The current economic climate has increased the number of individuals and families seeking nonprofit services. The demand for services such as shelter, food, and clothing are on the rise. Yet many nonprofts find that though the needs of the people they serve has increased funding for these services have not.
The government contract process seems to be the main culprit causing widespread problems that hurt nonprofits’ ability to deliver needed services.
Why is this?
Government contracts are complicated and time intensive
The government application process is labor intensive. Often nonprofits struggle with the complexity and limited time to apply for grants and contracts. Each government agency, federal, state or local have different application processes, requirements, required financial reports and time deadlines. Keeping up-to-date with the specific requirements can be challenging for nonprofits.
Government contracts reporting process
Remaining on top of government requirements requires staff to spend time documenting, recording, and maintaining files. This work can quickly eat up much of a nonprofits administrative dollars. This can be a tight rope balancing act especially if there are government limits placed on the amount of administrative overhead expense they can recoup.
Government grants arrive late
Many nonprofits rely heavily or solely on government grants to fund services. Delays in payments from the government places many nonprofits in a vulnerable financial position. Many have been forced to cut staff or services while others have applied for loans or lines of credit which increases their debt and places a strain on their financial budgets.
Government grants don’t cover full service costs
Often government grants fail to cover the full cost of providing services thus creating a gap between the loan or line of credit amount and the government grant payment amount. When this happens nonprofits seek to find a way to bridge the gap, often resulting in staff cuts or reduction in salary for staff.
Government change contracts or grants mid-stream
Another problem that nonprofits face is that the government can and does change contacts after negotiations are completed. Unlike the private sector, when the government changes terms nonprofits don’t have much recourse–discussions are often on-sided.
The government grant process has many flaws but it is a major source of income for many nonprofits. If nonprofits want to improve their financial outlook, have more flexibility, increase the level of services provided, employ qualified staff, and pay them competitive wages then they must seek out alternative funding sources.
According to researcher Joseph Rosenberg of Urban Institute, “Donations from individuals make up the single largest source of giving for the nonprofit sector.”
Donations from individuals cost the government roughly 50 billion a year in charitable deductions. If nonprofits strategically target this market they may be able to reduced their dependence on government grants and contracts and bridge the gap between government reimbursement payments and actual service costs.