THE REAL RISK

     

    By Jim Mellor and Brian Keel

     

    Recently the CEO of a major charity told us: “People here are dancing in the street! They can’t believe how much funding is now available to us.”  With the passage of the $1.9 trillion “American Rescue Plan”, YMCAs, health and human service agencies, private schools, faith-based organizations, camps, and other nonprofits have access to unprecedented funds. In addition, there were other federal stimulus plans passed in 2020 and programs like 21st Century Grants, Head Start and others continue to be open for business.

    It’s not unusual with such a tsunami of funding available for leaders of organizations to start to plan exactly what they would do with their portion of the funding, and even to consider jumping into government programs for the first time.  Most are reeling from a year of significantly reduced earned and contributed income, coupled with unprecedented social, physical, and financial needs from our communities. And who can blame the CEOs faced with this perfect storm of falling resources and overwhelming needs for wanting to get in on the action?

    But too often financial officers and volunteers are hesitant to apply for government programs and grants. The program requirements, confusing and contradicting instructions, ever changing deadlines, and the maze of red tape can be understandably daunting. But it should NOT deter you from seeking every opportunity to provide additional resources to your organization.  Instead, do your homework and approach the opportunity with your eyes open.

    To deal with the constantly changing landscape of federal requirements for these funds, there are resources to assist you in your application.  Your national organization, government websites like the SBA and HHS, your public accounting firm, and of course your peers.  Being the signatory on the application carries significant responsibility and liability; you should always follow the most current guidelines and requirements. 

    In addition, here are some things we believe you should consider or investigate:

    • Does this funding support existing programs, desired strategic objectives or emergent community needs? If not, consider whether this is the right funding stream for you.

    • How long is the contract period? What agencies or governmental units will need to appropriate funds in future fiscal years to keep the program going?

    • Is this a fixed-price or a cost reimbursement contract? If the latter, how will you fund the initial round of expenditures while waiting for payment?

    • Would your organization likely be a recipient, a sub-recipient, or a vendor under the contract? This status impacts many aspects of record keeping and oversight.

    • If you plan to pass funds through to other organizations, are they likely to be sub-recipients or vendors? This status impacts the information they need to supply to you.

    • What records and backup are required to be submitted to the funding agency and when? Set up your general ledger to capture this information as cleanly as possible.

    • What are the requirements around purchasing? Do you need multiple bids? How are technology purchases to be tracked? Know this before you buy anything.

    • What overhead rate can you use? Consider filing for an approved rate if you are planning to go big and long term.

    • Will this funding cause the organization to be subject to a Single Audit (formerly known as an A-133 audit)? If so, plan accordingly and make the necessary upgrades to your financial processes.

    Remember, these funds can make your organization, your mission delivery, and your communities better.  Each dollar that you secure from these programs is a dollar the organization does not have to raise through philanthropy, earn through fees, or take from your other resources like endowment.  When combined with all these other sources of revenue, your impact as an organization can be greatly enhanced.  One final caution, don’t allow your organization to become overly dependent on government funds…let it be the icing on your cake whenever possible.

    Another CEO recently said, “Yes there is risk in these federal programs; but I see more risk to the mission of the organization by NOT trying to secure these funds.”

    As always, if you have specific questions while you are thinking on this issue, please reach out to our team and we will be happy to talk through your situation.

     

    Image by khamkhor from Pixabay

    Posted by DBD Finance Team on May. 24, 2021
    DBD Finance Team

    Written by DBD Finance Team

    DBD Group's experienced Finance Team helps nonprofits manage through the challenges of growth, change and building a sustainable future.

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