Skoll World Forum – A View From Behind the Curtain

Editors Note: This post was authored by Sue Dorsey, chief financial officer at Water For People. In the post, Sue identifies several issues with current funding mechanisms in the social sector and proposes solutions that will support rather than hamper organizations in building resilience and realizing bold visions. The post originally appeared on Water For People’s blog.

Sue Dorsey, chief financial officer at Water For People

In a sea of social entrepreneurs, I am a rather unique voice. As the CFO of Water For People, I am part of a team that makes our vision of ensuring Everyone around the world has access to safe water and sanitation, Forever, a reality. Our Everyone, Forever initiative spans 30 districts across four continents reaching more than four million people, and we are proving that ending water and sanitation poverty is possible in our lifetime. Behind every bold vision is a “reality team” working to bring it to life. Being a member of that team is a huge responsibility and incredibly inspiring.

I believe that a critical component to making a world free of social, cultural, political, and economic barriers a reality is building strong nonprofit organizations, businesses, and government institutions. Our vision is the spark, and resilient organizations with appropriate funding mechanisms and a regulated environment is the engine that will get us there. But as it stands, current practices in the nonprofit sector won’t get us there. Here’s why, and what needs to change:

1. Funders offer small short-term commitments forcing organizations to create short-term solutions for long-term challenges.

#ChangeThat: Funding streams need to adjust their timelines to fit long-term solutions and outcomes.

2. Nonprofits struggle with success indicators, putting too much focus on overhead ratios that are easy to calculate but also easy to manipulate, leading to misdirected philanthropic investments.

#ChangeThat: Making outcome-based grants requires nonprofits to focus on long-term sustainable outcomes.

3. Funders generally resist financing capacity-building, and only focus on tangible projects.

#ChangeThat: Financing monitoring and evaluation, talent acquisition and IT investments would actually increase efficiencies and reduce overhead.

4. Out of control donor restrictions lead to soaring overhead costs and trumps appropriate and necessary programmatic changes.

#ChangeThat: What if funding under $1M or less than five years could not legally be restricted under FASB rules?

5. Lack of public transparency for the true costs to run a nonprofit organization.

#ChangeThat: What if we got rid of the functional allocation and asked NPOs to report on a full cost recovery basis on their 990, educating and sensitizing the public on the real costs to change the world?

6. Limited to no communication between donors and NPOs about organizational pain points.

#ChangeThat: Donors should ask and nonprofits should offer insight into what they need to succeed from a programmatic and operational standpoint.

There is an exciting opportunity to bring the reality teams from behind the curtain to be a voice for change in the nonprofit sector, by educating donors and effecting change in organizations. We have seen examples of this – InsideNGO has created a community of international development organizations to advocate for effective funding from USAID and other institutional funders. They are currently working on a database of information around the true costs of running an effective organization. And Dan Pallotta has been a strong voice on this issue for years. His TedTalk about the way we think about and execute charity has over three million views and growing, which shows there is an appetite to reinvent the nonprofit sector so we can actually change the world.

If you peek behind the curtain, you will find “reality teams” around the world poised to lead this change.

I see a nonprofit sector stepping up and making investments in data collection and analysis to allow for more data-driven decision-making. I see nonprofits sharing indicators and data across sectors to align us around a common set of benchmarks, providing a clearer picture of what success looks like and progress made towards that success. Greater transparency and accountability will build trust and collaboration with the funding community, and this will lead donors to reduce burdensome and unnecessary restrictions that only serve to increase overhead and reduce programmatic outcomes. I see government regulation pulling back from functional allocation to ensure nonprofits show the public a true picture of what it costs to run an effective, sustainable philanthropic organization.

Reaching our vision where Everyone has access to safe water and sanitation Forever is something we take very seriously. Anything less would just not be good enough.