A methodology to improve third sector investment strategies: the development and application of a Western Cape based financial resource allocation decision making model

South Africa has high levels of social need which are steadily growing. While the thirdsector is large and contributes substantially to social service provision, it together withgovernment is seemingly incapable of providing adequate social services, particularlyin the more poverty-stricken rural areas of the country. Among other, at the root of thethird sector’s inability to adequately serve the needy, is a lack of funding caused bypoor funding policies and uninformed financial resource allocation decision making.As such, this study set out to develop an automated financial resource allocationdecision making model that would provide extensive organised data to better inform theallocation decision making process – the first component of the study. It was alsopurposed to provide a range of otherwise lacking empirical data on the third sector todetermine service and staffing norms, patterns of funding and to assess financialmanagement of this sector.In so doing the Community Chest of the Western Cape was selected to serve as thelocus of the study – their existing manual allocation approach was analysed and a newmore sophisticated automated model was developed. Data generated by the modelpointed to a further research need, that of a better understanding of the funding andfinancial management practices of the third sector. This gave rise to the thirdcomponent of the study, a survey of 232 beneficiary organisations of the CommunityChest. An analysis of the data generated by the model and collected from the surveyhighlighted yet another need, the poor financial management acumen of the sector.In order to address this need and hence the efficacy of the model, a survey of 207University of Cape Town management accounting students was conducted to determinethe feasibility of using their financial management knowledge and skills to supportfinancially and IT-illiterate organisations – the fourth component of the study.The study primarily adopted a quantitative research paradigm; the research design wasexploratory-descriptive and used a primary data design with limited secondary dataanalysis. Data was captured in MS Access and analysed using Statistica and MS Excel.Results indicated that the country’s funding policies were wanting and that theallocation of state and state-controlled funding agency resources were not beingallocated in concert with adopted policy. In almost all cases the poorer rural areas hadand received fewer resources. Most organisations surveyed were not financiallysecured and their ability to fundraise was very limited. Their financial managementability was not good. Fortunately a substantial number of accounting students indicateda willingness to improve the financial management ability of such needy organisations.The study concludes by recommending further development of the model, utilisation ofaccounting students and calls for a major assessment of third sector needs, its fundingand financial management. It also recommends the formulation of new fundingpolicies.