New York Nonprofits in the Aftermath of FEGS: A Call to Action

The state Commission to Examine Nonprofit Human Services Organizations Closures published this report, New York Nonprofits in the Aftermath of FEGS: A Call to Action. 

 

The Human Services Council (HSC) convened the commission to examine the systemic problems contributing to the instability of so many nonprofit human services organizations, and we brought together stakeholders from philanthropy, academia, direct service, nonprofit coalitions, and others with nonprofit expertise to reflect on the sector in an effort to deliver thoughtful and succinct recommendations through a nine-month process.

 

As with any industry, nonprofits in the human services sector close and merge, but recently, there have been many questions about why so many have disappeared. 18 percent of New York City’s human services providers were insolvent in 2013. With the closure of FEGS, it became clear that action was needed, both to examine systemic issues in the sector and to respond quickly and be an active partner with government in addressing this problem. Although FEGS was a unique organization and its collapse was due to a number of different factors, its bankruptcy took place against the backdrop of a broken system in which there is a severe mismatch between program expectations and available funds. Too many nonprofit entities do not have the systems in place to appropriately assess risks, undermining their ability to evaluate government proposals, real estate, and other financial and programmatic decisions. This report serves to provide urgently needed attention to the looming crisis.

 

HSC is committed to building a strong human services delivery system in New York and addressing obstacles to providing quality programs in communities. The work of this Commission and the subsequent report and recommendations are our latest effort to do so. The Commission’s final report identifies three major problems with New York’s human services delivery system and makes a series of recommendations designed to work together to strengthen it.

 

1.       Programs should be developed in consultation with human services providers in order to drive more meaningful results. Such engagement would help to ensure that the sector is prepared to effectively participate in new cost-saving approaches such as the State-driven move to Managed Care in the Medicaid system. Additionally, compliance procedures should be examined to ensure they are supporting meaningful government oversight.

 

2.       The nonprofit human services sector suffers from chronic funding issues in which payment rates and program expectations are routinely misaligned, which impedes its ability to deliver high-quality services. Government and philanthropy should fund core functions and indirect costs, and account for cost increases and mandates that strip money from programs.

 

3.       The nonprofit sector does not have the tools to assess the risks associated with contracts and programs. Nonprofits and their boards must adopt financial evaluation tools and risk assessment methods to better evaluate risk, and the sector should develop rating systems to evaluate government agencies and individual procurements to inform providers, boards, and the public of problematic practices.