LynnEakin.com

“The time has come to work together to address our common challenges and opportunities” Over 400 nonprofit leaders from 47 states gathered in Washington, D.C.in October 2006 to affirm the nonprofit sector’s shared values, identify the top three priorities and draft state action plans to address these priorities. We will find the report highlights very helpful as we consider how we want to move forward here in Ontario. Check out the website.www.nonprofitcongress.org . Their goals for the sector are to increase capacity, grow networks and inspire engagement. It seems nonprofit organizations everywhere have a lot in common.

If there is one galvanizing issue that should unite the nonprofit sector in Ontario, it is the financing and regulatory problems that currently threaten the sector’s well-being. Katherine Scott of the Canada Council on Social Development describes the cumulative impact of these problems as a “perfect storm” in the making.

The sector needs to take action, but it is faced with a dilemma. It has neither the capacity to mount a change initiative on the issues that affects the sector as a whole, nor does it have an umbrella organization that can effectively speak to its concerns at the provincial level. Yet the challenges facing the sector’s health are so critical that those interested in its long-term viability must explore new ways to act to influence change in the nonprofit financing and regulatory environment.

This report outlines promising strategies for creating change in the regulatory and financing of nonprofit organizations in Ontario based on a review of sector organizing efforts in regional, national and international contexts.

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Advancing the Non-Profit Sector

Providing responsive, safe and effective programs in communities requires organizational capacity. Try the following quiz to help identify the organizational capacity you would like to see in your nonprofit partners.

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The Nonprofit Organizational Capacity Quiz for Funders

Community service organizations are at risk – of failing their mandates, failing their communities, betraying the public trust, and fading away as viable organizations.

We now have a significant body of Canadian research that documents the vulnerability of community social service organizations. New funding practices, widely adopted by governments and others in the early 1990s, have had a devastating impact on the capacity of many Canadian charities or nonprofit organizations to meet the needs in their own communities. We now know unequivocally that community social service organizations are in serious distress as a direct result of changes in government funding and accountability practices (Scott, 2003; Eakin, 2004; Statistics Canada, 2004a; Statistics Canada, 2004b; City of Toronto, 2004; Saunders, 2004).

This article explores the circumstances that have led to the current crisis and seeks to understand why there has been so little action by government to correct problematic funding and accountability practices. What is it that funders in particular and concerned Canadians in general do not yet understand about this growing crisis? And why are government funders not yet moving to make significant changes in their relationships with the community nonprofit organizations that provide essential social services for so many Canadians?
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Community Service Organizations at Risk

A survey of voluntary sector organizations was undertaken as part of a larger collaborative problem-solving initiative between Social Development Canada and the Voluntary Sector Forum focusing on the Code of Good Practice on Funding. The survey focused on the funding of administrative costs in federal government agreements with voluntary sector organizations.

The lack of funding to cover administrative costs was identified as one of the most problematic areas of funding during the development of the Code. The Code was intended to strengthen and improve the sustainability of the Voluntary Sector – to shore up that “hollow foundation”1.

The funding of administrative costs is comprised of two main components:

• the first is the definition of allowable administrative expenses and the funding of those costs and,
• the second component is the process and practice of fund administration.

The two are interconnected. Adequate definition and funding of administration expenses can be undone by accountability and fund management practices. This survey therefore looked at the funding of administration expenses in the context of overall fund management.

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The Policy and Practice Gap: Federal Government Practices Regarding Administrative Costs When Funding Voluntary Sector Organizations.

Community-based nonprofit organizations operate in a complex and complicated funding environment. This report presents a picture of the various revenue streams organizations depend on to fund their programs. It also analyzes the details of their expenditures, including the extent to which program funding covers core costs. This information is enriched with information on the use of volunteers, staff overtime and gifts in kind to support the work of the organizations participating in this study. The study concludes with recommendations for future action and research.

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Taking Stock: Examining the financing of nonprofit community organizations in Calgary

Metro Agencies Resource Council agencies are having significant difficulty balancing their budgets while maintaining service levels. This review was undertaken to explore factors contributing to the financial pressures, what agencies have done to mitigate these factors and what next steps need to be taken to ensure the agencies’ financial health.

Research indicates there is no single factor, but rather a convergence of financial, service and client-related factors that result in the current pressures faced by the sector. Strategies agencies employed to balance their budgets have eroded any flexibility they had to accommodate the changing and increasing service needs of aging residents. The sector faces pressure to meet urgent need for residential care from elderly parents who find themselves no longer able to care for their adult children at home.

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Beyond Numbers: The Implications of Financial Restraints and Changing Client Needs on Developmental Services.

The revenues and expenditures of ten non-profit community organizations were analysed using a structured framework and common definitions. Data was collected on 155 discreetly funded programs totalling 36.5 million dollars (96% government funded). The analysis found that service programs were under-funded on average 14%. Chief areas of under funding are employee benefits, front-line supervision and core organizational functions. Agencies are using their “other income” from charitable and other sources to cover the deficits in government funded service programs. As a result, they are not able to undertake local community projects and initiatives. Unable to fundraise sufficient resources they have been reducing staffing. Salaries and benefits are down to 71% of total expenditures (in other sectors staff costs are well over 80%).

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Community Capacity Draining:The Impact of Current Funding Practices on Non-Profit Community Organizations

For at least a decade voluntary sector organizations have been pushed to adopt more “business” practices. In some sectors this has lead to the opening up of what were traditionally voluntary sector fields to for-profit organizations. In other areas funders have tried to implement “business” practices in their funding agreements.

Unfortunately, the introduction of business practices into voluntary sector funding was undertaken at a time when government funders were seeking to reduce and contain their spending. As a result, cost containment, cost reduction and efficiency strategies were given priority focus to the neglect of other business practices that might benefit and build the contractor organization. The process has been a “cherry picking” of business and charitable practices.

The resulting hybrid business/charity model is compared to the conditions under which businesses operate. The playing field is not level and the hybrid model is not working well for many voluntary organizations and their clients. A new voluntary sector funding model is required that will provide for organizational excellence and sustainability over the long term.

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Where Charity and Business Meet

The Sarnia-Lambton Rebound Program was hailed by Jason Clemens of the Fraser Institute as a model of “business practices” in a Globe and Mail article, October 2000, in which he exhorted other social service organizations to follow suit. The article implies that was business methods that tipped the balance and made this little agency so successful.

A closer look reveals there is little business-like about the centre. Instead it is a good example of the resiliency, creativity and tenacious commitment to mission that so characterizes the voluntary sector.

The centre had a budget of $300,000,over 100 active volunteers and 6.5 staff positions providing a variety of programs to youth at risk. Nine of ten youth in the counseling program showed improved grades, improved behaviour at home and greater ability to resist peer pressure. They are proven effective, yet this agency, of seventeen years has only $45,000 of its budget that it can count on from year to year. The rest is in “soft dollars” (the voluntary sector term for funding that is non-reoccurring and short term). The Program remains precarious despite its success. Indeed its very success is a handicap in seeking funds, as many donors want to make their mark by funding “new” programs not existing ones, however successful. The program’s cost effectiveness is based, in large measure, on dedicated individuals who volunteer their time or work for low wages out of a commitment to the program and the youth. Chronically unstable funding and loyal individuals who stick with the program despite the difficulties are hardly business like traits.