness of micro, small and medium-sized enterprises in the country’s information and communications technology (ICT) sector.
“Tech hubs in Uganda have been growing in number for the past seven years, since the first tech hub, Hive Colab, was set up,” says Sameer Thakkar, CEO at UHY Thakkar & Associates in the country’s capital, Kampala. “A year later, another hub, WITU, focusing on empowering women entrepreneurs and technologists, also opened.”
That picture is not replicated everywhere in Africa’s large and diverse continent. Some nations have no real technology sector to speak of; others have technology sectors that show less promise. Makafui Azasu, a senior associate at Ghanaian member firm UHY Godwinson CA, believes technology companies could play a significant part in helping to revolutionise the national economy of Ghana, but a lack of basic infrastructure is stunting their development.
“Tech companies are important to the economy of Ghana, but current government policies do not create enough room for their relevance to be seen and they are not fully supported. That is not likely to change in the coming decade, as far as I can see,” he says.
A GROWING INCUBATOR NETWORK
Ghana’s tech sector may be limited, but it is sustainable. Makafui believes that dedicated technology hubs and incubators are supporting technology startups in Ghana, by offering ‘technical support in terms of infrastructure, physical space and also networks with tech hubs outside Ghana to help offer ideas and guidance’.
He is not alone in the belief that technology hubs are driving the digital economy in many parts of Africa. In Nigeria, Lawrence identifies 55 established private technology hubs, and more are planned. In addition, the government has acknowledged the importance of the tech sector to Nigeria’s economy by creating its own network of state-owned startup incubators. Together, these conducive, specialised spaces are nurturing Nigeria’s digital economy.
“These innovation centres continue to provide young startups with high speed internet access and free training,” says Lawrence. “They have made it much easier for self-starters to access best practice, legal and regulatory information, marketing and investment networks. They also provide mentoring opportunities.”
Similarly, Ugandan technology companies are benefiting from a growing network of tech hubs and innovation centres, currently around 20 in number. Like Lawrence, Sameer says they provide a range of benefits, from cost-effective office space and networking opportunities, to access to angel investors, venture capitalists and potential mentors. “These are places where like-minded startups, technologists and investors are able to informally socialise and support each other with ideas, relationships and advice,” he adds.
On the island of Mauritius, Dominique Samouilhan, partner at UHY member firm UHY & Co, says that, while there may be no official tech hubs, technology companies are finding ways of coming together – particularly in information and communications technology (ICT).
Some businesspeople have set up co-working centres to attract young entrepreneurs wanting to incorporate their own startups in the ICT sector.
“These co-working centres stimulate interaction between startups, with the aim of building future relationships and sparking new ideas. Some bigger enterprises have also created angel funds to assist ICT startups financially.”
A GATEWAY TO AFRICA
not stopped the Mauritian government from announcing ambitious plans to support and grow the technology sector. “ICT has become more and more important to the Mauritian economy and it is one of the objectives of the government to make ICT a major pillar of the economy in years to come,” says Dominique.
That support includes a ‘Digital Mauritius 2030’ strategy and a specific focus on digital government and artificial intelligence (AI). Today, the ICT sector contributes around 5.6% of Mauritian GDP. The government wants to increase that contribution to around 10% by 2030, and sustain 50,000 jobs (out of a total population of 1.2 million).
Mauritius has advantages in this regard. Most importantly, it is seen as a safe place for foreign investment, ranking highly on measures of economic competitiveness, good governance and economic freedom. That has had knock-on benefits for the country’s technology sector.
A number of major international players – Accenture, Ceridian, AXA Assistance, Huawei and Orange Business Services, among others – are already using Mauritius as an ICT centre.
“It is anticipated that more international players will choose the country as a platform for their penetration into Africa,” says Dominique.
The presence of international players provides knowledge, infrastructure and potential partnerships, and inspires local entrepreneurs. To some extent, that is happening across Africa. In April Google announced the opening of its first AI centre in Africa, in the Ghanaian capital, Accra. From this base, Google aims to partner with universities and policy-makers and help drive the development of AI across the continent.
The tech sector clearly has a significant role to play in the economies of many African countries, and that role is certain to grow. But as the sector matures, scaling presents new challenges. In Ghana, Makafui says sector growth is likely to be stunted by inconsistent broadband coverage coupled with an erratic power supply.
Ghana is far from alone. Infrastructure problems limit potential in many African nations. “In Nigeria, too, the cost of doing business is higher because of a lack of basic infrastructure such as power, good roads and dedicated broadband service providers,” says Lawrence.
