A Warning and an Opportunity

The third pillar of Canadian society, the non-profit and voluntary sector, is showing “serious cracks” and needs action taken by public and private funders to ensure they do not become “major fractures.” This is the theme of a new report “Funding Matters: The Impact of Canada’s New Funding Regime on Nonprofit and Voluntary Organizations” released by the Canadian Council on Social Development. The report, which examines the changing funding landscape and its impact on nonprofit organizations, identifies a several significant trends that “appear to threaten the continued viability of the sector.”

To compile their information, the CCSD held focus groups across the country, attended by more than 100 nonprofit and voluntary sector organizations, conducted roundtable discussions with funders, and used interviews, written surveys, case studies and other research.

In conversation with funders, the study found a number of commonalities that are changing the way they, as potential funders, are operating:

- Funders are adopting an increasingly targeted approach to funding
- There has been a marked shift away from a core funding model, which funds organizations to pursue their mission. The new model is project-based and is characterized by contracts that give funders increased control over what the organization does and how it does it.
- Funders are reluctant to fund administrative costs that cannot be directly tied to a project or a program.
- Funding is being provided for shorter periods of time, and is increasingly unpredictable.
- Reporting requirements have increased.
- Funders are increasingly requiring organizations to make joint submissions with project partners and to demonstrate that they have secured funding from other sources (financial or in-kind contributions) before extending their support.

As a result of these new funding approaches, nonprofits are beginning to experience problems that may dramatically affect the services they are able to provide their communities. The report identified seven “worrisome trends”:

Volatility – Foremost, the change in funding approaches affects the stability of non-profits and undermines the “capacity to provide consistent, quality programs or services, to plan ahead, and to retain experienced staff.” Without stable sources of funding, organizations lack the foundation to pursue their mission and serve their community.

A tendency to mission “drift” – With the decline in core funding and the move towards project-specific funding, organizations are forced to bend and stretch to meet funding requirements, and that can mean moving away from their core mission. Moving away from the core mission means an organization “risks losing credibility with clients and with the community.”

Loss of Infrastructure – “Administration has become a ‘dirty’ word in non-profit and voluntary sector funding.” Funders today are much less inclined to support an organization’s administrative costs, instead preferring to focus their contributions on specific projects. Without that infrastructure funding however, an organization may not be able to retain staff and resources over time, and may end up lurching from one project to another. These organizations become “a series of projects connected to a hollow foundation.”

Reporting Overload – More and more, funders are requiring accountability in return for their support. While no one will argue that funders don’t deserve to know how their contributions are being used, there are a number of problems occurring. For example, the measurements and indicators requested by funders may not necessarily reflect the success or shortcomings of a project. Having targets preset before a project begins can decrease the ability to change and adapt as the project evolves. Also, on a small project with multiple partners, an organization may end up devoting more effort to reporting than to the project itself. Ironically, this required administrative time is covered by the core funding that many sources will not provide.

House of Cards – Partnership is a growing and positive trend in the non-profit sector, and can lead to great results. However, it can also leads to difficulties in sustaining funding, as many funders will only support projects if other partners are already engaged. If one partner pulls out, it can cause the whole project, and possibly the organization to collapse.

Advocacy Chill – For many non-profit organizations, advocacy on behalf of a community or group is an important part of their mandate. However, being an outspoken advocate can be seen as risky to potential funders, who may not want their name associated with controversy or lobbying. As a result, many outspoken advocates are either losing out on funding opportunities, or are laying low to avoid controversy.

Human Resource Fatigue – With a reduction in funding for administrative costs, organizations increasingly have to do more with fewer human resources. As one study participant stated “everybody today is doing what six years ago was three jobs.” As well, nonprofits are expected to do more with volunteers, yet the cost of recruiting, training, scheduling and supervising volunteers is often overlooked.

While none of the actions by funders are intended to cause harm, their cumulative effects could have a destabilizing impact on the nonprofit sector and make it difficult for organizations to serve their clients and communities. Fortunately for both funders and the nonprofit sector, the study concludes that “there is a real and timely opportunity to modify funding strategies and reverse some unintended consequences.”

The report was prepared by the Canadian Council on Social Development with financial support from the Government of Canada through the Voluntary Sector Initiative. For a complete copy of the report, visit http://www.ccsd.ca/pubs/2003/fm/