Located in an inner city neighborhood of a depressed metropolitan area, United Neighborhoods, or “The UN” as it is grandly dubbed by those in the community, was founded 50 years ago by community members as a home for abused and neglected African-American children. In 1970, UN broadened its program base and became United Neighborhood Community Services, providing housing, foster care, and adoption and related supportive services for youth. More recently, it has added day services, homemaker and repair services, and housing for the elderly. At various times, UN also offered programs focused on youth employment; recreation; computer training; tutoring and mentoring; health promotion; literacy; and early intervention and childcare placement programs. Many of these programs, however, have since been phased out—some because the inner city community didn’t see them as priorities, but most because funding disappeared.

Valerie Reid, executive director for the last 17 of her 32 years as a UN staff member, started as a community organizer when UN was beginning its expansion. Her job was to discover what the community wanted the agency to do. She went door to door talking with people, asking them to come to a community meeting. “I got up the morning of the meeting and it was really raining,” she says. “It was the 13th of November and I thought we had jinxed ourselves. But then the sun started shining—a rainbow actually appeared—and 500 people showed up.” Now 65 and suffering from recurrent health problems, Valerie would like to retire. She is anxious to ensure that she leaves the agency in good shape.

The organization cites as its strongest asset its relationship with the local community and the respect of the families they work with, some of whom have generations-long relationships with UN. Visitors walking in the door can feel the intimacy of this connection. Many of UN’s 56 staff members say that this bond with the community has been a key factor in motivating them as a team. They also report often stretching to add services that are not paid for, or looking for additional funding when a needed program component is missing. Staff and board members both say that UN’s strongest sense of accountability is to their program participants and the community—followed by accountability to their funders and the various entities that license their programs.

UN’s community is somewhat isolated. Until recently, the agency was located near four different housing projects. Three of these have since been emptied out by the city, and their disposition is uncertain. Real estate speculation abounds in the area, resulting in a mix between the very poor and the middle class. Citywide, people outside UN’s direct service area have little awareness of the agency and are confused by the name. UN knows that unless people interact with them as either program participants or funders, they are essentially invisible to the public.

UN’s fundraising focus reflects its longstanding dependence on public sector funding, and it has been very successful at raising this type of money with grants from seven different government agencies. It has also been able to raise public money for capital improvements to their four buildings, and all of them are in good repair.

Valerie Reid spends a great deal of time managing relationships with these agencies, and each program manager writes program-specific grants. The agency has hosted fundraising events from time to time, but in recent years, these have barely broken even. Furthermore, recent changes in regulations have led to new, unfunded requirements on UN’s public sector grants, challenging the organization to stretch existing resources yet further. There is no other public fundraising effort that could help fill the gap.

This situation has created a tangle of serious problems. For instance, because of the absence of core funding, staff receive training only when funding sources mandate—making training uneven across programs. Moreover, there is no time or money to allow staff to step back and take stock of what has been learned from programs or to reflect on what is needed for improvements. UN collects data and conducts evaluations primarily to satisfy requirements of funders. At one point, UN was evaluating all programs twice a year, but “doing more with less” has made it necessary to step back from this schedule, drop optional evaluation activities, and focus on meeting funder requirements.

UN is fortunate to be able to depend on volunteers to help stretch the budget, and, where allowed, to achieve the staff-to-client ratios required by funding sources or governmental regulations. When asked about UN’s use of volunteers, staff was enthusiastic about the contribution they make to the organization’s ability to deliver quality services. They were particularly proud of the incorporation of program participants as volunteers, saying that these opportunities allow program participants to “give back” and that this contributes to empowerment. They also talked about it as a “natural way” for the ideas of program participants to be included in program design.

UN’s budget is now so tight that there is nothing extra anywhere. Almost all of UN’s $2 million is earmarked for specific programs. Salaries are low and staff have not had a raise in four years. There is no rainy day savings account, nothing to invest in getting internal systems up to date, and nothing to finance a fundraising campaign.

Making its financial picture worse, UN has had two crises with cfos over the past few years: one involved fraud, and one a lack of competence. In both cases, states Valerie Reid, too much was in the hands of only one person and no one else really knew how the finances were constructed. UN’s financial policies and procedures are described as an inadequate “mish-mash.” Managers want a system that allows them to be more proactive—to get ahead of the game rather than being caught by surprise when they are in financial trouble. They want to be sure that program directors and supervisors know and really understand their budgets. They want people on the board who understand the governmental guidelines applicable to their funding, and they want a competent cfo, but worry that the salary they are able to offer may be inadequate to recruit the right person.

Under these circumstances, it is not surprising that UN has not found the time to develop an overall strategic plan. Individual programs have plans and funding agreements that serve to guide decisions, but efforts at putting together a comprehensive plan have been derailed by lack of financial and staff resources. There is a general feeling that the agency is wearing too many hats and trying to fill too many voids, but there is no process in place to determine whether or not this perception is accurate, and if it is, how the agency should approach narrowing its focus.
The UN staff and board are worried that their traditional funders will see them as a lost cause—a poor little local agency with good intentions, but one that cannot make the grade when put to the test—and will be afraid of throwing “good money after bad.”