Sameer identifies an issue with outdated, unsupported technology. Ugandan technology firms are often reliant on equipment that is approaching obsolescence. “With last July’s end of support for Windows Server 2003, for example, organisations that had not migrated away from the platform by the deadline were exposed to security threats and regulatory mandates that were no longer addressed with patches and updates,” he says.
The other threat to sector growth in many countries is a dearth of qualified talent. As Dominique says: “The main issue is probably the mismatch between degree holders and the labour market. There is a real need for software engineers, web developers and so on. The educational training content and patterns must be reassessed.”
In Nigeria, Lawrence says the cost of training and obtaining relevant qualifications can prove a barrier to startups looking to scale. Meanwhile, Sameer sums up the situation in Uganda:
“To say IT talent is in demand would be the understatement of the decade. Even if you land a gem, competing salaries from other companies in desperate need is a constant worry.”
While UHY member firms may not be able to do much about the IT skills gap or erratic broadband, as Dominique explains, they are often asked to do far more for inexperienced tech startups than accounts and tax compliance alone.
“We accompany them along their way towards growth,” he says. “We assist them in raising finance with banks and investors. We use our network to introduce these entrepreneurs to potential venture capitalists, business incubators and investors. Moreover, we help them with the preparation of their business plan and feasibility reports, which then enable them to get facilities with banks.”
These fragile young businesses need all the help they can get. The technology startup sector is increasingly important to the economies of many African nations, buoyed by a growing network of hubs and incubators and record levels of investment. But it will take updated infrastructure, improved technical training and excellent professional services to ensure the sector’s obvious promise is fulfilled.
Notes for Editors
UHY press contact: Dominique Maeremans on +44 20 7767 2621
In Australia, it is the Royal Flying Doctor Service. In the UK, Cancer Research is often number one. In the US, the Malaria Consortium is always near the top of the charts.
Charities and not-for-profit organisations like these are valued and trusted, which is why they often feature in roundups of worthy destinations for public money. This is no surprise: organisations that help those in need, or offer valuable cultural, scientific or educational services without taking profit, have traditionally enjoyed widespread public admiration.
Yet that respect can no longer be taken for granted. In some countries, while faith in organisations like these remains high, trust in the not-for-profit sector as a whole has plummeted. Recent research for the Charity Commission in the UK found that people now trust charities less than a stranger in the street. In the US, a poll commissioned by the Chronicle of Philanthropy revealed that one in three Americans lack faith in the not-for-profit sector.
It would seem that we no longer instinctively regard not-for-profit organisations as ‘good’.
A SECTOR WITH ‘A PROBLEM’
Baroness Stowell of Beeston, chair of the UK Charity Commission, admitted last year that the sector ‘has a problem’. “People clearly are less trusting of institutions and of those in positions of authority than they once were,” she said. “But that’s not because our parents and grandparents were more naïve. It’s because people now have more evidence to prove their suspicions. They are more sceptical of those in powerful roles or in positions that were once associated with respect, because they can see or have experienced directly how those groups really have let them down.”
Have charities let us down? A series of high-profile global scandals has eroded public trust in the sector. In 2018 a sex scandal rocked UK-based global poverty charity Oxfam, after aid workers were found to have been using sex workers in countries where they worked. Meanwhile charities and not-for-profits are facing public and regulatory pressure over high executive salaries and, in some cases, aggressive fundraising methods.
The upshot is that third sector finances are under the microscope in a way they never have been before. The public, and the governments they elect, demand ever increasing accountability.
Marilyn Pendergast, partner at US member firm UHY LLP in Albany, New York, says: “There is clearly a greater expectation and need for transparency in organisations that are publicly supported, whether through government sources or private donations, than for private companies which are not publicly traded. Both stakeholders and users of services have the right to expect openness and clarity in the information which is available to them.”
Not-for-profits face increased scrutiny by regulators on one side and by organisations specifically created to monitor their spending on the other. Last year, the group Charity Intelligence Canada publicly advised donors against giving to the professional ice hockey team charity, Calgary Flames, accusing it of a lack of transparency and high fundraising costs.
Such scrutiny is becoming the norm and can be damaging. A Money for Good poll in the US found that a majority of donors favoured charities that received good ratings from charity validators like Charity Intelligence, despite some debate over how fair those ratings are. As a result, not-for-profits have to be absolutely transparent about sources of wealth and how money is spent.
