Social services: Responding to increased strain on existing programs

With economic recovery still far from complete, growing community needs are outpacing the ability of social services organizations to address those needs. To meet both current and future demands, organizations must first understand the current environment, and then move to recognize the value of automation, strengthen their relationships and take advantage of available relief.  

social servicesUnderstand the current environment Keep track of what’s changing and how it affects your constituents in order to adjust program services to meet their needs. Too often, not-for-profit organizations come up short financially because they fail to pay attention to the radical differences between what has been and what will be. At the same time, organizations must beware of mission creep — when focus on the core mission becomes blurred while trying to keep up with even higher demands.

While some agencies are wisely expanding their fundraising efforts and investigating innovative ways to increase revenues and make the best use of contributions, others are scrambling to make up for funding shortfalls. This practice often forces nonprofits to dip into reserve funds or borrow externally and use lines of credit.

A notable example of how reliance on a no-longer-viable source can lead to disaster is Lutheran Social Services of Illinois (LSSI). On Jan. 22, 2016, LSSI, the state’s largest provider of social services, announced program closures and staff cuts due to the state’s inability to pass a budget to fund the programs.1 The deadlock “has severely challenged LSSI’s ability to provide services to those in need,” said Mark Stutrud, LSSI president and CEO. “Over the past months, LSSI has relied on a bank line of credit and available resources from our foundation to compensate for the state’s inability to pay its bills. Currently, we are owed more than $6 million by the state for services delivered. After seven months, we can no longer provide services for which we aren’t being paid,” Stutrud explained. More than 30 programs are closing, eliminating over 750 positions — 43% of LSSI’s employees. Approximately 4,700 people will no longer receive services from the organization.

Recognize the value of automationPut technology to work by automating time-intensive manual or outdated processes. Transition costs to improve systems can be significant, but there is a payoff in the long run as leadership is freed to add value by focusing on mission-critical activities — a shift from mechanics to analytics. New technology can help management see the big picture and use financial information to make rapid and strategic decisions.
Strengthen relationships Better decisions, increased funding and greater service opportunities are the result of stronger relationships with your board, donors, constituents and partner organizations. In order to build stronger relationships and manage uncertainty, social services organizations should make collaboration a top priority:
  • Fortify management and board relationships with major donors and partners, and solicit their advice (e.g., invite stakeholders to tour your facilities and host a meal during which all parties can discuss their interests and concerns).
  • Communicate frequently with your board, and be transparent about the financial strains impeding your work. Take advantage of members’ years of experience and expertise, and obtain their guidance regarding pressing issues.
  • Step up marketing activities to increase community awareness of both accomplishments and needs (e.g., utilize social media to report outcomes and to highlight individuals who can tell the story of how your organization directly benefitted them). Report on your results as proof of your organization’s effective use of contributions.
  • Before accepting new sources of revenue, connect with funders early in the giving process to ensure that their contributions align with your organization’s mission (e.g., provide a document with your mission statement and supporting activities — current and proposed — so donors understand how their gift would fit your organizational purpose). Critically examine grants for the true financial cost of compliance: A significant grant might not be the boon it initially appears to be if the restrictions, reporting requirements or associated administrative costs are too onerous. Educate your contributors, donors and grant-makers about the costs of delivering on your mission so they understand what it takes to provide valuable services.
  • Develop connections with organizations whose core competencies complement yours. If individuals are seeking your services, but their needs better match the mission of another organization, a referral to the other group would avoid mission creep. Reciprocity from others will also benefit your organization. Alternatively, when appropriate, seek affiliations and consider mergers.

Not all bad news Since a large portion of the revenue that supports charitable nonprofits comes from government entities, the rules that came out at the end of 2014 were received with relief by not-for-profit leadership. Under the new agreements, organizations should be able to recover more of the full costs of delivering services that are paid in whole or part by federal funds. The Office of Management and Budget (OMB), which oversees the use of federal funds, issued the rules as OMB Uniform Guidance.2 Governments at all levels — local, state and federal — that hire nonprofits to deliver services are now required to reimburse those organizations for reasonable indirect costs (sometimes called overhead or administrative costs). The OMB Uniform Guidance also raises the thresholds for requiring audits of federally funded programs and simplifies some compliance requirements, potentially reducing compliance costs for not-for-profits.
In taking these actions to understand and meet the increasing needs of their constituents, social services organizations will be better-positioned for continued viability and long-term success.

1 Kapos, Shia. “Big Lutheran social agency cuts 750 jobs amid budget impasse,” Crain’s Chicago Business, Jan. 22, 2016.
2 Office of Management and Budget. “Federal Awarding Agency Regulatory Implementation of Office of Management and Budget's Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” Federal Register, Dec. 19, 2014.

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The State of the Not-for-Profit Sector in 2016