Government Money: Should You Take The Money?
Let us be clear, taking federal dollars from the United States government is not easy. Once you take federal dollars, your agency, whether it is a government agency or a nonprofit organization, is now subject to a multitude of federal regulations that will dictate how, when and where you will spend those federal dollars. For state and local government agencies the choice is easy. They will take those federal dollars and incorporate the federal regulations, grant management responsibilities, and the risks of working with the federal government into their daily business model. But, for nonprofits the choice is far more convoluted as one considers an organization’s mission, the costs of the grants being pursued, and the stakeholders of the nonprofit.
For executive directors and board members of nonprofits, there is always a temptation to not use federal dollars in accordance to the strict guidelines that the federal government dictates.
One year, working with an organization that was applying for federal dollars, this writer found they had opted to award a repair contract to one of their board members via non advertised, no-bid contract. This is in direct conflict with procurement regulations of the federal government and could have jeopardized their grant. The nonprofit saw it as a way to reward a valuable board member who had given much to the organization.
Federal and state regulations provide for strict oversight of federal funds and the violations of these can have very negative impacts on the organization. The above example is an example of a conflict of interest as the board member was receiving a direct financial interest for the organization that they oversaw, which is prohibited.
For nonprofits that fail to adhere to federal regulations, fall prey to lax governance, or engage in fraudulent behavior, the consequences can be quite substantial when violations are discovered. In 2001, the Bureau of Primary Health Care of Alabama suspended $6 million in grants to the West Alabama Health Services, an operator of 19 clinics in rural Alabama. This action followed a period of noncompliance and financial mismanagement for which the organization was alerted to by regulators. The effects on the stakeholders as a result of the grant loss were significant: employees lost jobs, clients lost healthcare access, taxpayers suffered losses, and criminal investigations were launched against key members of organizations leadership.
Taking a federal grant comes with risk. It would seem that once the federal grant is obligated, than those monies would be flowing into the coffers of the recipient with ease. However, this is not the case, and the promise of federal dollars does not mean the full delivery of those federal dollars promised; a situation referred to as “underfunding grants”.
Underfunding grants can occur several different ways. The federal government may task the agency to come up with matching dollars, the federal grant may not pay for the administering of the federal grant, and/or the federal agency may simply not pay the federal grant after promise of the grant has been made. According to an Urban Institute study, 68% of human services nonprofits report problems with government grants after their grant award was announced.
Some nonprofits simply choose to avoid the federal government in an effort to distance themselves from federal policies and influences. Not every organization is in agreement with the politics of the American government and as such want to avoid direct involvement with the government. Habitat for Humanity, a highly respected faith based organization, opted to avoid federal dollars for years in order to preserve its religious mission and its unique identity.
The Catholic Church has a strict definition of human life and the prohibitions for the termination of that life. This central religious dogma now brings the Catholic Church in direct conflict with the Affordable Health Care Act of 2010. For the Catholic Church, which operates 15% of American hospitals, the Church desperately needs the monies that the Affordable Health Care Act will provide. However, the Church is in conflict with the policies of the Affordable Health Care Act. This is a disagreement that has resulted in legal and political challenges for the Obama administration which has not fully come to pass as the Church attempts to access the monies of the grant while still being able to maintain its religious freedoms.
While the federal government’s availability of grants would seem to be a local government or nonprofit organization’s panacea, the reality of receiving federal grants is quite different. Federal grants come with a whole host of regulations for the administering of said grants. Failing to adhere to the myriad of regulations and guidelines of the grant can risk future funding endeavors and even criminal and civil liabilities for key stakeholders. These concerns should be considered before pursuing and acceptance of a federal grant.
Cohn, J. (2012, February) Unholy Alliance. The New Republic. Retrieved from http://www.newrepublic.com/article/politics/magazine/100960/catholic-church-hospital-health-care-contraception
Common Fund Institute. (2008, December). Ethics and the Nonprofit. Retrieved from https://www.commonfund.org/investorresources/publications/white%20papers/ethics%20and%20the%20nonprofit.pdf
Savage, G.T., Dunkin, J.W., Ford, D.M.(2004) Responding to a crises: A stakeholder analysis of community health organizations. Journal of Health & Human Services Administration, Spring 383-414
Scheitle, C.P., (2009) Identity and Government funding in Christian nonprofits. Social Science Quarterly, 90 (4) 816- 833.
National Council of Nonprofits. (2013, October 8). Failure to Pay Full Costs. Retrieved October 7, 2013 http://www.govtcontracting.org/problems/failure-pay-full-costs.