But the necessity for absolute transparency can be complicated by the sheer size and diversity of the sector. Marilyn says: “Not-for-profits can be very small, such as a community food bank which relies solely on contributions from neighbours and volunteer services, or they can be large national or even multinational foundations providing charity resources with budgets in the multimillions. Their missions are also widely diverse. In the US they cover the gamut from agricultural research organisations to zoos and everything in between.”
Subarna Banerjee, head of UK member firm UHY Hacker Young’s national charity and not-for-profit group, says there are 160,000 charity organisations in the UK, many of which are largely unknown to the public because they are ‘woven into the fabric of British business’. The larger public are generally unaware that they are operated by charities.
To take one example, the clothing retail chain Primark is owned by a company called Associated British Foods (ABF), and 59% of ABF is owned by the Garfield Weston Foundation (GWF). GWF, the second largest UK charity by asset size, is a family-founded trust which has supported UK charities with grants for the past 50 years. Few UK consumers have heard of GWF, but many will know the institutions it supports, from the Shakespeare Globe Trust to the Imperial War Museum, Oxford University and the Yorkshire Sculpture Park.
UHY Hacker Young audits GWF’s financial statements, and Subarna says grants and large historic endowments are another ingredient in the non-profit funding mix: “This is not public funding, either from individuals or through government grants, but it still needs to be thoroughly audited and accounted for.”
Regardless of the origins of their funding, governments and regulators are expecting more from charities, whose humanitarian or altruistic credentials are no longer enough to protect them from intense scrutiny.
In the US, new nonprofit accounting standards came into effect in 2018, requiring extra disclosures around not-for-profit classification, allocation of expenses and liquidity, among others. And Kirsti Armann, managing director at UHY member firm Revisorgruppen AS in Oslo, Norway, says that a similar spotlight is now directed at Norwegian not-for-profits, and that tax and tax status attracts particular scrutiny.
“It has also been the desire in Norway in recent years for greater transparency when it comes to the financial reporting of charities and not-for-profit organisations,” she adds. “In fact, over the past 15-20 years the tax authorities in Norway have, to a greater extent than previously, exercised control over not-for-profit enterprises, especially regarding tax and tax position.”
With a requirement for greater transparency and reduced public confidence, many not-for-profits with limited budgets are finding it difficult to stay on top of expectations. This means keeping up with guidelines that can appear to change almost by the year. As in the US, the latest update to UK accounting standards for charities came in as recently as November 2018. In Norway, Revisorgruppen AS regularly assists not-for-profit clients with their transition to the ‘good accounting practice for nonprofit organisations’, a recently introduced alternative to the reporting required under the Norwegian Accounting Act.
Sungesh Singh, audit and assurance partner for New Zealand member firm UHY Haines Norton (Auckland) Limited, says that reporting regulations in the country have changed twice in recent years, in 2005 and 2012, and ‘quite strict reporting deadlines have been established’.
“The result, I would say, is that public confidence in the charities sector in New Zealand, from a reporting point of view, has become ‘moderate’. The transparency and the reporting requirements are relatively new, and I believe that it will take a fair while before it matures into a well-established reporting arena full of good information about what our charities do, where the money is spent and – most importantly – what the outcomes are.”
He adds that, since the new regulations came into force, charities in New Zealand have been struck off as a consequence of delayed reporting.
Growing complexity, greater scrutiny and a large, diverse sector does offer opportunities for UHY’s global network to help. “The smaller organisations rely on us to make them compliant,” says Subarna. “And even the larger not-for-profits have difficulty keeping up with legislation. We can do that for them.”
Sungesh agrees: “Given the huge number of charities in New Zealand, and the increased level of transparency requirements from a reporting point of view, firms like UHY are very much in demand.”
DIVERSE NEEDS, LONG RELATIONSHIPS
UHY LLP in Albany, New York, provides services to a range of not-for-profits, from colleges and museums to healthcare and social assistance organisations. The needs of these organisations are diverse, and Marilyn Pendergast says they often go way beyond traditional accountancy services: “Chartered and certified public accountants can provide value to their clients in many ways in addition to the traditional audit and taxation functions.”
“For colleges, for example, changes in demographics of students and the lack of significant endowment funds can create budgeting challenges. That is where we can be helpful in the evaluation of expenditure, helping management and the board to develop a plan for future continuance and growth.”
Museums may face the need to upgrade facilities, requiring long-term financial planning. Healthcare charities need help navigating a changing regulatory landscape. Valuation and business planning services can be valuable for many not-for-profit organisations.
There are also sound business reasons for developing a not-for-profit focus, says Subarna. The success of campaigns like The Giving Pledge, which encourages wealthy people to give significant amounts to philanthropic causes, have helped to spark a new philanthropy movement. UHY member firms may be regularly asked about the tax or inheritance implications of charity donations and endowments, by individuals and businesses.
