Why Nonprofits Get a Raw Deal

Today I've been mulling over how nonprofit organizations get a raw deal in many cases when it comes to money.

Organizations (like mine) that get federal grants are under the obligation to spend their entire grant within the given project period, which is generally one year. This makes sense on the one hand, because you don't want a bunch of money just sitting out there with nothing being done with it. However, if an organization meets the expected goals and outcomes of a project within the given time frame, but has money left over, the organization has to give that money back to the government. This is usually called having the money "recaptured", and in my world it's something we all try to avoid.

Now, if an organization is just sitting on the money and not doing anything with it, then of course that money should be recaptured and given to an organization that can put it to good use.

But here's what's stupid and unfair about this...in the for-profit world if a project director was able to meet his/her project's goals and come in under budget, that would be cause for celebration, and that extra money that wasn't spent could be saved away for a rainy day. In the non-profit world, any unspent money at the end of the project term...even if the organization met all of the expected outcomes...is not able to be kept away for a rainy day (because I guess then the "nonprofit organization" would be making a "profit"). And, it's generally frowned upon to have money left over, as it makes it look like your organization is not doing a good job, because it's not spending all of its money. This is craziness.

A small example: I help manage a project that is funded by the feds. We do a good job, and we meet our expected goals & outcomes each year. This year, we were coming to the end of the project term, and after doing some budget projections, discovered we would have a few thousand dollars left over in our budget. It's not that we didn't budget accurately the year before, it's just that things changed over the course of the year and some things we had expected to spend money on we didn't need to spend. So now we were faced with a situation where we needed to spend some money, so we ended up buying some computer equipment and other stuff that, while it will be useful to the project, wasn't an urgent need. But, in order to avoid the money being "recaptured" - and the blemish on your record when that happens - we spent the money.

My board treasurer - a retired finance person with Ford Motor Co. - thinks this is rather incomprehensible, and I'm starting to agree with him!