© 2014 SAGE Publications, Inc. Chapter 13: Government Support

© 2014 SAGE Publications, Inc.

Chapter 13: Government Chapter 13: Government SupportSupport


Nonprofit/Government ModelsNonprofit/Government Models

1. Supplementary to government – nonprofits provide public goods and services to fill gaps left by government programs and services

2. Complimentary to government – nonprofits work with government, use government funds and work somewhat in a partnership

3. Adversaries of government – nonprofits may oppose current government policy and advocate for change


Nonprofit Revenue from Nonprofit Revenue from Government FundsGovernment Funds

•In 2010, almost one-third of nonprofit revenue came from public sources including:• 8.9 percent from grants• 23.2 percent from payments for goods and services

•Hospitals and other nonprofit health care institutions receive the largest portion of government funds in reimbursement under Medicare and Medicaid.

•Government payments represent 65 percent of funding for human service organizations.


Patterns of SupportPatterns of SupportThe 1960s:• The introduction of Medicare and Medicaid• Major federal student aid programs• National Endowments for the Arts and Humanities

The 1970s:• The introduction of drug and alcohol treatment programs• Domestic violence shelters, runaway youth shelters• Rape crisis programs

The 1980s:• The development of block grants• States expanded their spending


Grants, Contracts and FeesGrants, Contracts and FeesGrants•Government funding made directly to an organization•Requires nonprofit to provide specific goods/services to the government or its citizens•May be paid upfront or in installmentsContracts•Legal agreement; recipient is obligated to provide goods/services to achieve defined results•Failure to provide services could result in breech of contractFees•Nonprofit eligible to charge fees which are reimbursed by the government (Medicare, student aid grants, etc.)



Opportunities for Government Opportunities for Government SupportSupport

• Public officials perceive that purposes of nonprofits more closely align with the purposes of government• Nonprofits have closer relationships with local

officials than do for-profit firms• Dependence on government contracts makes

nonprofits more flexible and responsive to government officials• Government officials trust nonprofits more,

monitor them less than for-profits, and may award contracts for longer periods of time


Challenges in Working with Challenges in Working with GovernmentGovernment

• Some government grants require nonprofits to obtain matching funds to cover portions of the program costs

• Government funds rarely support indirect costs such as administrative expenses (rent, fundraising, etc.)

• Payments may be delayed forcing the nonprofit to use other sources of funding in order to maintain services

• Terms of contracts may change unilaterally after approval• Costs of administering the grant are usually not covered by

the award• Contracts are increasingly performance-based and payment or

renewal may be contingent on meeting outcomes goals• Contacts may be terminated during the grant period


Improving RelationshipsImproving Relationships

Government

• Standardize and simplify applications and reporting formats• Create feedback

mechanisms• Collect/report data on

contracting practices and assess their impact on nonprofits

Nonprofits

• Help create feedback mechanisms on contracting processes• Participate in efforts to

simplify and standardize• Encourage foundations

and private funders to accept standard reporting formats• Build capacity to support

government grants


Seeking Government SupportSeeking Government Support1. Identify grant opportunities

• Seek out suitable matches for funding requests• Read the request for proposals (RFP) to determine suitability

2. Evaluate grant opportunities• Assess using criteria: eligibility, conditions, match

requirements, allowable costs, program purpose, funding amount

• Ensure that the purpose, terms and conditions of the grant are consistent with the organization’s mission and values

3. Prepare and submit applications or proposals• Follow the specific guidelines in the RFP• Use collaboration when appropriate• Solicit letters of endorsement as needed


Nonprofits in the Policy ArenaNonprofits in the Policy Arena

If nonprofits hope to secure and continue government funding, they must be involved in the public policy process in the following ways:•Maintain relationships with individuals in government•Maintain ongoing engagement with their communities, constituencies, and public agencies and officials•Participate as a member of an association representing the interests of multiple nonprofits


Chapter 14: Financial Chapter 14: Financial ManagementManagement


• Where does your organization get most of its income?• 1. Government grants• 2. Fundraising• 3. Earned income• 4. Other

Your InternshipYour Internship


• What are your organization’s primary expenses?• 1. Staffing• 2. Expenses related to programs/services• 3. Operational expenses• 4. Other

Your Internship Your Internship


• Who in your organization does the accounting?• 1. A designated staff person or department• 2. The director• 3. A non-staff person (volunteer or consultant)• 4. Other/don’t know

Your Internship Your Internship


Key ConceptsKey Concepts• Bookkeeping -- the methods and systems by which financial

transactions are recorded, either by hand or on a computer• Accounting -- the rules by which financial transactions are

classified and reported• Financial accounting -- financial information published for

use outside the organization• Managerial accounting -- information that is used

internally, but is not required to be made available to others

• Financial management -- relies on accounting statements for data but focuses on their meaning

The key in bookkeeping is accuracy; in accounting, consistency and following the rules; and in financial management, making judgments and establishing policies to guide the organization’s financial life.


