OMB, Nonprofits and Social Impact
People know I'm a little bit wonkish — someone who enjoys reading dense policy articles, as well as local, state and federal laws and regulations. But few would suggest I take pleasure in reading cost allocation guidelines published by the federal Office of Management and Budget (OMB). As every nonprofit grant writer, accountant and executive can attest, plowing through these federal rules typically causes despair.
However, the new rules on cost allocation that I read the other day was reason for some cautious celebration. Among other things, it consolidates cost principles for schools, governments and nonprofit organizations into what some are calling a “Super Circular.” Having one set of federal rules for everyone to follow is certainly commendable — but is it cause for joy? Yes, and here’s why.
The OMB’s new Uniform Guidance directs any governments using federal funds to pay a nonprofit its indirect costs. Let me repeat that: governments using federal funds will no longer be able to say “we don’t pay for administrative or overhead costs; your nonprofit will have to eat those costs or raise the money on your own.”
No longer will nonprofits need to postpone investments they require to do their work, nor will they have to continue subsidizing their work with government agencies. There are some limits on how far the OMB mandate on paying indirect costs goes, so nonprofits should check to see which of their funding streams are and are not covered.
By enabling nonprofit organizations to include true indirect costs, including technology and staffing when appropriate, in their government contracts and grants, the federal government is recognizing what we at ZeroDivide have been saying for years:
a nonprofit organization cannot be effective, adaptable and resilient without having a robust technology infrastructure and tech-savvy leaders and staff.
Until now, these necessary investments have been dismissed as “overhead costs,” which have not been covered by federal funding.
Thus, while businesses have transformed the way they operate and meet customers’ needs through the effective use of technology, this innovation-driven sea change has not had a similar impact in the nonprofit sector. With the new federal regulations (that go into effect at the end of the year), nonprofits will have more flexibility in financing these critical resources.
Nonprofit organizations that provide services across multiple categories — such as housing, workforce training, substance abuse programs, education and health care — face unique challenges in leveraging technology and innovation to improve the well-being of their communities. Given the day-to-day pressures of direct service delivery and the priority many funders give to “low overhead” as a false metric by which to judge grantees, it is difficult for nonprofit organizations to find the time, resources and assistance to try new approaches for building capacity and enhancing performance.
Private businesses’ use of technology has been driven by resource constraints and intensified competition to work smarter, faster and less expensively. Social service organizations face these challenges, too, and our increasingly connected world demands that organizations change. Now is the time for these organizations and those who fund them to catch up, and the OMB Uniform Guidance is one step in the right direction. Other funders need to make similar adjustments. We still see some foundations expressly prohibiting the cost of computers as a project expense. This is likely a holdover from earlier times (the 1980s???), when computers were a riskier investment.
Today, it is imperative that all funders and nonprofit organizations understand the critical links between technology, mission and outcomes. Education, workforce training, healthcare, wellness and civic engagement: all of these important social services require organizations to use technology both internally and with their clients.
Technology is also key to organizational effectiveness. Fundraising, financial management, communications and evaluation are easier, quicker and less prone to error when they are technology-driven.
Last year, Guidestar, Better Business Bureau’s Wise Giving Alliance and the Charity Navigator together launched the “overhead myth” campaign. Their point: overhead ratios are not a valid metric for measuring organizational effectiveness; outcomes and impacts are far more revealing. This is a principle we all understand. What is less understood, however, is the kind of infrastructure that is required to collect, maintain and analyze data so an intervention can be evaluated accurately. Evaluations that show impact are based on clearly articulated logic models and theories of change that can only be tested through the rigorous collection of data.
Technology is a vital competency that organizations need to improve and transform service delivery, and measure outcomes and impact.
We applaud the OMB for its leadership in recognizing the need to fund overhead and technology, and we encourage other funders to do the same. For our part, we will continue our efforts to build philanthropy’s understanding of tech issues and to implement our technology capacity-building program, Digital Bridge, with nonprofits of all sizes. The ultimate goal of Digital Bridge is transformation to achieve greater social impact.
Elaine Carpenter is Vice President of Business Development and Communications for ZeroDivide. She has years of experience working in the private, public and nonprofit sectors and has served on the board of directors of more than 30 nonprofit organizations.
ZeroDivide has 15 years of experience working with community-based nonprofits, and Digital Bridge is a time-tested methodology designed to increase the tech capacity of nonprofit organizations. Digital Bridge combines technology skills training with a tailored strategy and individualized support to guide each organization’s movement along the tech adoption spectrum toward organizational transformation. Learn more here.