“It is also true that the charity sector is immune to some extent from the economic cycle,” he adds. “Not-for-profits, especially those that receive funding from the government and endowments, can be relatively financially secure, even in difficult times for the wider economy. For professional services providers it is possible to forge very beneficial long-term relationships, if you are prepared to stay on top of regulation, offer good advice when required and keep them compliant in the face of tougher regulation.”
The message is clear. As rules get stricter and public scepticism grows, not-for-profits need good partners – and the authority, expertise and accountability they bring – more than ever.
Notes for Editors
UHY press contact: Dominique Maeremans on +44 20 7767 2621
In February 2019, Bank of England governor Mark Carney told an audience of senior City of London figures that a new global order was threatening international trade.
Carney, head of the UK’s national bank, talked first about the implications of Brexit, but his message was targeted more widely than the UK’s exit from the European Union (EU). In fact, he suggested Brexit might be a ‘canary in the coal mine’ for a new era of global economic retrenchment.
“It is possible that new rules of the road will be developed for a more inclusive and resilient global economy,” Carney said, before delivering a warning. “At the same time, there is a risk that countries turn inwards, undercutting growth and prosperity for all. Concerns over this possibility are already impairing investment, jobs and growth, creating a dynamic that could become self-fulfilling.”
His concerns appear well founded. In January, the International Monetary Fund (IMF) warned that the global economy was weakening faster than expected, thanks to trade wars and populist governments wedded to policies of protectionism. At the same time, the United Nations’ (UN) trade and development body, UNCTAD, published figures showing a 19% fall in global foreign direct investment in 2018.
Have we entered a new era of nationalism and protectionism? The rise of restrictive measures suggests so. World Trade Organisation (WTO) members added an average of 11 trade restrictive measures every month between October 2017 and May 2018, including tariff increases, import tax increases and stricter customs regulations.
National leaders are driving these measures. Most famously, Donald Trump’s ‘America First’ agenda has seen US withdrawal from the Trans-Pacific Partnership (a trade agreement between 11 countries bordering the Pacific Ocean), and a trade war with China involving the tit-for-tat imposition of trade tariffs worth billions of dollars. The US has also threatened tariffs on a range of goods from the EU.
A wave of global populism followed in the wake of Trump’s election to the US presidency at the end of 2016. In May last year, Italian voters placed power in the hands of two populist parties, the Five Star Movement and the League. Relations between the EU and Rome have been strained by the new government’s spending plans, which may breach EU rules.
Is Italy becoming anti-European? Cristiano Fasanari, partner at FiderConsult Srl, a UHY member firm in Italy, says the Italian government is pushing back against some policies, but remains a committed member of the EU. “There is no declared scepticism over the EU,” he says. “I would say that there is disagreement with some EU policies and with the strict application – almost an imposition – of a restrictive budget policy and financial ratios.”
Italy is far from alone in electing a populist government with a more nationalist and inward-looking agenda and, often, a corresponding suspicion of traditional trading relationships. In fact, the four most populous democracies in the world are currently governed by populist leaders: Narendra Modi in India, Donald Trump in the US, Joko Widodo in Indonesia, and Jair Bolsonaro in Brazil. Populist ideas have swept through Europe, resulting in both far right nationalist governments like that of Viktor Orbán in Hungary, and anti-establishment sentiment of the kind expressed in the UK’s Brexit referendum vote.
GLOBAL TRADE TOO IMPORTANT
More economic protectionism sometimes seems inevitable in populist times. But in Brazil, José Bendoraytes Filho, advisory partner at UHY Bendoraytes & Cia, does not believe that the Bolsonaro government will follow President Trump down a road of hard protectionism, despite mutual admiration between the two leaders.
“The current Brazilian government does not have as much of a protectionist character as many people think,” he says. “Although Brazil is in line with US immigration and trade policies, it does not have the motto ‘Brazil First’. We are a country open to other markets and have a balanced trade with a high level of imports.”
José says that, with taxes and unemployment high, Brazil’s global trade is too important to the economy to risk.
He adds: “There is a constant search for the conquest and maintenance of foreign markets through development and export agencies, as well as the Brazilian embassies abroad that today function as true promoters of Brazilian products.”
But while a generally positive sentiment towards global trade persists, the Brazilian government has expressed frustration with Mercosur, a trading bloc comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela. German chancellor Angela Merkel recently warned that the Bolsonaro government’s attitude was making a trade deal between Mercosur and the EU more difficult to reach.
