All of us involved in the nonprofit sector are always searching for additional sources of support. We welcome the opportunities to meet with prospective donors and representatives of funds and foundations. and are so excited when we secure substantial support from foundations that have an interest in the services we provide and the clients we serve. We understand that professionally guided foundations, when they give us grants, require us to both be accountable for the use of their funds and completely transparent in the handling of our finances – not only our overall budget but also the foundation-allocated funds.
Over the years I have had been on both the grant-making side and the recipient side of the foundation granting process. Through these experiences I have come to understand that accountability and transparency are essential so that foundations can fulfill their fiduciary responsibility. At the same time some foundations are more “user friendly” than others in the way they structure the application process, the process of transferring funds to the nonprofit, and the procedures for reporting on the use of the funds. These procedures can either be a learning opportunity for the grant recipients or a torturous, painful experience that requires a great expenditure of time and energy in order to receive the grant and when reporting on the use of the funds.
It has become a common practice among foundations to invite representatives of the nonprofits receiving grants to a seminar held after the funds have been allocated but before they have been transferred to the organizations. In general, these meetings focus on specific budgeting procedures relating to receiving the allocated funds and how the nonprofits are to report on the funds they receive. The timing of the seminar depends on both the date of the foundation’s award decisions and its fiscal year.
The timing of the allocation cycle can either be congruent with the needs of the organization, or it can be a source of unwanted pressure on staff that can produce a great deal of anxiety in the organization. For example, what is the relationship between the foundation’s grant cycle and the agency’s fiscal year? Are they the same, or is there a six-month gap between them? How does the agency handle the receipt of funds six months into its fiscal year, and what are the implications for reporting on the use of the funds?
A classic example of the mismatch between a foundation’s fiscal year and that of a nonprofit is found in grants made to schools for supplementary educational programs. For example, the school year runs from September 1–June 30, but the grant year begins on January 1. If the foundation does not make an adjustment in its funding cycle it means that the school would start the program in the middle of its program year and have funding only for the second semester. Foundations need to make allowances and either fund schools for the school year, September-June, or recognize that the funds will be going for a program that starts and ends in the middle of two school years. Of course, from the school’s perspective it would be better to use the funds for one school year and not split it over two school years.
Another source of stress is unrealistic deadlines for producing work plans or reports. Some foundations require a work plan or implementation plan as part of the grant proposal, whereas other foundations do not require one until after the grant has been awarded. A foundation that announces its grants in November or December for allocations in January is putting unnecessary pressure on the nonprofits they fund to develop this plan in a very short period of time. It would be more user friendly to require an implementation plan as part of the application or to give the agency more time to submit the plan by awarding the grants several months prior to making the funds available to the organization.
Once the work plan is accepted by the foundation and the funds are made “available” for distribution, there are different approaches to transferring the funds to the organization. Some foundations provide a percentage of the funds immediately and, after receiving quarterly or semi-annual reports, transfer the balance of the funds. Other foundations only make the funds available on the basis of reimbursement of actual expenses. The latter approach places a burden on the organization to come up with the funds on their own that they requested from the foundation in order to provide services to the community. If they had the money to implement the program in the first place, they might not have applied for the grant.
To avoid this problem, the foundation should provide to the nonprofit the first installment of its funds so the program can begin to be implemented. The agency then demonstrates its accountability for the funds in its first programmatic and fiscal report. If there are any questions about either the services provided or the accounting for the funds, then the subsequent payments can be put in abeyance until the foundation is satisfied with the implementation of the program and the use of its funds.
If there is doubt about the legitimacy of the organization and sufficient trust in the nonprofit to extend a first payment, then perhaps the organization should not have been funded in the first place. Although fiscal and programmatic transparency are basic to the granting process, nonprofit agencies should not have to go into debt to provide the services funded by a foundation grant; they should not have to “front the funding.” Foundations become user friendly and have a better relationship with their grantees when they develop practices and procedures that enhance the agencies’ ability to implement funded programs.
Stephen G. Donshik, D.S.W., is a lecturer at Hebrew University’s International Nonprofit Management and Leadership Program and has a consulting firm focused on strengthening nonprofit organizations and their leadership for tomorrow. Stephen is a regular contributor to eJewish Philanthropy.