Week 4: Who funds voluntary and community organisations?

Introduction

Organisations need resources to grow and develop, as well as to provide services and conduct different activities. For many voluntary organisations, securing funding and other resources is a constant challenge. Last week you explored the monetary value and contribution of the voluntary sector. This week you will learn where funding for voluntary organisations comes from.

Every voluntary organisation needs resources in order to fulfil its mission. ‘Resourcing’ organisations refers primarily to money, as this is needed to buy other resources like staff, premises and materials. However, some resources come in kind, such as volunteers, loans of staff or gifts of refurbished office furnishings. Most organisations will be reliant on different sources of funding, including government contracts, grants, donations and income from their own trading activities or investments.

This week you will find out about the different types of funding available to voluntary organisations and the degree of freedom they have in how to spend this money. You will explore who funds voluntary organisations: the funders can be public, private or other voluntary organisations, as well as individuals. You will also explore what issues might arise if funding is cut or if organisations rely too much on one source of funding.

You can also attempt the first compulsory badge quiz this week.

In the following video, the course author, Julie Charlesworth, introduces you to Week 4.

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Transcript

Julie

Well done. You’re nearly halfway through the course now. This week you’ll do a longer quiz, which will count towards your badge. Last week, you looked at information about the voluntary sector and differences within it, and you explored some data about the financial contribution of the sector. This week’s work continues the financial theme by focusing on who funds voluntary organisations.

Funding is a big concern to voluntary organisations, and it’s very time consuming doing funding applications. You’ll look at who the main types of funding organisations are, and how they provide funding through grants, contracts and donations. And you’ll also find out about the important role of individuals’ donations. Government policy also impacts on voluntary organisations, and you’ll look at some of the key concerns that organisations have about government funding.

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By the end of this week, you should be able to:

• outline the different types of funding organisations in the voluntary sector
• understand the most important sources of funding
• describe the potential impact of government spending cuts on voluntary sector income
• find the information you need about funding in the voluntary sector.

1 What is funding?

Figure 1 Donations are important elements of funding

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Cartoon image of a group of people holding placards. The placards read (from left to right): Support us! Give. We need your help! Donate.

Figure 1 Donations are important elements of funding

If you are involved with a very small organisation you may already have a good idea of how your organisation is funded and where the money comes from. You might have direct experience of running fundraising events or writing bids for funding from government or grant making trusts. Even if you’re not currently working in the voluntary sector or volunteering, you have probably seen people shaking their collecting tins or attended events run by organisations trying to raise money. In bigger organisations it may not always be so apparent where the funding comes from. You may know how the project you work on or support is funded but not be sure how the money is raised for everything the organisation does.

Although exploring ‘how to do’ fundraising is beyond the scope of this week’s study, it is useful to bear this in mind to provide a context for the rest of this week. There are many different methods that organisations might use to raise funds, such as street collections, small local events as well as national ones (e.g. Comic Relief or Children in Need television nights), sponsored runs, crowd funding, national campaigns for donations by text, phone, online, charity shops selling donated items as well as the organisation’s own products, and so on.

Some of these methods might generate only small total sums but for a small organisation these might be vital to their survival. Organisations may also raise funds through bidding for contracts to run services or by applying for grants but these are perhaps less visible outside the organisation – unless they are successful of course.

Many organisations try to obtain resources from different funders so they are not reliant on just one source. This has become particularly important in recent years as government funding to voluntary organisations has been cut. However, having different sources of funding creates challenges: in addition to all the work needed to apply for funding, numerous external relationships then have to be managed, as well as completing all the reports and complying with any monitoring required, when funding is through contracts and grants.

2 Looking at funding through annual reports

Figure 2 Annual reports provide funding information

One key method of finding out about funding is to look at an organisation’s annual report, which (if it is a charity) by law it has to lodge every year with the appropriate charity regulator for the part of the UK in which the organisation operates. Annual reports generally highlight the organisation’s main activities, achievements and challenges for the year, as well as information on funding received from grants, contracts, donations and income from investment and trading activities. Annual reports are useful ways to inform stakeholders about the organisation’s work. The following two activities are based on using annual reports to focus on sources of funding.

2.1 Further sources of funding information

Annual reports are usually available on organisations’ websites – as in the example in Activity 2. As mentioned earlier, another way to find financial information on voluntary organisations is through charity regulator websites. The list below shows some sources of information within the UK.

• Charity Commission (England and Wales) (UK Government, n.d.)
• Charity Commission (Northern Ireland) (2014)
• Guidestar UK (England and Wales) (2011)
• Scottish Charity Regulator (n.d.).

