Government-Nonprofit Contracting: From 30,000 Feet to Your Bottom Line

Transcription

1 Government-Nonprofit Contracting: From 30,000 Feet to Your Bottom Line Tim Delaney President & CEO Nonprofit Missouri & UMKC s Center for Nonprofit Leadership Nov. 13, National Council of

2 25,000+ nonprofit members 42 State Associations & Nonprofit Allies 280+ Employees 500+ Board members Coast to Coast, Border to Border

3 The Problems Nationwide Missouri The Solutions General OMB Uniform Guidance Everywhere Missouri

4 The Problems

5 Great Threat Lack of Understanding Health Care Reform Citizen United Indifference/ Ignorance Nonprofit independence March of the States 2013 Localities & PILOTs

6 Lack of Understanding Passive & Meek

7 Challenges we ve faced

8 Together, a successful legacy Abolition Groups Suffrage Groups Townsend Clubs Civil Rights Groups

9 Lack of Understanding Sources of Nonprofit Revenues (e.g., hospital fees, tuition, ticket sales) One-third of nonprofit community revenues earned from government contracts and grants.

10 Withholding Money from Nonprofits Special Report Costs, Complexification, and Crisis: Government s Human Services Contracting System Hurts Everyone 1.Failure to Pay Full Costs (e.g., match; GAO) 2.Changing the Agreement Mid-Stream 3.Complexification of Application Process 4.Complexification of Reporting (Oversight) 5.Paying Late SEE: special web portal

11 Magnitude of Government s Reliance on Nonprofits Urban Institute s findings: In 2009: governments had 200,000 contracts with almost 33,000 human service nonprofits $100 billion worth of contracts governments doing their work through nonprofits

12 Costs & Consequences Who Gets Hurt: All around Nonprofits Donors/Funders Nonprofit Employees Nonprofits without Government Contracts

13 Government Contracting Problems: The Negative Ripple Effect Nonprofits with Government Contracts Nonprofits without Government Contracts Typically might include: After-school programs Children and family nonprofits Developmental disability Domestic violence shelters Food & nutrition programs Foster homes Health care clinics Health research Homeless shelters Hospitals Mental health nonprofits Soup kitchens The additional competition for limited grantmaking capacity then squeezes the nonprofits without any government contracts. Typically (but not always) include: Advocacy nonprofits Amateur sports Arts groups Associations Cultural institutions Community foundations Environmental groups Historic preservation Land conservation Religious schools Think tanks Watchdog groups

14 The Problems in Missouri

15 Withholding Money from Nonprofits 1. Failure to Pay Full Costs (e.g., GAO) 54% problem Missouri = 10 th worst at 61% 2. Changing the Agreement Mid-Stream 43% problem Missouri = 30 th worst at 39% 3. Complexification of Application Process 72% problem Missouri = 22 nd worst at 71% 4. Complexification of Reporting 72% problem Missouri = 14 th worst at 74% 5. Paying Late 45% problem Missouri = 29 th worst at 37% Nonprofits on average owed: $200,000+ by state governments; $108,000 by federal, $85,000 by local governments

16 Failure to Pay Full Costs Nonprofits Reporting Limitations on Full Costs in Government Contracts and Grants: In Missouri: 48% of nonprofits reported that governments imposed limits on program administrative/overhead costs 20% reported being paid ~zero~ 28% reported being paid between 1-7% 44% reported being paid between 8-10% 92% paid 10% or less In Missouri: 59% of nonprofits reported that governments imposed limits on general administrative/overhead costs 15% reported being paid ~zero~ 34% reported being paid between 1-7% 43% reported being paid between 8-10% 90% paid 10% or less

17 Compare Overhead Cost Ratios Business Norm Research shows that the average overhead ratio among for-profits and nonprofits alike is about 25-35% to be efficient and effective.

18 Compare Overhead Cost Ratios Business Norm Research shows that the average overhead ratio among for-profits and nonprofits alike is about 25-35% to be efficient and effective. Government Norm (CA State Govt) 76% of state agencies have indirect cost rates higher than 30%, 81% have rates higher than 20%, and no state agency has indirect cost rate of 10%.

19 Compare Overhead Cost Ratios Business Norm Research shows that the average overhead ratio among for-profits and nonprofits alike is about 25-35% to be efficient and effective. Government Norm (CA State Govt) 76% of state agencies have indirect cost rates higher than 30%, 81% have rates higher than 20%, and no state agency has indirect cost rate of 10%. What Missouri Governments Pay Nonprofits 92% of nonprofits facing caps reported being reimbursed at a rate of 10% or less.

20 Compare Overhead Cost Ratios Business Norm Research shows that the average overhead ratio among for-profits and nonprofits alike is about 25-35% to be efficient and effective. Government Norm (CA State Govt) 76% of state agencies have indirect cost rates higher than 30%, 81% have rates higher than 20%, and no state agency has indirect cost rate of 10%. What Missouri Governments Pay Nonprofits 92% of nonprofits facing caps reported being reimbursed at a rate of 10% or less.