José says that Mercosur imposes limitations on the bilateral agreements member countries can make outside the bloc, and many Brazilians agree with the government’s intention to reduce Brazil’s engagement with an economic and political union they consider restrictive.
President Bolsonaro has vowed to modernise Mercosur rather than leave it altogether. But the desire to strike bilateral trade deals as a more independent nation state finds an echo in the UK’s vote to leave the EU.
Brexit was an unashamedly populist movement, driven by anti-establishment and anti-elite rhetoric. Nigel Farage, the movement’s self-styled ‘man of the people’, has said that European integration showed ‘a complete lack of understanding of how human beings operate,’ and that ‘globally, the world is breaking down into smaller units’.
The anti-EU movement in the UK was a blow against open borders and what Farage characterised as an out-of-touch political elite as much as a trading bloc. But ‘leavers’ believed that, in economics too, the world was ‘breaking down into smaller units’. They insisted, and continue to insist, that a country with a proud trading history would be more than capable of holding its own outside what they view as the EU’s stifling embrace.
That theory has yet to be properly tested. What we are seeing now from business, says Martin Jones, partner at UHY Hacker Young in London, UK, is a period of retrenchment, in response to both Brexit and wider global trends.
“Inevitably the uncertainty is affecting investment levels and new cross-border activities, and also causing businesses to delay hiring staff due to concerns over the economic outlook,” he adds.
Alan Farrelly, managing director of Irish member firm UHY Farrelly Dawe White Limited, agrees that business decisions have been delayed or postponed because of the fog around Brexit – a fog that is unlikely to lift any time soon, regardless of the precise moment of separation. Ireland is the state in the EU economy most dependent on trade with the UK, and considerable resources are being expended on preparing for whatever Brexit might bring.
“In terms of advice on Brexit, we work with Intertrade Ireland who provide a grant of EUR 2,500 (around USD 2,825) to assess a company and their exposure to the threat of Brexit,” says Alan.
“This allows us to consider a company’s import and export flows to assess their overall business disruption exposure. Outputs include our clients seeking alternative suppliers and customers in new locations, most often inside the EU. This has represented real challenges in terms of pricing, testing and logistics.”
More widely, Alan believes President Trump’s policies and Brexit are symptoms of a new trading reality that will have significant impact for years to come.
“As we all know, trade deals are not negotiated in real time – there are considerable time and resources required to find agreement,” he says. “With Brexit, the road ahead for both Ireland and the UK may be challenging, with jobs losses, loss of business confidence, stressed decision-making and prolonged intergovernmental tensions. None of these are conducive to good trading conditions.”
AN OPPORTUNITY TO SHINE?
In these circumstances, what advice can professional service providers give? Martin Jones believes global uncertainty makes life tricky, but also gives UHY firms an opportunity to shine, establishing themselves as trusted business advisors in difficult times.
“Despite the uncertainties, all businesses still need to plan for the future, and hence it is important to understand the risks and opportunities that could emerge,” he says. “It is important to remain positive as a business advisor in this situation and seek to establish a competitive advantage for the business amid all the change, based on an assessment of the opportunities and risks. It does make the role harder, but potentially more enjoyable and rewarding.”
José Bendoraytes Filho also sees opportunities for member firms to excel, as well as to promote UHY’s global network more widely and champion its deep pool of local knowledge.
“I think every difficulty brings opportunities. I always advise those seeking to develop transnational operations to understand the culture of the country, its customs and values. For this, I always recommend that you seek local quality advice,” he says.
Perhaps counter-intuitively, the consensus is that in an era marked by isolationism, UHY member firms should be readier than ever to give expert advice to clients looking to expand operations beyond home markets. In the UK, that might mean helping clients reduce their exposure to the EU. In Brazil it could mean manoeuvring businesses around any obstacles imposed by the redrafting of the rules of Mercosur.
Ultimately, some trading arrangements may change, and others may emerge. Populism will eventually subside and protectionism ease. And when the shouting stops, Cristiano Fasanari says that successful businesses will still look to expand. They just need the best advice to help them do so.
“In my opinion, this situation is not permanent and will end. So I would not discourage customers who intend to invest internationally. I would rather explain that, even in this period, maintaining a position that is limited to a local market is a disadvantage compared to global competitors.
“With the right attention, investing internationally is still necessary for future success.”
Notes for Editors
UHY press contact: Dominique Maeremans on +44 20 7767 2621
- A new world order
- In need of charity
- Innovative Africa
- Success and Succession