Some small organisations do not have to submit returns, but it is still likely that they will produce a financial report for their members and other stakeholders.

If you are new to looking for and making sense of financial information, hopefully it was not too difficult. Getting to grips with annual reports is an important skill but also increases your knowledge about sources of funding and the possible dependence – and therefore vulnerability – of organisations on particular sources.

Organisations are required to make this type of financial information freely available in order to be more transparent and ultimately more accountable. As you will see in Week 5, an organisation’s stakeholders need to know how money raised is being spent or invested appropriately – irrespective of whether this involves large or small sums. This is something that might interest you if you work or volunteer for an organisation, or if you support one as a donor, member or beneficiary. You will now move on to focusing on individuals’ funding of voluntary organisations.

3 Income from individuals

Figure 3 Individuals provide substantial sums

There are really only four main sources of funding for the voluntary sector:

1. individuals
2. foundations
3. public sector
4. private sector.

Overall, individuals and the public sector are the biggest sources of income. In terms of how funding is actually given to voluntary organisations, it is generally through three main methods:

1. donations
2. grants
3. contracts.

There are various sources of information about ‘giving’ to the voluntary sector, in particular the NCVO’s UK Civil Society Almanac 2015 and the annual Charities Aid Foundation’s (CAF) UK Giving Survey (2015). The information in this section is primarily from the NCVO (2015).

As noted earlier, income from individuals provides the largest proportion of income for the voluntary sector – 46% of total income. However, it is most important to the smallest organisations – those classified as micro and small – where it forms 56% of their total income. For the largest organisations – major – it is 44% of their income. Within the sector, some organisations such as parent-teacher associations are very dependent on income from individuals, where it forms 88% of their income.

Donations include voluntary income (donations and legacies) and earned income (sales of products and fees for events, etc.). Donations and legacies account for 37% of the total income from individuals. In terms of earned income, the majority of money comes from charitable trading (fees, training courses, admission charges or membership). The main causes supported by individuals are medical research, children and young people, hospitals and hospices.

Donations can be restricted or unrestricted but organisations need a balance of both, given that core costs need to be covered. Regular giving is valued by organisations as it gives some predictability. Donations are not necessarily restricted to individuals – organisations also donate money for specific projects or make one-off donations.

4 Income from government

Figure 4 Governments provide funding through grants and contracts

The second biggest source of funding for many voluntary organisations is from government although, as you saw earlier, some organisations such as Helen & Douglas House receive no income outside of donations. Income from government is either voluntary income (grants) or earned income (contracts or fees). Local government is the main provider of this funding but central government, the European Union and NHS trusts provide large sums too.

According to NCVO (2015), the voluntary sector received £13.3 billion in 2012/13, most of which was earned through contracts or fees. The NCVO data show that more than a third of the funding for major organisations comes from government, whereas for micro and small organisations, it is 16%. The reasons why the smallest organisations have less government funding are two-fold: first, small organisations may not actually need government funding if they are operating in fields that are more locally or hobby-based; second, micro and small organisations may not have the resources or knowledge required to take part in lengthy and complex negotiations and writing applications.

At the time of writing in 2015, a key feature of UK government funding is that it is on the decline: since 2009/10 income has fallen every year and this is in line with government cuts across public spending. This is likely to continue to do so. Furthermore, there is an increasing shift from grants to contracts, making funding more restricted.

4.1 Social value

An increasingly important aspect of contracts in the UK is that they require organisations to specify their ‘social value’. Compact Voice, talking about the English experience, describes social value as:

In theory, this move might enable voluntary organisations to win more contracts. But this needs to be weighed against the restrictions, and the additional workload and effort of contracts, as well as concerns about the loss of independence for the organisation.

5 Income from other sources

Figure 5 The National Lottery gave the voluntary sector £1796.8 million for the year ending March 2015

Voluntary organisations also receive funding from other parts of the voluntary sector, private sector organisations, the National Lottery and from income earned on investments.

You have already read about donations by individuals but donations are also given by private sector organisations. For example, every Waitrose branch gives £1000 each month to three local causes and since the scheme started in 2008 the company has donated £14 million. Waitrose gives the money but customers choose which one of the three local causes receives the most by allocating tokens in a box (Waitrose, 2015).

Although each organisation receives only a small amount, the organisations themselves are usually small too and a few hundred pounds can make a difference.

