Government-funded nonprofits slammed; fixes seen

Government contracts and grants can create big problems for nonprofits, but proven solutions are readily available, two new reports say.

Among nearly 56,000 nonprofits with government contracts or grants, or both, in 2012, nearly three-fourths reported problems with the complexity of — or time required for — applications and reporting, according to the “National Study of Nonprofit-Government Contracts and Grants 2013: State Rankings” from the Center on Nonprofits and Philanthropy at the Urban Institute.

“Contracting with multiple agencies is a way for organizations to diversify their income and protect themselves from risk, but it also can complicate administration for nonprofits because different government agencies have different reporting application and reporting processes and requirements,” the report says.

A second report, by the National Council of Nonprofits, says that problems in government-nonprofit contracting systems throughout the U.S. are “profound, thoroughly documented and, most importantly, solvable.”

Solutions recommended in the report are “tested, free or relatively inexpensive,” and readily available,” says the report, “Toward Common Sense Contracting: What Taxpayers Deserve.”

Government partnerships diverse

Contracts and grants vary in structure and administration, the Urban Institute report says. Some require nonprofits to share the costs of programs or services the contracts and grants fund, while some limit the types of activities on which nonprofits can spend money.

Restricting spending for program administration or overhead costs is common, the report says, with 50 percent of nonprofits reporting limits on spending for program or overhead costs, and 53 percent reporting limits on spending for general administration or overhead costs.

“These limits can severely undermine an organization’s capacity and effectiveness by restricting its ability to adequately manage its programs or invest in staff and equipment,” the report says.

Previous reports

The new report follows a national survey in 2010 by the Urban Institute that found the recession had had “dire effects on nonprofits’ funding from government and private sources, in a time when the demand for services was higher than normal,” and a second national survey it conducted in 2012 that found that nonprofits still were dealing with many of the same problems as in 2009.

That second survey found nonprofit-government contracts and grants reached roughly 56,000 nonprofits and totaled $137 billion.

The new report provides data on government contracts and grants with nonprofits, problems encountered, and the current fiscal situation of nonprofits in each state, as well as state comparisons.

Problems not ‘anomaly’

The new data from the Urban Institute confirm that the government-nonprofit contracting problems documented in its 2010 study “were not an anomaly” of the recession, the National Council of Nonprofits says in its report.

“The serious problems persist nationwide,” it says. “Nonprofits performing work on behalf of governments still confront policies, laws and attitudes that deny reimbursement for the full costs of providing those services.”

Nonprofits continue to “encounter wasteful application processes and costly reporting regimes that defy logic, consistency or fairness,” it says. “Once contracts are signed and work is commenced, governments often unilaterally change contract terms and conditions mid-stream, regardless of written commitments or the added costs those changes impose on nonprofits.”

And governments “often pay nonprofits late — sometimes more than a year after the nonprofits incurred the costs on behalf of government,” it says.

All those problems “add billions of dollars in unnecessary costs to nonprofits and taxpayers alike,” it says.

Late payments

Forty-five percent of nonprofits responding to the Urban Institute survey reported that late payments by governments are both frequent and “debilitating,” the National Council of Nonprofits says in its report.

On average, it says, past-due amounts owed to each nonprofit totaled $200,548 from state governments, $108,500 from the federal government, and $84,899 from local governments.


Seventy-two percent of nonprofits surveyed by the Urban Institute reported the “complexification” of reporting requirements, says the report from the National Council of Nonprofits.

That problem takes a variety of forms, including “duplicative audits, overlapping and inconsistent compliance procedures, retroactive imposition of reporting requirements, incompatible and inconsistent data collection, and a lack of standardization that injects vagaries into an already complex process,” the report says.

“Rarely is it clear to nonprofits if and how the government even uses the information that often is expensive to collect and report,” it says.


The National Council of Nonprofits report includes 16 recommendations for policymakers, executive-branch officials, lawmakers, and governments at all levels take steps to spur collaborative solutions to problems with government-nonprofits contracts and grants; improve accountability for full and prompt payments; eliminate “unilateral mid-stream contract changes;” and simplify complex application and reporting requirements.

Todd Cohen

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