“Nonprofits Can’t Afford to Do Business This Way”

An excerpt from We Can’t Afford to Do Business This Way: A Study of the Administrative Burden Resulting from Funder Accountability and Compliance Practices

By Lynn Eakin
Supported by Canada’s Wellesley Institute

Community nonprofit organizations have been raising concerns for quite some time about growing administrative burden and point to such things as more numerous and complex grant application and reporting processes, and additional compliance requirements. This study sought to examine the nature and dimension of the administrative burden and how it affects their ability to deliver services in their communities that are collaborative, innovative, and responsive. A primary focus was to understand how the grant-making process operates in agencies with multiple funders and multiple programs.

The findings from the research are sobering. The administrative burden placed by funders on community nonprofit organizations is so heavy and so unrelenting, and places so many constraints on their ability to operate that it is a wonder they can deliver any services effectively.  These include:

The actual impact of the funding process is directly at odds with the very reasons governments and other funders engage nonprofit organizations to deliver community services. Community-based nonprofit organizations are believed by both funders and the Canadian public to be in closer touch and have better reach into their communities. They are seen as having less bureaucracy and are therefore more flexible and responsive than government or larger organizations could ever be. They are widely viewed as cost effective. The current grant process, however, works against these agency strengths and actively prevents agencies from effectively serving their communities and delivering effective, responsive services.

Funders, large and small, rarely give community organizations any latitude to adapt or adjust programs and finances to meet local conditions and changing circumstances. Organizations and communities are constantly shifting and changing. They do not remain static. Grant flexibility is essential if an organization is to actually function in a way that maximizes its capacity. The more strings tied to funding, the less ability the agency has to respond to changing agency and community circumstances (e.g., staff turnover, equipment failure, pregnancy leaves, service emergency, partnership opportunity, emerging community issues, etc.). Some 55% of grants provided agencies with little or no flexibility to adjust programs or expenditures. Another 42% of grants allowed changes that were pre-approved by the funder (this approval is often difficult and slow to obtain). Only 3% of grants allowed the agency to adjust programs and expenditures to meet local circumstances and most effectively achieve the program objectives specified by the funder in the grant.

Grant applications tend to be overly long, complicated, and difficult to complete. Some 55% of grant applications were rated difficult or extreme, i.e., they asked for information the organizations could not reliably know and a level of detail that was not even required for internal management. One extreme-rated report took seasoned staff 15 days to complete.

The reliability of funding sources for agencies remains tenuous. Some 42% of grants were seen to have little to no reliability, while only 13% were rated as reliable year on year, and 45% were rated as somewhat reliable.

The cumulative administrative burden on agencies is all consuming. The agencies respectively completed 182, 48, and 94 major funder reports a year. Each funder and/or program had its own report requirements and formats. Securing and reporting on grants is the priority activity for the survival of organizations and their programs, pushing aside other organizational priorities such as overall agency budgeting and strategic planning, community relations, staff development, and program management.

Multiyear grants, as currently designed, do not solve the administrative burden. First, multiyear grants are uncommon ― only one in five of the 66 grants in our study were multiyear. Second, of these multiyear grants, 40% could not be renewed and 60% required the same level of reporting each year and so did not reduce administrative demands. The lack of renewal options for many multiyear grants poses serious administrative challenges for agencies operating ongoing programs.

Funders are slow to approve/reject grants, and the slow response time causes “gap” problems for service delivery. Agencies often found themselves with “nine months” to deliver “12 months” of service. If an agency guesses wrong and retains staff during the “gap” and then does not receive the grant, it incurs significant debt. If it lets staff go, program delivery and continuity suffer. Response time for 73% of grants was four to five months or longer from the time the proposal was submitted to the time the funder made a decision.

Agencies reported that the political vulnerability of grants and programs is increasing. There are two parts to this, which agencies see as interconnected and reinforcing. First is the uncertainty resulting from rapid and unpredictable funding and program shifts. Second is that when programs are seen by funders or politicians to be more high profile, contentious, or risky, the agency can be subjected to more onerous compliance and other demands or to explicit political interference.

Both large and small grants impose heavy administrative burdens. Most grants, whether large or small, were equally restrictive and gave agencies little ability to adapt programs or shift finances. Moreover, a significant number of small grants placed a heavy application burden on agencies. There appears to be little differentiation in processes to reflect the size of the grant or the ongoing nature of the relationship between funders and agencies.

All three organizations described themselves as “operating on the edge,” with staff more than fully engaged and extremely vulnerable should a senior manager leave. The organizations had no capacity for cross-training, and all three were operating without key staff in management or administration positions (these positions were unfunded as opposed to vacant). Grant applications and reporting, and addressing the challenges posed by funder practices and restrictions, dominated the attention of senior management in all three organizations.

Senior managers are very aware and worried that they cannot replace themselves. Senior managers reported that frontline staff are reluctant to take on management jobs. Moreover, the agencies do not have the administrative capacity to train the next generation of senior managers. The reluctance of funders to compensate senior managers adequately is compounding succession-planning.

Grant management, of necessity, takes priority over other management responsibilities. In all three organizations, tremendous organizational energy is directed at meeting funder requirements. Indeed, the executive directors of these agencies describe an environment in which their key responsibility is to manage the demands of funders and the many constraints and problems funders impose on the organization so that the staff can actually get some work done and meet community needs.

In sum, the overload of information requests and filings, the lack of delegation of decision-making to the agencies, the problems caused by the granting processes, and the failure of funders to consult with grantees were all identified by participating organizations as contributing to the difficult administrative burden.

The full report can be downloaded here.

Project Streamline