Philanthropy by individuals and organisations is nothing new, although it is now organised more formally, for example with organisations (such as the Institute for Philanthropy) specialising in giving advice to philanthropists. Research by Moriarty (2014) in Ireland concluded that philanthropy foundations are important funders of ‘hard-to-fund’ cases: those organisations that struggle to achieve government funding or to receive individual donations. Considerable media attention is also given to high-profile philanthropists, such as Melinda and Bill Gates.

Activity 6 Family foundation philanthropy

Timing: Allow approximately 10 minutes

Watch this video from 2011 in which Professor Cathy Pharoah from Cass Business School and Charles Keidan, Director of Pears Foundation, talk about philanthropic giving by family foundations.

Make notes on the key features of family foundations.

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Transcript

Miranda Thomas

With austerity starting to bite, and in the climate of growing economic uncertainty, major philanthropy is now more important than ever. One of the biggest sources of charitable giving in the UK is family foundations, and a new report has looked at trends in this area.

I’m joined by two of the authors of that report – Professor Cathy Pharoah, who is Co-Director of the ESRC Centre for Charitable Giving and Philanthropy here at Cass Business School, and Charles Keidan, who is Director of Pears Foundation, a UK-based family foundation.

Cathy, first of all, what exactly is a family foundation?

Cathy Pharoah

A family foundation is just like any other charitable trust, except that it tends to have family members on the board, and it’s funded totally by a family.

Miranda

Can you give me some examples of family foundations and the sort of work that they do?

Cathy

Well, the most famous I suppose, or the most well-known, family foundations in the UK are the Sainsbury group of foundations. There’s around 20 foundations and they are run by different members of the family, and they focus on different kinds of topics.

But another well-known one is the Volant Foundation set up by J.K. Rowling in her mother’s name, and which dedicates itself to MS, which is the disease her mother died from.

Miranda

And Charles, why have you decided to produce this report?

Charles Keidan

Well, as a family foundation ourselves, we are naturally interested in issues of philanthropy, but we found there wasn’t actually so much research and hard data on the subject that can inform thinking about the subject. So we decided to work with Cathy and the Centre for Giving and Philanthropy at Cass Business School to produce what’s now become the annual ‘Family Foundations Giving Trends’, a report which is in its fourth year.

Miranda

What are the main points raised by this year’s report?

Charles

So, the main points are that family foundation philanthropy has been a very robust source of giving to charitable causes in the UK. Over the last five years, £6.4 billion has been spent by UK family foundations, and that giving, over a five-year period, has increased by 27% in real terms, which outpaces general giving from the public – which has remained flat – and also giving from corporates, which has only increased by 7%.

Miranda

So Cathy, what prompts people to become philanthropists?

Cathy

Well, we found there’s a number of reasons. There is no single magic bullet or trigger that makes somebody want to be a philanthropist. It can be that there’s a history of philanthropy in their family background, that it’s related to their family values or their religious values. Family example we’ve found, even with major donors, family example is an extremely important factor in encouraging people to get involved in philanthropy.

And then, at a certain time in their lives, especially in today’s climate, some people have made enough money to be able to stand back from the business, there’s something they really want to do, and so they use some of their money to begin to develop a philanthropic programme.

Miranda

Charles, would you say that philanthropy through family foundations is changing?

Charles

I think it is changing in a number of ways. First of all, I think with less public money available, and more social needs, there’s much more attention on the role that philanthropy can play in society. And alongside that, there’s more of a focus on what foundations can do.

And that has necessitated, maybe increased, professionalisation in the philanthropy sphere, where family foundations are also employing professional members of staff that can help to develop philanthropic strategies that can be very clear about what they’re trying to achieve, and whether they know how and what ways they will be achieving it, and also looking at questions of effectiveness as well.

And those questions have really emerged over the last few years, and it really places an emphasis on the professional staff in foundations to be asking much harder questions of themselves in order to make sure that the scarce resources at their disposal are used as effectively as possible.

Miranda

What’s the strength of the family foundation model for giving?

Charles

So I think the strength is that it really allows a more long-term approach to different and difficult issues, which sometimes suffer from a more short-termist approach, particularly in the case of governments, and also it’s less ad hoc than individual giving. If you decide to set up a family foundation, you’re really creating a vehicle which can help to structure and shape approaches to giving over a longer period of time, and that’s of real potential value compared to more ad hoc approaches.

Miranda

And would you say it’s just for the very rich?

Charles

Well, I’d say definitely it’s a possibility for them, and our family foundation report lists the largest 100 family foundations. But I think actually there’s an opportunity for everybody at different levels to be involved in philanthropy, whether it’s through a family foundation vehicle, or just through thinking about how to give, and how to give most effectively to causes that they care, or one cares, most deeply about.