21 Compounding the problem Off-loading/ Abandoning Programs cutting funding, not human need states: eliminated/reduced services for: Mental illness Disabled Elderly Children

22 The Solutions

23 The New OMB Uniform Guidance The BIG Deal How We Got Here Key Changes in the OMB Uniform Guidance How You Can Prepare for Implementation What You Can Do to Ensure the Promise Becomes Reality

24 (So, What s) The Big Deal? OMB Uniform Guidance

25 How We Got Here A Happy Advocacy Story An Advocacy Saga with a Happy Middle

26 How We Got Here Government-Nonprofit Contracting Work Recession, late payments, opportunity for reform Research, scope of the problems, solutions, implementation Abuses identified Recurring problems Solutions

27 Trend: Failure to pay indirect costs Research: for-profit/nonprofit avg overhead range=25-35% 53% nonprofits report governments limit indirect costs Of those governments a quarter paid = 0 half paid 7% or less three-quarters paid 10% or less

28 How We Got Here Government-Nonprofit Contracting Work OMB Draft Grants Reform Purpose: Streamline, reduce burdens, increase accountability Nonprofits Left Out: Main focus was governments and higher education Advocacy Campaign: Conference calls, webinars, surveys/polls, comments GAO, State Associations, national nonprofits National Task Force OMB Listened: Uniform Guidance 12/26/2013

29 How We Got Here Government-Nonprofit Contracting Work 2014 OMB Uniform Guidance Effective 12/26/2014 (agencies revise regs) Outreach Efforts information and clarity Federal webcast Frequently Asked Questions Oct. 2 Webcast a discussion 2014 New Data and Solutions

30 Federal Law Congress Appropriates the $$ Executive Branch Manages the $$

31 Sustainable Nonprofits Are Needed! Report GAO (May 2010) OMB Uniform Guidance

32 Reforms in OMB Uniform Guidance Some highlights (from 700+ pages): State & local governments, tribes, and other pass-through entities using federal funds will be required to reimburse nonprofit contractors and grantees for reasonable indirect costs. In some cases, it expands which administrative expenses can be reported as direct costs, rather than indirect. Eliminates some duplicative audit criteria, and clarifies cost allocation rules.

33 What = reasonable indirect costs? 1. Apply the nonprofit s federally negotiated indirect cost rate if it already exists. 2. If a federally negotiated indirect cost rate does not already exist, then the NONPROFIT has the power to pick either option: a) To negotiate a rate with the government entity, OR b) To use the default minimum rate of 10%.

34 Step 1 of 3: Aware of the Reforms

35 Step 2: Advocacy to Protect the Reforms Federal State/Local Implementation & Compliance State/Local Application to Non-federal Funds

36 Step 3: Accounting Skills to Secure the Reforms Cost Allocations Common Knowledge Direct Costs Indirect Costs Other Costs Nonprofits Grantmakers Governments Negotiations

37 REFORMS Administrative Changes Cost Principles Audit Requirements

38 REFORMS & IMPLEMENTATION Administrative Reforms (A-110) Acronyms and Definitions General Provisions Pre-Award Requirements and Contents Post-Award Requirements for Financial and Program Management Cost Principle Reforms (A-122) Allowable and Unallowable Costs Indirect Cost Reimbursement Direct and Indirect Costs Procurement Requirements Audit Reforms (A-133) New Threshold Additional Government Audits and Internal Controls New Roles and Approaches

39 APPLICABILITY Key Dates Types of Awards and Subawards Impacted

40 PRE-AWARD REQUIREMENTS 200.1XX Requirements for Federal Agencies Award Posting RFP Content Standard Application Merit Review Risk Assessments

41 POST AWARD: PASS-THROUGH ENTITY REQUIREMENTS Single Audits Provide Subawardee Information Perform Risk Assessment for Subrecipient Monitoring Verify Audit Compliance Report in Accordance with FFATA Pay Subrecipient Indirect Cost Rate

42 REQUIRED INDIRECT COST REIMBURSEMENT With Federally Approved Negotiated Indirect Rate All Federal Agencies All Pass-through Entities 1 Four-Year Extension Option Without Federally Approved Indirect Rate 10% of MTDC De Minimis (Indefinite Use) or Negotiate a Rate Based on Federal Guidelines

43 DIRECT vs INDIRECT Generalizations Direct: Easily attributable to a specific program Indirect: Organizational or shared across programs Situational Determination Changes in OMB Uniform Guidance

44 ALLOWABLE vs UNALLOWABLE Allowable Reasonable Necessary Conforms with policies Treated consistently In accordance with GAAP Not used for cost share or match requirement Typical Unallowable Costs Fundraising Most Advertising and Public Relations Lobbying Entertainment, except program related Salaries above established caps

45 OMB Uniform Guidance: From Promise to Reality Advocacy Efforts to Clarify, Protect, and Fix Recap of what we know Nonprofit rights follow the money Waivers, intimidation prohibited Other Areas of continuing confusion Who triggers negotiations over indirect cost rate? Grant vs. Contract Other

46 OMB Uniform Guidance: From Promise to Reality Advocacy Efforts to Clarify, Fix, and Protect Tools for Clarifying/Fixing the Uniform Guidance Nonprofit Survey Engagement through State Association National Task Force, Ad Hoc Advisory Committee, other Protecting Nonprofit Rights (a work in progress) Government audits (3 years later) State contracting review process Direct communications government officials What other ideas do you have?

47 Free Resources

48 Spread Data, Facts, Research, Trends (free!) Nonprofit Policy Agenda Bi-weekly Advocacy Matters Top 10 Nonprofit State & Local Policy Issues

49 Tim Delaney President & CEO Questions?