US Air Force [Public domain], via Wikimedia Commons

October 21, 2019; Los Angeles Times

Let’s face it: many of us working in small to mid-size nonprofits have had years when we were actively trying to avoid the “going concern” finding in our audits. NPQ certainly had one or two of those, and it was hair-raising—what felt like a dance along a cliff where every step could be your last. The last thing you need when managing a scarce budget is a formal public finding that you may be out of time.

But that is the reality now for the Youth Policy Institute (YPI), which spent $1.3 million more than it took in in FY 17–18. (That deficit in and of itself would be enough to ruin a nonprofit on our scale, but at a $47 million annual budget, YPI doesn’t fall in my definition of small or mid-sized.)

We have seen plenty of groups sustain running such deficits even over multiple years, but apparently the organization has also been laying off staff at a fast clip and neglecting its grant and contract reporting to federal and state funders. Together, that all spells mismanagement of some kind—the kind you sometimes don’t recover from.

The Weingart Foundation is one of the funders that was provided the 50-page audit, and Fred Ali, the foundation’s president and CEO, deemed its situation “extraordinary and troubling,” in that the group’s financial liabilities exceed its assets significantly even while it faces having some of its government contracts cancelled because of inadequate financial controls and reporting.

Vendors are breathing down their necks, and Dan Grunfeld, the interim CEO, is trying to find placement for some of the organization’s programs.

The feels a little like déjà vu, as we recall the FEGS scandal in New York—a similar “surprise” to the board, and in that case, a fatal one. Also, in that case, the organization was on a growth trajectory supported primarily by government contracts, a dynamic which can place an organization at real risk unless it understands the need for a similar or higher rate of growth in unrestricted funds. Another way of looking at this is that when most organizations take on another government contract that may not pay full costs, they automatically open up a potential deficit that must be filled. You can see the FEGS autopsy results here.

Here is a description from the L.A. Times of the dynamic as it played out in YPI:

One person familiar with the nonprofit’s financial woes argued that it grew too quickly and became too reliant on government funding. Without other revenue sources, the group did not have sufficient funds to cover basic overhead costs, the person said.

[Then-CEO Dixon Slingerland], in response, said he understood that perspective but “felt obligated to pursue all available funding that could benefit the families” served by his organization.

Thus, Slingerland decided that he could ignore a core requirement of the business model. We don’t know why the organization’s administration ran thin, surfacing as missed reports and mismanagement, but not feeding this kind of “beast” has predictable results…results now playing out to the embarrassment of many involved.

YPI has already fired Slingerland, who is described as “politically connected”—a high-profile local Democratic fundraiser with close ties to L.A.’s Mayor Eric Garcetti. Considering the group’s many city contracts, this politically connected profile is familiar, but entirely insufficient to the task of running this kind of grant-constructed creature.—Ruth McCambridge