There was an opinion piece on the Chronicle of Philanthropy website today by Antony Bugg-Levine, CEO of Nonprofit Finance Fund, discussing how the evaluative measures often employed by funders tend to discriminate against non profit organizations lead by, and serving, people of color.
He writes,
What I did not realize then was how colorblind application of financial assessment and funding practices can make it harder for organizations led by and serving people of color to get grants and make the most of them.
The problem often originates in the fact that these organizations don’t have access to networks of influence and financial resources that other organizations do.
So requiring dollar for dollar matches for grants or using rates of donations by board members as a measure of engagement and investment are difficult criteria for many non-profits to meet.
The same problem arises when using budget size as a point of assessment.
Determine grant size based on the value of the work rather than the current revenue of the organization: When you recognize the structural barriers that prevent many well-run and effective organizations from gaining traction, you come to see how distorted the link can be between an organization’s size and capacity. And the formal accounting rules that determine what counts as revenue make the problem worse. For example, pro bono legal advice from a corporate law firm counts as revenue. The many hours a volunteer spends reading to young people in a community center does not.
A better approach: Rather than creating rules that peg grants to a share of revenue, spend time understanding the value the work would generate and the full cost to undertake it.
Obviously, these evaluation measures don’t just present problems for organizations run by and for racial minorities. Many non-profit organizations run by racial minorities lack resources, but not every non-profit lacking resources is run by and for racial minorities.
Bugg-Levine provides a link to a guide recently issued by the Nonprofit Finance Fund which charts racially-based financial analysis and provides suggested alternatives.
There are some issues you might not immediately anticipate. For example, having access to a wealthy private donor allows organizations to take government contracts which tend not to cover full costs. Having the imprimatur of a government contract provides other funders with a greater degree of confidence in the organization, leading to better funding opportunities. But not having a relationship with a wealthy private donor makes it difficult to secure the government contract in the first place.
Another example identified in the chart is that:
Funders associate small organizations with community authenticity
Organizations will intentionally limit their revenue (often below $1 million/year) to remain eligible for “small organization” grants, because some funders will cut them off when they become larger. But, they still can’t make the leap to effectively compete against larger organizations for larger grants, given the dearth of funding options for organizations in the $750,000-$3 million/year revenue range.
Even an organization’s accounting method can be a source of bias. The indication that the organization employs accrual based accounting vs cash based accounting favors better funded organizations that have the resources to pay for accrual accounting services because,
If an organization is using cash-basis accounting, which counts money when it is received or spent, rather than when it is earned or billed, their finances appear less stable. This can lead to suspicion about the soundness of their leadership and overall financial health, and create a perception that making a grant to this organization is riskier than if they were using accrual accounting