For charities that are accustomed to operating on donations and one time grants, the allure of stable (annualized) government funding is strong. And while that stable government funding often reduces worry about sustainability, agencies must remember that this is not “free” money. Agencies seeking this stable funding source should be 100% sure that they understand the potential impact of government funding.
Government funding comes with strings attached. Most government transfers require that agencies complete a budget and financial reporting in a very specific format at very specific intervals. Agencies are usually required to sign a somewhat complicated funding agreement. Once funding is in place, programs must recognize the funding in a specific manner and often require the approval of the funder before distributing any promotional materials. Most government funded agencies also have expectations put on them such as making specific data available, completing strategic plans and attending a host of meetings. Most government funding also limits administrative costs to a percentage of the agencies’ total budget.
All of this can be overcome, but may require more administrative staffing, better ability to interpret complicated contractual language and produce very specific financial statements. However the bigger question small agencies should ask themselves is whether they are prepared for the almost inevitable “mission drift” that government funding creates.
It is important to remember that when an agency receives funding from the government it is a “fee for service” arrangement, which is quite different than the relationship that the agency has enjoyed with its donors who are committed to a specific cause or to the organization itself. The government is paying to receive something specific. When the priorities of government change, agencies are often required to shift priorities. Sometimes this means abandoning or reducing service to their primary market.
An example of how government priorities impact agency priorities can be seen in Ontario charities which supported young people with physical disabilities in the 1990’s. Over time, government priorities, driven by demographics and public pressure, have shifted to services for seniors. While seemingly a positive move to expand service delivery to this new market in return for additional funds to support more people, the risk to these agencies is that they lose sight of their primary mission of creating independence for young people with physical disabilities.
Currently, it is difficult for an agency that is not in receipt of government funding to “get on the list.” However, for those who believe that they have a compelling case that aligns with government priorities, it is critical for the board and management to have a candid discussion about whether they will be able to manage government administrative and reporting relationships before pursuing this new relationship.
Streamline New Perspective Solutions offers one-stop management consulting services for smaller non-profit organizations. Please visit www.streamlinenps.ca