October 25, 2019; Los Angeles Times
As we wrote last week, there seemed to be many similarities between what was occurring at L.A.’s failing Youth Policy Institute (YPI) and the closing three years ago of the largest social service agency in New York City, FEGS (Federation Employment & Guidance Service). Now, there is one more similarity, in that the board of YPI has voted to close up shop, electing as FEGS did to try to place many of its programs and employees with other nonprofits.
As with FEGS, the former executives are gone, and it is left to an interim executive to inform and implement the decision made by the board. Interim Chief Executive Dan Grunfeld informed the nonprofit’s staff of nearly 1,000 people of the decision (at its peak the nonprofit employed 1,500), though this would seem to be the responsibility of the board, who was apparently not tracking with what was happening at the agency.
“We have explored every option, but in the end, we have realized that we cannot keep it going,” Grunfeld wrote to Youth Policy Institute’s employees. “I wish this were not so.”
The decision followed very quickly on the heels of an audit that contained a “going concern” finding and which went to the organization’s public and private funders.
Fred Ali, president and CEO of the Weingart Foundation, one of those private funders, expressed wonder at the rapidity of both the growth and demise. He said, “You have to have sound internal controls. You have to have strong financial management systems. And you have to have effective governance.” It also helps to have funders who can caution their grantees about the common pitfalls of fast growth, especially on the backs of government contracts.
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Councilwoman Monica Rodriguez, who represents the northeast San Fernando Valley, said her district has an array of programs that had been provided by Youth Policy Institute. She predicted the nonprofit’s closure would have a “ripple effect” across the city.
“It’s devastating for my community. It’s devastating for the city, and I’m angry about it,” she said.
In this case, everyone is naming former longtime CEO Dixon Slingerland as the party at fault. Slingerland is, in turn, blaming government officials, who, he says, used “compliance and oversight to make everyone’s life miserable.” No one seems to be focusing on the board, who was ultimately responsible for the organization’s integrity and sustainability.
Everyone here appears to be playing a part, and as that goes on, we may miss the real lesson in all of this. The demise of YPI, like FEGS, was predictable but only to those who understand the business model dynamics of government-funded agencies. Rapid growth that shifts the proportions of government restricted dollars with unrestricted dollars is extremely dangerous.
With each additional dollar brought in through a government contract, organizations must raise additional unrestricted funds. That money is generally much harder to raise and sustain over time unless the public is willing to give more whenever it’s needed, and you concentrate on that type of funding as a full line of renewable revenue. Thus, the path YPI followed is one with which the board and their funders—not to mention their auditors—should have been intimately familiar.—Ruth McCambridge