Common Shared Services

 

Before we start allocating funds and preparing to deliver our programs, we need to have a conversation about administration versus program delivery costs. While I appreciate the fact donors want their funds allocated to boots on the ground service delivery, there are costs to get there, and everyone needs to pay their fair share.

 The first thing we need to do is clearly establish the difference between ‘program delivery’ costs and ‘administrative’ as many providers and funders battle over the fine line between the two. Believe me when I tell you, the line is fine.

 An extreme view is ‘all costs are program related.’ Why do I say this? Simple, all costs occur for no other reason than delivering the program; for example, human resources personnel recruit, select, train, and pay staff who deliver the program, and if not for the program, neither the staff nor the human resources officer would exist. Accounting personnel collect contract payments, service fees, and donations, then pay the associated bills; if not for the program, there would be no need for accounting staff.

 Then there are facilities or accommodation costs; these also have fine lines as most of the time the facilities are actually being used to host the program, and even if there is a small amount of space being utilized by administrators such as human resources and accounting personnel, they would not exist if not for the program we are delivering.

 All this aside, the line between program and administration cost can be differentiated by considering the terms ‘direct’ versus ‘indirect’ costs; but always remember there is still a connection between program delivery and administration, and neither will exist without the other.

 Another factor to consider when it comes to program delivery costs is given the size and variety of programs delivered by an organization, the reality of span of control will require various levels of management; in fact, the larger and more diverse your organization is, the more you need to invest in managing it which counter-acts the economies of scale you might otherwise think you will gain. For example, one program with 100 delivery officers may require one Manager and 8 assistant managers as Span of Control can be stretched from the commonly quoted 1:5-7 ratio to 1:8-15 if all persons are performing similar tasks requiring similar qualifications. Contrast this to an organization with 100 employees, 6 major areas which are distinctively different occupations and skill requirements; for example, an Assistant Warden Management Services of a Penitentiary who is responsible for Accounting, Human Resources, Contracting and Procurement, Warehousing and Material Management, Facilities Management, Administration, and Food Services. Each of the above requires a division head who specializes in their profession, and even within those there are specialties such as the Facilities Manager who supervises electricians, plumbers, heating plant operators, general labourers, and an automotive mechanic. Given the 7 division heads listed above, then add in various supervisors within the sub-elements, there will be far more leadership positions layered on top of the 100 workers than the 8 assistant managers articulated in the first example. Compare the above to social services organization ‘A’ who operates 1 program with 100 service providers, to organization ‘B’ who has 100 employees in 8 distinctively different programs, with sub-programs of programs.

 Let’s look at Administration and Accommodation in more detail:

 Administration

 As obvious as the need for the above might appear, funders have different expectations which does not always reflect reality. For example: one funder allows 10% for administration, one 12%, and another 15%. Some allow for reasonable office accommodation charges, where others appear to want you to work out of your car. Regarding supervision, certain funders understand the concept of span of control being how many staff a person can effectively manage, where others do not recognize the need for supervision, but will be the first ones to tell you to ‘deal with it’ if the mandate is not being delivered to their expectations.

 Then there is program liability insurance; while governments often ‘self insure’ this does not extend to the contracted service provider therefore you must ensure you are covered. In most cases, the funder will assist with these costs, but sometimes consider insurance Administrative where others will agree with me it is a Program Delivery cost. Then you have other scenarios such as the case of three separate contracts with one particular provincial government agency: two of them indicate the funder will purchase and manage the liability insurance, the third requiring the service provider to acquire their own coverage.

 Other examples include contracts with a funder who caps you at 20% benefits when they pay 27% for their own employees. Fortunately, the percentage was accepted by the provincial government funders I dealt with, and rightfully so being they allowed the employees of the not-for-profit society to join the provincial government employee’s union, and they negotiate the benefits on our behalf.

