Nonprofit Government Grants and Contracts Part 1
September 1, 2016 Lynette Garet Business Basics 0 Comment
Boondoggle: NPOs – government grants and contracts
Increasingly over the last fifty years, federal, state and local governments have funded nonprofits, through either contracts or grants, to provide services that governments would otherwise provide. Because of continually evolving efforts to safeguard taxpayer monies, the application processes, as well as the compliance reporting processes have become increasingly complex and contradictory, nonprofits stagger under the burden of meeting duplicative and time-consuming regulatory requirements. The resulting patchwork of revisions to previously revised regulations has created such a boondoggle of bureaucratic red tape that nonprofits face a vicious “starvation cycle” in an effort to meet program funding costs that aren’t adequately reimbursed.
This is no small issue; the Urban Institute estimates that in 2012, 56,000 nonprofits received 350,000 contracts and grants totaling $137 billion. Of that amount, approximately 30,000 health and human services NPOs received grants and contracts for 200,000 projects and programs for a total of $81 billion. Post-recession, despite the vast sums involved, NPOs continue to report deficits.
Research has identified five widespread obstacles that nonprofits face:
- Governments fail to pay the full cost of grant-funded and contracted programs, especially indirect costs. Limits on indirect costs (overhead) vary from zero to 10 percent of total modified direct costs, compared to for-profit business overhead of 25 to 35 percent. Continually moving goal posts challenge nonprofits’ ability to determine TMDC, further complicating indirect cost calculations.
- Governments, and state governments are the worst offenders, habitually make late payments, causing cash flow challenges and their attendant administrative problems for nonprofits.
- Governments frequently make retroactive changes to critical program administration, services and reporting requirements. More than half of nonprofits responding to surveys indicated that government agencies made program changes after awarding grant or contract awards, even after program initiation.
- Government grant applications and RFPs are complex and difficult to prepare; application guidelines are often unclear and often require redundant documentation and costly protocols.
- Governments constantly change reporting requirements that are already burdensome and time-consuming to prepare. NPOs with different funding sources have multiple reporting requirements that are often inconsistent or redundant. Many have different allowances for indirect costs, resulting in duplicative report preparation.
Inspired by the General Accounting Office’s 2010 report on the nonprofit sector and the treatment of indirect costs by various government agencies, the National Council of Nonprofits conducted nine state task forces to examine the issues. In its report, Partnering for Impact—Government-Nonprofit Contracting Reforms Task Forces Produce Results for Taxpayers, the NCNidentified twenty-three potential solutions in the areas of general management, cost reimbursement, payment and application/reporting process simplification.
As a result, the OMB’s Uniform Guidance, issued December 2013 and effective December 2014, mandates all federal agencies streamline and simplify administrative, reporting and audit requirements to guide non-federal entities with predictable, transparent and consistent government-wide implementation schedules.
Keep an eye out for Part 2 of Nonprofit Government Grants and Contracts, where I’ll focus on best practices for compliance.