Revenue as the Principal ChallengeRevenue as the Principal Challenge• Principal financial challenge for most nonprofit

organizations is to generate sufficient and reliable revenue• Short-term operating costs• Long-term capital needs

• Diverse sources of revenue minimizes risk and maximizes autonomy for an organization• Philanthropic giving• Earned income• Government• Volunteer services

• Sources realistically available to a given organization will reflect the benefits it provides through its programs and services


Comparing Nonprofit and Personal Comparing Nonprofit and Personal FinancesFinances

• Nonprofit’s operating funds -- personal checking account• Payments received are intended to be spent within the

same period to pay current bills• Expenses may be limited by a budget, but possible to

borrow funds to meet current obligations• Restricted versus unrestricted funds

• Nonprofit’s operating reserves -- personal savings account• Invested in very secure, short-term instruments (e.g., bank

certificates of deposit or money market funds)• Hope that reserves will not need to be touched, but

important that they be preserved and kept liquid in case they are needed

• Existence as a hallmark of sound management


Comparing Nonprofit and Personal Comparing Nonprofit and Personal FinancesFinances

• Nonprofit's board-designated endowments -- personal retirement funds• Money that the organization’s board has decided to

invest as an endowment (e.g., operating surplus)• Long-term investment intended to provide additional

income in the future• Board has the authority to withdraw the principal if

needed• Nonprofit's permanent endowments -- no comparison• Funds given by donors who specified that the

principal be retained and be invested in perpetuity• Investment income may be used for current

operating expenses• Board has limited or no flexibility in accessing funds


Physical AssetsPhysical Assets

• Buildings, vehicles, equipment, and other things• Quite different from monetary assets• Generally illiquid• Often difficult to measure worth• Do not generate income

• Possible to liquidate, but that would reflect a relatively dire and undesirable situation


Cash-Based Versus Accrual-Based Cash-Based Versus Accrual-Based AccountingAccounting

• Cash basis -- financial transactions are recorded only when money changes hands• Does not include expectations about future

expenses (accounts payable) and income (accounts receivable)

• Accrual basis -- financial transactions are recorded when there is a binding commitment• Mandated for external financial reporting• Does not track cash flow


Rules for Nonprofit AccountingRules for Nonprofit Accounting

• Established by the Financial Accounting Standards Board (FASB)• No. 93 -- Accounting for Depreciation• No. 95 -- Statement of Cash Flows• No. 116 -- Accounting for Contributions

Received and Contributions Made• No. 117 -- Financial Statements of Not-for-

Profit Organizations• No. 124 -- Accounting for Certain Investments

Held by Not-for-Profit Organizations


Nonprofit Financial StatementsNonprofit Financial Statements

• Statement of financial position (balance sheet) -- shows a snapshot of the organization’s assets and liabilities at a single point in time

• Statement of activities (income statement) -- shows the flow of revenues and expenses of the organization, and the resulting changes in net assets, over a period of time (e.g., fiscal year)

• Statement of cash flows -- shows cash inflows and outflows over the year

• Statement of functional expenses -- shows how expenses are allocated across various categories (e.g., program, fund-raising, and operating)

• Relevant concepts• Net assets -- difference between assets and liabilities• Depreciation -- decline in the value of physical assets






Financial RatiosFinancial Ratios

• Key question -- how can we interpret financial data and use it to make decisions about the financial management of the organization?

• Using ratios to assess financial health• Profitability -- the change in net assets on the

statement of activities• Liquidity -- the organization’s use of cash• Asset management -- the organization's use

and management of fixed assets• Long-term solvency -- the long-term financial

outlook for the organization


EndowmentsEndowments• Most endowments are held by large institutions• Harvard University• Salvation Army• Metropolitan Museum of Art• Nature Conservancy

• Some endowments are held by smaller organizations • City Year• Volunteers of America• Boy Scouts of America


Managing Endowment FundsManaging Endowment Funds

• Endowment management governed by state law• Total return approach -- strategy of maximizing total of

interest, dividends, and appreciation in the value of stocks and other assets• Managing risk by investing in a diverse portfolio• Maximizing long-term growth by drawing on relative

strengths of different investments• Spending limit -- determines how much will be available

from endowment for expenditure each year• Providing enough payout to meet the needs of

current programs• Investing in the value of the principal to keep pace

with inflation and provide more income to sustain programs in future years


Developing and Managing the BudgetDeveloping and Managing the Budget

• Three budgets for organizations• Operating budget -- all revenues and expenditures• Capital budget -- the purchase or disposal of long-term

physical assets• Cash budget -- the flow of cash during the year

• Budgets are political documents• Tangible expression of an organization’s real priorities• Reflect considered plans along with the push and pull of

political forces• Budgets create incentives that influence behavior• Use-it-or-lose-it approach• Structuring budgets on an organizational or center basis• Developing budget incrementally or allowing for

redistribution


Financial Policies and ControlsFinancial Policies and Controls

• Key distinctions• Internal versus external policies• Prescriptive versus restrictive policies

• Accountability and regulatory compliance policies -- policies established by legal requirements• Filing Form 990• Avoiding conflicts of interest

• Financial and financial management policies -- policies established by the governing board• Allowable ranges for specific financial indicators or ratios• Procedures internal financial controls

• Data integrity policies -- policies designed to ensure privacy, confidentiality, records retention, the separation of duties, data backup, and other such concerns

Documents

© 2014 SAGE Publications, Inc. Chapter 13: Government Support