 A major challenge is reporting to funders on how you used their money. Some provide you spreadsheet templates, which not only vary by organization but also vary between different departments of the same funder; where others provide you access to online portals which you enter the information. Some allow you to roll-up expense lines into categories; where others want to know every detail including how much you spent bug extermination. Some want their reports quarterly; others semi-annual, bi-annual, and annual; others go for three years before they ask for a report then want unused funds returned.

 Believe it or not, the bigger you are, the more it costs for administration. If for example you had only one program ran buy two employees you may be able to have them work out of your garage and manage them on your own; however, when you have 100 employees working in over 30 programs in different sectors financed by 12 different funders, you now require a Director as well as a number of supervisors depending on the most effective span of control for the situation, this in addition to an accountant, a human resources officer, a receptionist/administration clerk, a property manager, and two maintenance workers. So much for economies of scale.

 Accommodation

 Accommodations for both forprofit and not-for-profit are for both program and administrative purposes; however, many funders consider space as administrative, and this you must contest. Let’s look at some examples:

 The first situation is the consumer protection program described earlier where the work is carried out in the field and the office space is used for writing reports. In this case you might consider this space as a minor expense; however, what if the space was also used to house the various testing equipment and supplies? Program Related; in fact, even writing the report is part of the program delivery in my opinion.

 An opposite extreme is an ice rink which is used to host hockey and skating programs in the winter, and roller skating in the summer. The capital cost of this building and ice making/maintenance equipment is significant therefore a substantial cost to delivering the program; the fact the manager and book-keeper have a small office in the facility is insignificant.

 Somewhere in the middle is a counselling program where the counselors are provided offices for both meeting with clients and writing their reports. This space is program related not administrative.

 Unfortunately, I have seen many cases where funders do not want to pay accommodation costs at all and expect the not-for-profit agency to ‘find a corner’ for the staff to work from. A true example is five employees of a not-for-profit organization each one a one-off performing a specific program each for one particular funder, neither of which want to pay for accommodation space therefore expecting the service provider to ‘find a corner.’ No! For me to find space for five persons I need to rent a five-suite office and each of you are covering 20% of the costs.

 When calculating and allocating accommodation costs remember to include the following:

       ·       Rent

·       Additional Rent also called Shared Costs, Common Costs, and Triple Net, when you occupy one part of a larger complex

·       Depreciation of leasehold improvements*

·       Building and/or contents Insurance

·       Utilities

·       Janitorial

·       Repairs and Maintenance

·       Other

 *Although the fit-up costs are incurred at the beginning of the occupancy and you are capitalizing and depreciating them over the period of the lease, you have paid for them and need to recover the costs each year. If the fit-up has been paid by the funder, this would not be included in the accommodation cost. We will address Grants for Capital Projects in the chapter on Donated Capital Assets.

 The below chart depicts a facility and how the space and associated costs are assigned to each of the tenant programs. This scenario also breaks down the various costs.

 Finally, there are funders who do not want to pay accommodation costs when the not-for-profit society owns the building. So, where do you think this money comes from to purchase the building in the first place? What if there is a mortgage? What about repairs and maintenance? I have even come across a situation where the government funder believes if the not-for-profit society receives money from them for accommodation costs, the government entity now owns the building. While I appreciate the fact the Society is not-for-profit, they still have equity, and in some cases, have a mortgage to pay. Furthermore, we would not even have this debate if you were contracting a forprofit organization to deliver the service.

 Conclusion:

 At the end of the day, administration and accommodation is a reality, and everyone needs to pay their fair share of these costs.

 That being said, when it comes to allocating the costs of administration, there are some less fortunate programs therefore often they pay less than the standard rate for these services. Be cautious with this as too many of these can lead to hardship for administration and accommodation budgets and although there might be a tendency to put more onus on the more fortunate programs, those funders still expect you to charge them an amount which is within the agreed limits.

 Finally, if you have a program which cannot afford to pay for administration services and accommodations, you may have to assess the viability of the program as using general revenues to cover their costs means less funding for other initiatives such as feeding children and seniors. It comes down to prioritizing resources.