News analysis: Is funding becoming too complex?

Simplifying the system makes sense, but some feel this could harm smaller charities. Andy Ricketts reports.

The National Audit Office headquarters
The National Audit Office headquarters

Charity funding from the public sector came under the microscope this month when two high-profile reports from national auditing bodies delved into the subject.

The Audit Commission report Hearts and Minds: Commissioning from the Voluntary Sector says local authorities should involve charities in developing commissioning practices but warns that charities must take a more pragmatic approach to full cost recovery (Third Sector, 1 August).

Soon afterwards, the National Audit Office published Public Funding of Large National Charities. This warns the Government that it must overhaul the "over-complex" funding system for third sector organisations, which it says threatens to limit charities' involvement in public service delivery and deter charities from becoming involved in shaping the design of services (Third Sector Online, 8 August).

The NAO report, the latest in a series focusing on the voluntary sector, highlights the "often highly fragmented" funding arrangements between large charities and their funders and says the latter often ask for disproportionate amounts of unnecessary information. When researchers analysed the funding arrangements of 12 large national charities, they found that each spent an average of £381,000 a year on dealing with the varying requirements.

Consolidate to improve

Ann Blackmore, head of policy at the NCVO, says consolidating funding streams could improve the system. She points to the experience of one local authority that has already drawn together the bulk of its funding for the third sector into one pot.

"If you asked a lot of local authorities what they are funding, they would not be able to tell you," she says. "Consolidating the funding streams cuts down on situations in which organisations receive money from different funding streams to do the same thing."

But this approach must be introduced carefully, she warns, because it can result in fewer voluntary organisations receiving funding: "It can make it hard for other organisations to break in, and there can be a tendency to move to bigger contracts."

Her concern is one that many groups share, particularly because pressure to drive down costs is pushing councils into developing more wide-ranging contracts, which many in the voluntary sector fear will drive out the smaller players.

Small charities already find it difficult to manage the administrative burden of contracts, according to Neil Cleeveley, director of information and policy at the umbrella body Navca. "It appears as if smaller groups get disproportionately more monitoring," he says.

He suggests that smaller organisations could join forces with larger ones in order to reduce the burden of red tape and boost their capacity to fulfil contracts, but he warns that a diverse range of funding will always be needed.

"One of our concerns is that the procurement drive does not squeeze out grant funding," he says. "The Government wants more efficient services, but I do not think we want to bring that about at the expense of a healthy local sector."

It is not only small charities that face an administrative burden, according to the NAO; it says anecdotal evidence shows that the Government tends to exert more control over charities than the private sector.

The Audit Commission's report rejects the idea that the voluntary sector should be given special treatment and insists that it must prove its ability to provide additional value in the delivery of public services.

"We consider that commissioning intelligently and procuring effectively are more likely to be effective than a framework that provides special treatment for voluntary organisations, not least because the sector has not demonstrated that it has inherent advantages that warrant special treatment," the report says.

Work to be done

The Government says the NAO report was based on the past experiences of charities and that it has programmes in hand to tackle these issues. Blackmore says there is a move towards better relationships between charities and local authorities, but believes a lot of work still needs to be done.

"We have got the structures in place and the tools we need, but now it is about moving on and doing it," she says. One problem, she acknowledges, is that charities are often known by only one or two individuals at particular local authorities.

"The local authority should understand that the charity is good at what it does, and people at all levels of the council should know that," she says.

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