In more than one legislative hearing I heard a very strong line of questioning as ALANA (African Latino Asian and Native American) nonprofits sought public funding. This increased level of scrutiny stems from the criminal charges against a nonprofit, Feeding Our Future, which is not an ALANA nonprofit but worked with some ALANA nonprofits and private businesses. There are many ALANA nonprofits operating with integrity and incorporating best practices in accounting, financing, evaluation and reporting. I am proposing below a way forward.
First – in terms of a general perspective – ALANA nonprofits do not appear among the top nonprofits getting millions of public funding over the past few years as per recent report from the Legislative Auditor. The table below is reproduced from that report.
According to another recent study of funding received from 4 of the larger departments – DEED, MHS, State Arts Board and DHS we find the percentage of total dollars going to ALANA serving organizations was 16 percent for DEED, 4 percent of the State Art Board, 12 percent for the Minnesota Department of Health, and 9 percent for the Minnesota Department of Human Services. ALANA communities make up 20 percent of the population of Minnesota.
On the other hand ALANA nonprofits play a very critical role connecting their communities to the resources available to improve their lives. ALANA nonprofits while serving their communities must address two operational issues – capacity to serve and effective governance. Capacity to serve implies having a good back office – accounting, financial reporting, human resources, marketing, evaluation and reporting. Effective governance involves abiding by the laws governing nonprofits, including strong and effective boards.
Just like in the business work from start up to scale up, we find the capacity of nonprofits vary according to the resources available to them. Organizations such as Propel work hard to meet capacity needs though board training etc. but are not funded at a level to boost capacity across the nonprofit spectrum. Funders want to see outcomes and are not prepared to invest in administration and capacity building and poses a chicken and the egg paradox. Legislative funding with great difficulty may allocate 5 percent of the budget to operational capacity.
Yet, it is well known, even for the state programs focusing on businesses, that reporting requirements and grant management require very specialized accounting and financial skills. Some accounting firms may prefer not to work with clients with a heavy government portfolio. There is an obligation to the funding source to ensure that reporting and other aspects of the grant are adequately covered as part of the program costs including a small percentage for overhead expenses. This will ensure both accountability as well as effectiveness on the part of the nonprofits.
Possible Solution
A solution to think about. What if the state categorized ALANA nonprofits into 3 categories:
**** Good back office (can generate financial reports, clean audit, good community connections and reporting), 990s up to date, active board governance, annual reports are current.
**Weak back office
*No or poor back office
4 Star Organizations – receive funding as well as a 10 percent allocation towards reporting and financial expenses.
For 2 Star and 1 Star organizations a capacity fund is created and housed in an organization like Propel. If an organization gets funded the money flows through Propel and they work with the organization to put their back office together. At least 10 to 15 percent of the grant amount is allocated to this back office and reporting structure. Proposals that come via organizations in the Propel network in the future will get priority. Propel should be funded sufficiently to help provide back-office services for 100 nonprofits and monitor them. In the process, PROPEL can encourage the development of back-office type businesses which organizations can use – business coops with finance, accounting, legal and marketing, for example. The current nonprofit infrastructure bill can be amended to reflect the above changes.
State agencies need to be staffed with a core group of trained staff who work with community groups in both the application process as well as reporting. Their staff are out in the field working with applicants as they maneuver the application and reporting process. We did this type of work when I was Director of Planning and Economic Development for the City of Saint Paul. It works. I am currently a reviewer with the state funded Main Street program at the Saint Paul Foundation and they developed a good support structure too.
This solution is a healthy way to build capacity while serving the needs of some of the most vulnerable populations in Minnesota.
