Grant Rule Can Make It Hard for Small Nonprofits to Kick Off Projects

While it was once common to award grant money up front, the current policy is to repay organizations only after they’ve paid for the expenses and submitted their invoices.

The $70,000 Minnesota Department of Health grant holds big promise for the Somali community.

Somali women's health education and advocacy group Isuroon is using the money to combat teen pregnancy and gather people together to discuss sexual health, an uncomfortable subject in a culture that considers it taboo.

There was just one problem: While the state once awarded nonprofits grant money in advance, the current policy is to repay organizations only after they’ve paid for the expenses and submitted their invoices.

Isuroon is a small, relatively new organization—and it had just $2,000 in its account when it received the grant. As a result, the Minneapolis nonprofit found it hard to round up the necessary upfront costs.

“Now there’s $70,000 sitting there somewhere, and we cannot use it,” said Fartun Weli, Isuroon executive director and a Hopkins resident. “My account is empty, and the money is sitting there.”

The policy is a four-year-old recommendation that’s more-recently become the norm among state agencies. It speaks to the difficult balance between ensuring financial accountability and making it as easy as possible for nonprofits to perform their work. In this case, a policy that’s now common procedure can make it hard for small nonprofits to use state grants, such as the one awarded to Isuroon.

“They’re making more rules that dig people into holes,” Weli said.


A history of problems

The Minnesota Department of Administration’s Office of Grants Management first issued a policy on March 24, 2009, that advised state agencies to pay out grants only after organizations have paid the costs and submitted invoices for the appropriate expenses.

“Reimbursement is the preferred method for making grant payments,” states the current version of the policy, which was updated Aug. 31, 2011. “Grantee requests for reimbursement must correspond to the line items in the approved grant budget (i.e. personnel costs, indirect costs, equipment costs).”

But Health Department spokesman Michael Schommer said the recommendation dates back even further to proposals in a 2007 Office of the Legislative Auditor report.

That study found that grant procedures varied considerably between state agencies, and a review of 50 grants found that:

  • Less than half the grants were competitively awarded,
  • Only a third required the applicants to sign forms asserting that they didn’t have a conflict of interest and
  • Less than a quarter of the competitively awarded grants required applicants to submit information on the financial health of their organization.

“The state’s approach to managing grants to nonprofit organizations is fragmented and inconsistent, and does not provide adequate accountability,” the report stated.

After the Office of Grants Management issued the 2009 reimbursement policy, agencies began transitioning over to the new rule. The Eliminating Health Disparities program, which awarded the Isuroon grant, started using the reimbursement approach with its 2012 requests for proposals, he said.

“We realize that may be a change for some, but it is considered an effective practice,” Schommer said.

Minnesota is not alone in such policies. Schommer noted that it’s a practice followed by federal agencies. For example, state grants supported by the federal Temporary Assistance for Needy Families initiative, which provided funding for the Isuroon grant, has required the reimbursement approach for as long as the responsible Minnesota Health Department official could remember, he said.


Other alternatives?

Weli said there are other ways to ensure accountability, though. Isuroon has worked with private grantors that awarded grant money in stages. With one $50,000 grant, her organization initially received $25,000 to kick off the process. The organization didn’t get the second $25,000 installment until it had progressed past the first phase.

“If you want to control the money, that’s how you control the money,” she said.

The Office of Grants Management policy does state that, “Although they are not preferred, advance payments on grants may be allowed in certain situations.” But agencies must justify in writing why an exception is needed, and the agency’s financial management area must sign off on the exception.

Administration Department spokesman Curt Yoakum said deciding whether to grant an exception is generally a matter of risk management: How much history do the agencies have working with the nonprofit? How well has the nonprofit fulfilled its grant obligations in the past?

Schommer said his agency focuses on letting organization that receive grants know about the process right away so they know what to expect.

“We try to avoid such problems as much as possible by clearly communicating the process and requirements up front,” he said in a follow-up e-mail.

But Weli said the rule disadvantages small nonprofits—many of them, like hers, minority-run organizations with a unique ability to reach key populations.

In this case, Isuroon was able to scrape by through seeking additional help from the community, including those it helps. The Health Department has also approved the first month’s worth of invoices and will reimburse Isuroon by early February.

Still, Weli said Isuroon has work that it can’t continue and focus groups it can convene until it receives that next payment.

“This rule is destroying us,” she said.


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