Commentary by Ricardo Millett

The United Neighborhoods case captures the classic challenge of a community-based organization growing overly dependent on public sector dollars. Most civic minded, progressive citizens probably don’t think that there is an inverse relationship between success at capturing public dollars and the ability to provide responsive, quality leadership and services to community-based constituents. This is, however, the case.
Public dollars bring with them a confusing tangle of accountability, oversight, and funding restrictions that have an enormous impact on an organization’s ability to respond creatively to the increasingly complex issues faced by our nation’s poorest residents. Public sector funders are not deliberately trying to punish organizations for their creative response, but in this era of “accountability,” the focus has shifted to covering the organization’s fiscal rear guard. When these agencies are “successful” enough to capture grants from multiple public funding sources, they must grapple with the various strings that will inevitably pull on them. These strings are likely to emphasize everything but the real bottom line: accountability to the people being served. Ironically, the public sector funders become unwitting collaborators to again victimize the people they are “committed” to serving.

What to do? Solutions are difficult to find, particularly when you are busy just trying to survive, as is the situation with most community-based organizations (and the communities they serve). Nevertheless, as this case shows, struggling to survive—making payroll, supporting program activity—without having the time to reflect and plan for effective implementation and desired impact, is like running in place. Clearly, leadership is a major part of the solution. We know that any person with the abilities and qualities to lead a successful community-based organization today is capable of succeeding in the most lucrative job opportunities in the public and private sectors. A few will accept this challenge, but they are not likely to persist without some adequate level of compensation. They will certainly not hang around long if board and governance issues are added to the complex public sector challenges. Therefore, it is critical to find and compensate good executive leadership and build a knowledgeable and involved board and governance structure.

A more fundamental course of action for UN is to build on the base of its strength. This organization has a well-earned, strong, responsive, participatory relationship with the community it serves. It should use this relationship as a vehicle to better focus program scope toward critical areas where the community can share the burden of sustaining the effort. UN should consider finding the right balance between public funding and quality community responsiveness. This is not easy, but any organization that can harness the connectivity with its base in a manner that reflects substantial participation in defining programs, policies, and community support (in terms not only of volunteers but also monetary financing) will find itself in a better position not to be thwarted and hamstrung by the errant pressures of public funding. UN should stop now and reposition its programs and connection with its community to move forward.

Commentary by Clara Miller

With an active community, a legendary executive director, and a physical presence in the form of real estate in “good condition,” UN has some solid assets on which to rebuild the organization to a position of prominence and strength. The case study, however, illustrates a range of important tasks that could command attention: the need to refocus mission, build up communications, get a good grasp of demographics, reach out to the larger community, build the board, weed out programs, and reinspire staff, to point out the most pressing. To make good decisions, and to do any “revitalization” tasks well, UN must first perform on one overarching imperative: it must get its financial house in order.

If the lack of meaningful, consistent financial information and metrics implied by the case study reflects the state of financial management at UN, the task could be somewhat daunting. Moreover, with higher profile tasks to undertake, it could seem secondary. Both the board and the senior staff, however, should lock their focus, laser-like, on it. Doing so will take courage; in the process they may discover some difficult facts about their operation. They must insist on nothing less than clear, consistent metrics, and should make sure they have the resources to fund this core operating requirement.

Their situation demands immediate action. Reputational risk is the most profound danger in their business, and arguably the greatest peril in any nonprofit business. Without reliable numbers, UN is jeopardizing the confidence of its most important stakeholders—the community it serves including clients, funders, and employees. And without confidence in its numbers and financial systems, UN will be hampered in making and enacting a range of important operational decisions that will directly affect the people it serves.

Good numbers are like a clean windshield: without them, UN is likely to miss a turn, mistake a red light for a green light, or drive off the road. In addition to the overarching need to be able to demonstrate that it has done all it can to banish the hobgoblin of a possible recurrence of fraud, here are a few suggestions:

If the agency is to create a reliable system to avoid fraud in the future, it means not just getting a cfo, but putting in place financial personnel and systems to provide adequate separation of functions and have enough skill depth to avoid dependency on one person.

If they are going to make intelligent, mission-sensitive decisions about which programs to keep or cut, the agency needs profitability, production, and demographic metrics by program—or at the very least, by line of business.

If UN is going to negotiate tenable contracts with city, state, and federal agencies in good faith, it needs to be knowledgeable about what it actually costs to provide these services.
If they are going to attract new supporters and board members, UN needs to be able to present a completely transparent operation.

If the organization hopes to have a usable strategic or business plan, it must have valid numbers.

If UN is going to be able to raise and wisely use the unrestricted operating funds, the working capital, and the operating reserves it so clearly needs, it must have the ability to analyze and rely on these funds.

That said, UN should reach out to its longtime supporters and friends—as well as to potential detractors—in an affirmative way. The board may want to consider appointing an outside committee to work on the turnaround of financial systems, fundraising, refocusing, and realignment. The committee can be the objective eyes and ears for the broader community, and can help bridge the transition to becoming a strong, reliable, important contributor to the community and the city as a whole.