The Funder is Not the Program

When I work with nonprofits I will often hear them talk about their [insert name of funder] program.  I always cringe a little at this because  it means they are sliding into thinking of the funder and the program as one in the same.

They are not.

I can see how this thinking has evolved in the sector.  Someone has a great idea for a program and they look for funding.  A particular foundation loves the idea and gives them a grant.  It then can be easy to associate the two things as one.  But I repeat here the mantra I was taught: “The funder is not the program.”  What happens if that big funder decides to stop giving money to that program?  Does it end?  Probably not.  The nonprofit will seek additional sources of income.  But the program could suffer if there is an interruption of funding and the nonprofit does not have some other way to keep money flowing into it.

A good nonprofit financial system should be set up to track every dollar going in and out of the organization three ways: By the expense or income item (the chart of account line item), by the grant / funding source and by the program / functional area.  I do this by asking myself, “Who, what and why?” about each dollar that moves through an organization:

• Who is paying for this (or giving us this dollar, if is it income)?  This is the funding source
• What are we paying for (or receiving)? The chart of account line item
• Why are we paying for this (or getting this money in)?  This is the program / administration / fundraising.

If your system allows you to answer those three questions, there is almost no financial question you can’t answer.  But if an organization is thinking that the funder and the program are the same, they might not be able to break out the information they need to get the reports and management information that will help them make good decisions.

Separating program from funder also helps us get closer to figuring out the true cost of the programs.  As an example: If you are in the mindset that the program and the funder are the same, you might not charge a particular program its fair share of the rent expense since the funder of that program will not cover rent expense.  But that program still incurs some share of the rent.  It operates out of your main office, so it should be charged an appropriate percentage of the rent.  This again gets us closer to the true costs of operating our programs.

The idea is illustrated by another mantra I was taught: “The money is restricted, not the program.”  Once we know the program, and therefore the organization’s, true costs we can make sure we have the funding and income we need to keep our nonprofits strong and functioning.