Understanding NGOs and why government may fund them
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NGOs are not simply an extension of the Government; they have their own objectives and interests. Government agencies should take this into account when developing funding arrangements.
This section provides some information about NGOs and their experiences.
Why fund NGOs?
Government funding allows NGOs to carry out important work in many areas, including health and welfare, environmental protection, arts and culture, sport and recreation. Consistent and transparent funding of NGOs helps to ensure services are delivered cost-effectively by the most appropriate providers. It also helps to build the strength and capacity of the community and voluntary sector.
There are a number of reasons why NGOs are often preferred providers.
- Many NGO services are cost-effective. They often have lower cost structures and access to a voluntary workforce.
- Because NGOs are independent, they are often better placed to reach people in marginalised communities. As a result, they may have a better relationship with a target group than a government agency.
- NGOs are not bound by the same restrictions as the public service, so have the ability to be more flexible and innovative.
- NGOs may have specialist local knowledge or expertise that is not readily available to a government agency.
- NGOs help to bring people together in constructive relationships. They work directly with communities to achieve shared goals.
- The non-profit nature of NGOs ensures funding is targeted to delivering effective services.
How NGOs contribute
A number of projects have been undertaken to assess the economic contribution to New Zealand of NGOs and their related voluntary effort. A range of different NGOs is also building knowledge about the costs of running a community organisation, the benefits they provide, issues to do with the ways in which the New Zealand Government funds NGOs, and how that can be improved.
Non-Profit Institutions Satellite Account
In 2007, Statistics New Zealand's Non-Profit Institutions Satellite Account revealed vital data about the sector, such as:
- more than one million volunteers gave more than 270 million hours of unpaid labour to non-profit institutions in 2004
- non-profit institutions contributed 2.6 percent ($3.64 billion) to New Zealand's gross domestic product (GDP) in 2004
- the economic 'value-added' contribution of non-profit institutions, including the value of this volunteer labour, was assessed at $6.95 billion (or 4.9 percent of GDP).
The Study of the New Zealand Non-profit Sector
This collaborative project between government, voluntary sector and academic representatives measured the size and scope of New Zealand’s non-profit sector. The New Zealand Non-profit Sector in Comparative Perspective (2008) shows that volunteers make up 67% of the sector workforce and that 49% of our non-profit organisations are ‘expressive’ organisations, meaning that they are involved in culture, sports, recreation, environmental protection, civic activism, unionism, professional associations, and religion.
Another report from this project, The History of the Non-profit Sector in New Zealand (2008) explores the evolution of the sector.
The VAVA Project
The NZ Federation of Voluntary Welfare Organisations (NZFVWO) commissioned the Value Added by Voluntary Agencies (VAVA) project in order to estimate the value of non-market activities by the voluntary sector.
Counting for Something: Value Added by Voluntary Agencies (2004) examined the activities of 10 nationwide voluntary agencies. These agencies are characterised by their use of voluntary donations of time, money and/or goods. The report estimated that for every $1 provided to a voluntary agency, between $3 and $5 worth of services were delivered in the community.
Counting for More (2007) recognised that annual accounts do not reflect the full value that community and voluntary agencies add to social well-being and the New Zealand economy. It examined the outcomes of two organisations - Literacy Aotearoa and the Royal New Zealand Plunket Society. The pilot study provides the basis for understanding why value added by voluntary agencies builds on the contributions of volunteers and far exceeds the initial expenditure made by its funders, whether private or public.
Ways that NGOs might be funded
Contracting or funding arrangements can take a number of forms:
- either full or partial funding of the agreed services
- entitlements attached to the user of a service
- funding on the basis of outcomes achieved
- grants (funding provided so long as certain conditions are met)
- full or partial devolution of decisions on the allocation and use of funds to a community organisation.
The funding ranges from grants with few conditions attached, to highly specified contracts for services that are paid by instalments against pre-set milestones or after the required services have been delivered.
Government agencies need to develop good funding criteria based on healthy funding relationships, good decision-making, and sound contracting principles.
Basic criteria include:
- being clear about what is being funded and why
- channelling resources effectively to meet identified needs
- recognising the accountability and resource constraints of all parties.
Read more about different funding arrangements in the Auditor-General’s report:
As the demand for government funds often exceeds supply, community and voluntary organisations may need to compete for limited resources. In this environment, government agencies need to make good decisions about who and what to fund.
NGOs' funding experiences
Voluntary sector agencies are unusual in that they combine market activities with non-market activities. A considerable proportion of their labour and other inputs is provided voluntarily, either free of charge or financed through donations. This makes the provision of services and goods possible at low cost, or free, to those who are eligible, but there are still costs incurred through service delivery by volunteers. These costs should be allowed for in any funding arrangements.
Ten key funding criteria - an NGO perspective
The following criteria were developed in 1999 by the New Zealand Council of Christian Social Services (NZCCSS) in partnership with the New Zealand Federation of Voluntary Welfare Organisations, and in consultation with the New Zealand Council of Social Services.
NZCCSS considers good social services funding is built on:
- a pathway from innovation to funding stability
- reasonable security of funding and reasonable stability in funding arrangements
- systems that encourage co-operation
- flexible boundaries between funders and funding pools
- explicit funding for community and voluntary sector infrastructure
- systems that encourage responsiveness
- mutual and reasonable accountability
- realism in measurement
- regular investigation of changing services and unmet demand
- reasonable accreditation arrangements.
Source: Criteria for Judging Government Funding Arrangements for the Community Sector: The Views of Community Social Service Providers, New Zealand Council of Christian Social Services, 1999.
Copies can be purchased from the New Zealand Council of Christian Social Services, PO Box 12-090, Thorndon, Wellington. Phone 04 473 2627.
The community-government relationship
In 2001, the government committed to improving funding arrangements with NGOs. The Statement of Government Intentions for an Improved Community-Government Relationship was signed at this time, stating:
“Government acknowledges the valuable contribution made by community, voluntary, and iwi/Māori organisations to the achievement of shared social, cultural, environmental, and economic goals. Government agencies will, together with the community sector, undertake a programme of work to address concerns about funding arrangements, effectiveness, compliance costs, and related matters.”