Miranda

Charles and Cathy, thank you very much for your time.

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Comment

Family foundations are charitable trusts but tend to have members of one particular family on the boards of trustees. They employ professional staff so that they can improve the effectiveness of their giving strategies. Family foundations appear to be an important source of funding, given that the amounts they give are increasing, whereas individual and corporate donations have slowed down. Keidan argues that family foundations are increasingly important in helping difficult issues that require a longer-term approach.

So far this week you have seen that there are consequences for voluntary organisations in terms of funders’ expectations of a return on their contribution, depending on which kind of funding the organisation pursues. Essentially, the more specific the purpose for which funding is given, the greater the degree of control and accountability the funder will usually expect. Many sources of funding come with ‘strings attached’ that may place limitations on an organisation’s freedom of action. So there may be trade-offs that have to be made when deciding whether to accept this funding. Organisations need to decide whether the trade-off will compromise their mission too much. This is a decision that needs to be taken consciously rather than by default.

6 Funding challenges

Figure 6 Campaigning against funding cuts

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Headway poster showing a pair of scissors cutting through the image of three people. The text on it reads: Don’t cut me out!

Figure 6 Campaigning against funding cuts

You saw earlier that UK government funding to voluntary organisations decreased in recent years as part of the review of public spending in 2010. The impact of this has been felt particularly in England, although many charities across the UK have had to cut jobs and services. In the next activity you will look at a case study of a voluntary organisation that has had to manage cuts to its funding.

Activity 7 Headway

Timing: Allow approximately 10 minutes

Headway (2015) states that it aims to ‘promote understanding of all aspects of brain injury and provide information, support and services to survivors, their families and carers’. The organisation ran a campaign in 2014 to draw attention to how their service users were being affected by funding cuts.

Watch the following video about Headway in the West Midlands. Make notes on how the organisation is experiencing cuts to its funding and how its service users are affected.

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Transcript

Newscaster

The brain injury charity, Headway, says it’s coming under increasing financial pressure because of cuts to local authority spending. Headway’s told our reporter Ben Sidwell that a lack of council support for patients means increasing numbers are turning to them.

Ben Sidwell

In October last year Mark Schofield’s life changed forever. The father from Kitts Green in Birmingham was so badly injured he had no memory of his own daughter.

Mark Schofield

I was at war with my own brain, if you like, because it just would not switch off, and it was continually throwing everything at me that’s happened, thoughts of dying.

Jackie Schofield

We were at a point where I – I couldn’t cope. We couldn’t cope. And I didn’t know who to call. And it was the only number that I had. And I phoned the number and said, I don’t really know if I’m speaking to the right people but I need to speak to somebody.

Ben Sidwell

That number was for the brain injury charity, Headway West Midlands. Last year they helped many people like Mark in and around Birmingham. But cuts to funding mean many of the services they offer are now under threat.

Rebecca Whenham

The future is very uncertain for all of us. We may be able to run one service but it’s not going to meet the 700 people we were able to support last year.

Ben Sidwell

The charity help those with acquired brain injuries relearn skills and re-integrate socially.

Mark Hannaby

It’d be a massive loss. My life has changed. I’ve only been coming to the centre about six or eight months, and it’s the best thing that’s ever happened to me since my brain injury.

Mark Schofield

I was oblivious to it. I didn’t know nothing about brain injury. I didn’t know about Headway until it happened, because it happens. It does happen. It happens to anyone. It can happen to you. But Headway are very, very important, because without them I don’t know what we would have done.

Ben Sidwell

Ben Sidwell, BBC Midlands Today, Birmingham.

Newscaster

With us now is Luke Griggs from Headway. Good evening to you. Some extremely powerful comments in that report there, including the future is uncertain. Would you agree with that?

Luke Griggs

Very much so, unfortunately. Headway West Midlands, as we saw there, are just one of a number of Headway groups across the West Midlands. And indeed, there are 120 odd groups and branches across the whole of the UK. And a recent survey of those groups found that 85% of Headway charities are concerned about their ability to provide long-term support to people affected by brain injury, if the level of funding continues.

Newscaster

And also that report reveals very starkly, doesn’t it, how life can change in an instant without you realising it’s coming up, you know.

Luke Griggs

Absolutely. And it can affect anyone at any time. And when it does, the effects can be devastating, not just for the individual, but also for families, as we saw on that clip. But equally, we know that with the right help at the right time, there can be life after brain injury.

Newscaster

OK, so what exactly is the problem, now?

