Sustainability of NPOs in evolving and challenging times

Introduction Sustainability is not a goal to be reached but a way of thinking, a way of being, a principle we must be guided by. The Not-for-Profit Organisation (NPO) sector cannot and should not leave their sustainability to chance. NPOs should at all times seek to improve their overall institutional capacity to ensure continuity over an extended period of time, minimize financial vulnerability, develop diversified sources of institutional and financial support, and maximize impact by providing quality interventions. NPOs, which include Non-Governmental Organisations (NGOs) and other not-for-profit organisations like trade unions and foundations, contribute significantly to Kenya’s economy. They contribute mainly by implementing projects that stimulate economic activity as well as by providing employment. NPO’s employ over 76,000 people, both full time and volunteers, according to the Annual NGO Sector Report 2018/2019. As of 30 June 2019, a total of 11,262 organisations were registered with the NGO Coordination Board, which regulates NPOs operating in Kenya. According to the same report, 3,028 NGOs received KES 165.97 billion, which was an 8% increase from the previous year. This amount is roughly on par with Kenya’s tourism sector with total earnings of KES 157.4 billion in 2018, according to the Economic Survey, 2019. The bulk of NGO project expenditures were on health, HIV/AIDS, food security and nutrition, education and relief/disaster management. In addition, a total of 1,026 NGOs reported KES 34.9 billion in pending projects that are being implemented in line with the government’s “Big Four” agenda. Most NPOs depend on foreign donors for funding. In the recent past, some donor policy changes have either reduced available funding or restricted the way that funds can be utilized. Co-financing arrangements, which require an NPO to match donor funds with its own funds, may be changed to include new restrictions such that the funds can only be applied to specific activities. Short term funding commitments, which are only renewable after the donor confirms compliance with certain terms, may also have changed. These and other changes pose challenges for the NPO sector. NPOs may need to consider alternative sources of funding, use technology to enhance efficiency, reduce operational costs, implement value for money programs and scale up accountability in order to retain and attract more donor funding.

"A strong governance structure should also provide oversight of management, improving transparency, accountability and internal controls. Donors routinely assess the strength of internal controls prior to making funding decisions."

To enhance their sustainability in an evolving and challenging environment, NPOs should consider the following:

  • Governance Good governance contributes substantially to NPO sustainability. However, the Annual NGO Sector Report showed that many NGOs experience governance challenges such as failing to separate Boards from management which can adversely affect sustainability over time. Lack of strong governance structures in the sector makes these organisations vulnerable to fraud and operational interruptions. There is a need to sensitise NPOs on the importance of strong governance structures which include a well-constituted Board. The deliberate selection of Board members should ensure that the right people with the right experience are appointed, and that they are aligned with the organisation’s mission. A strong governance structure should also provide oversight of management, improving transparency, accountability and internal controls. Donors routinely assess the strength of internal controls prior to making funding decisions.

  • Source of funding Many NPOs in Kenya depend on foreign donor funding which makes them susceptible to external factors that could threaten their sustainability. According to the Annual NGO Sector Report, 88% of funds received by NGOs in 2018/2019 were from sources outside Kenya. An over-dependence on external funding and a lack of income-generating activities amongst most NPOs threaten their sustainability. Foreign donors are usually funded by their home governments. In the event that a government’s aid policy changes, the sustainability of NPOs relying on that aid could be at risk. For example, the US government is proposing to reduce its aid allocation to developing countries. In February, US President Donald Trump announced plans to cut 21% in foreign aid in his fiscal 2021 budget as compared to 2020. In prior years, NPOs were given carte blanche to spend donor funds and in effect, they enjoyed unrestricted funding. Recently, however, a paradigm shift has occurred whereby many donors have restricted funding by dictating how their funds are to be utilized. With no income generating activities of their own, many NPOs may not be able to finance their recurring commitments. In addition, in the recent past, we have seen some donors shifting to the co-funding model, where the NPOs are required to match the funds that they receive as a precondition to accessing the funds.

Those are just but a few examples of how the funding especially from foreign donors is evolving. There is therefore need for NPOs to diversify their source of funding either by raising more funds locally or engaging in income generating activities.

Human capacity Capacity of employees in the NPO sector should not be overlooked. Some of the questions the organisations should seek to answer include; do we have the right number of staff?, do the staff have the right set of skills and experience to execute their responsibilities?, do we have a functional human capital department which takes care of hiring and staff development?, are we remunerating our staff in line with the market rates so that we remain competitive, retain and attract talent? Human resource management is critical in supporting the organization to improve effectiveness, to manage corporate governance and ethical issues beyond economic performance, and to support realignment of the organisation's future direction and vision of new ways of operating. Financial management Strong financial management system largely contributes to financial sustainability of any organisation and this is no exception to NPOs in Kenya. It is important for the NPOs to invest in robust reporting systems in order to enhance the quality of financial data generated. A strong reporting system is also key in ensuring safeguards exist in identifying and mitigating fraud.

Business continuity policy and crisis management Business continuity is the advance planning and preparation undertaken to ensure that an organization will have the capability to operate its critical business functions during emergency events or a business disruption. The various forms of lockdowns, curfews, movement restrictions, airspace closure being experience globally is a good example of an emergency that has had all businesses re-think on how to continue carrying out their core activities. NPOs need to evaluate whether they have Business continuity plans in place and if they do have one ensure that it is sufficient. A pilot test should be performed to assess the adequacy of the plan. This would ensure that the organisations survive during times of crisis.

Technology Technology is a strong tool in sustainability of NPOs. NPOs should invest in technology that allows them to perform various tasks efficiently and quickly. Technology should not be limited to internal processes alone but should be extended in how NPOs implement their programmes. For instance, in Rwanda, drones are being used to pick blood samples from remote areas, drones can also be used to spray vast land invaded by locusts, GPS technology is being used to locate biogas plants constructed by third parties on behalf of an organization etc. There are unlimited possibilities when it comes to technology and NPOs should not shy away from exploring these possibilities.

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Mwangi Karanja

PwC Partner, Assurance T: +254 20 285 5150 E:

Mercy Kuria

Manager, Assurance T: +254 20 285 5000 E:

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