Luke Griggs

Well, the problem is simultaneous cuts via local authority funding to groups and branches through welfare benefits, through a variety of different ways that people are being restricted from access to Headway services. So some people who previously attended a Headway service are now being told, yes, you can still go because your funding’s still there, but we’re cutting your transport cost. So they can’t actually get in. Alternatively, other people are actually finding that their level of need isn’t deemed high enough, which is a real shame because people are being cut out of society.

Newscaster

The trouble is every charity will think it’s special, understandably. So why should Headway be special? Why should it get better treatment from councils?

Luke Griggs

We fully appreciate the difficulty local authorities are facing in terms of balancing the books. What we’re trying to do is help them to use their precious resources in a more appropriate way because it’s a false economy to stop people receiving the rehabilitation they need if that rehabilitation is actually going to help them to become more independent and, therefore, less likely to be reliant on more expensive, long-term state care in the future.

Newscaster

Luke Griggs, thank you very much indeed.

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Comment

The news report initially focuses on an individual’s story, which makes the film hard-hitting but also explains who the organisation is trying to help. One clear theme from the report is that it is not just cuts to Headway’s services that are important but also cuts across public services. So, even if Headway can provide a service, someone whose benefit has been cut leaving them with no money for transport, or whose eligibility criteria for funding has changed, would not be able to access Headway’s service. The spokesperson also highlights how cutting one smaller service might lead to a bigger drain on health and social care services in the long term.

The video illustrates many of the issues highlighted this week around the complexities of different funding sources.

Now all that is left for you to complete this week is the first badge quiz.

7 This week’s quiz

Now it’s time to complete the Week 4 badge quiz. It is similar to previous quizzes, but this time, instead of answering five questions there will be fifteen.

Week 4 compulsory badge quiz.

Remember, this quiz counts towards your badge. If you’re not successful the first time, you can attempt the quiz again in 24 hours.

Open the quiz in a new tab or window (by holding ctrl [or cmd on a Mac] when you click the link).

8 Summary

Congratulations on reaching the end of Week 4 – you are now halfway through the course. This week has focused on an overview of the main sources of funding for voluntary organisations and some of the issues and challenges that may arise. You now have a basic knowledge and understanding of funding opportunities and challenges, which you could apply to further research on funders suitable for organisations you are particularly interested in.

There is more on the practicalities of doing fundraising in another free badged OpenLearn course, Working in the voluntary sector, which will be available in 2016.

In Week 4 you have learned about:

• the types of organisations that fund voluntary organisations
• how funding is given to voluntary organisations – as donations, grants and contracts
• what the differences are between restricted and unrestricted income
• how to use annual reports and websites to find information on funders and types of funding
• the challenges of having contracts with government to deliver services.

You are now half way through the course. The Open University would really appreciate your feedback and suggestions for future improvement in our optional end-of-course survey, which you will also have an opportunity to complete at the end of Week 8. Participation will be completely confidential and we will not pass on your details to others.

You can now go to Week 5.

References

Acknowledgements

Except for third party materials and otherwise stated (see terms and conditions), this content is made available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 Licence.

The material acknowledged below is Proprietary and used under licence (not subject to Creative Commons Licence). For the avoidance of doubt: All third party videos credited below, and those which link you to Youtube for viewing, are not subject to Creative Commons licensing. Grateful acknowledgement is made to the following sources for permission to reproduce material in this unit:

Course image: © Katie Hetrick in Flickr https://creativecommons.org/ licenses/ by/ 2.0/.

Figure 1: Aysezqicmeli/shutterstock.com.

Figure 2: selection of covers from organisations annual reports including: Scottish War Blinded (2014).

Figure 3: Syda Productions/Shutterstock.com.

Figure 4: arka38/iStockphoto.com.

Figure 5: Photo of National Lottery logo image: Lucian Milasan/Shutterstock.com.

Figure 6: Headway poster, courtesy Headway https://www.headway.org.uk/.

Activity 2 and Activity 3: extracts from: http://belfastwomensaid.org.uk/ publications/ annual-report-2013. Courtesy: Belfast & Lisburn Women's Aid.

Activity 6 video: courtesy: Cass Business School, City University, London.

Activity 7 video: BBC West Midlands Today https://www.youtube.com/ watch?v=mX-p4USOrT4 © BBC 2014.

Some content from this week draws on material by Jill Mordaunt from B191 Working in Voluntary and Community Organisations.

Every effort has been made to contact copyright owners. If any have been inadvertently overlooked, the publishers will be pleased to make the necessary arrangements at the first opportunity.

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