Federal Funding Mechanisms

The federal government uses a variety of funding mechanisms to achieve  national priorities through partnerships with nonfederal parties such as  nonprofit organizations. Grants and Contracts Provide Both Direct and Indirect Funds to Nonprofit Organizations

Nonprofit organizations sometimes work directly with federal agencies as  grantees and contractors, in a relatively straightforward relationship. Nonprofit Organizations Provided Access to Additional Funds through Federal Loans and Loan Guarantees

Nonprofit organizations are involved in credit relationships with the  federal government, in some cases as the recipient of funds loaned or  guaranteed by federal agencies, and in some cases as the guaranty agency. Finally, some federal programs use loans and loan guarantees to  encourage activities that indirectly result in increased revenues to  nonprofit organizations. Type of Funding Mechanism Generally Determines the Level of Oversight and Influence That Federal Agencies Have over Nonprofit Organizations

The amount of federal involvement in selecting and overseeing nonprofit  performance varies across funding mechanisms. While the federal agency does not monitor the performance of  individual nonprofit and other recipients receiving this grant funding,  states are required to monitor the performance of nonprofit recipients. With fee-for-service programs such as Medicare, states determine service  provider eligibility, but individuals choose their providers. Data Limitations Leave Decision Makers without Complete Information on Funding to Nonprofit Organizations, Although Data Suggest That Significant Federal Funds Reached Nonprofit Organizations in 2006

The federal government tracks and provides information on funding in  order to provide decision makers and the public with accurate information  on the sources and uses of federal funds, among other reasons. Data Limitations and Reliability Concerns Contribute to an Incomplete and Unreliable Picture of Federal Funding

The data presently collected provide an incomplete and, for portions,  unreliable picture of federal funding to nonprofit organizations. Other fee-for-service or voucher programs, such as federal Pell  Grants and the Federal Work-Study program, obligated about $10  billion to nonprofit organizations in 2006. There are a number of other programs for which federal funds  flow through states to nonprofit organizations but we did not attempt  to estimate that funding. Credit—Available data from FAADS indicates that about $450 million  in direct loans and $2.5 billion in loan guarantees were issued directly  to nonprofit organizations in 2006, though OMB has raised concerns  with how some of these data are reported. Tax Policies and Tax Expenditures—Though more difficult to  assess and not directly comparable to funding through other  mechanisms, federal tax policies provide significant financial benefits  to nonprofit organizations. Although available data indicate that significant federal funding reaches  the nonprofit sector, the precise extent of that funding is not known  because of data limitations. It prevents the federal government from accurately assessing  the extent to which it uses this sector and the potential effect of the  sector’s strength as a key partner in delivering federal services. However, we  identified significant reliability concerns regarding data from two systems,  Federal Procurement Data System—Next Generation (FPDS-NG) and  Federal Awards and Assistance Data System (FAADS), which we highlight  in the body of the report and in appendix II. We used the following data sources to estimate federal funding to  nonprofit organizations:    FPDS-NG—We assessed federal contract funding to nonprofit  organizations by summing the funding for all contract actions involving  vendors identified as nonprofits in the FPDS-NG in fiscal year 2006. Direct payments  for specified use include payments under Medicare, and we consider  these to be fee-for-service or voucher programs. In  several cases, estimates of the cost of tax expenditures include tax  expenditures involving nonprofit and other entities.
Why GAO Did This Study

Increasingly, the federal government relies on networks and partnerships to achieve its goals, and many of these involve nonprofit organizations. GAO was asked to assess (1) the mechanisms through which federal dollars flow to nonprofits and (2) what is known about federal dollars flowing through them to nonprofit organizations in fiscal year 2006. To address these objectives, GAO conducted a literature review of funding; analyzed data from several sources, including the Federal Procurement Data System--Next Generation (FPDS-NG) and the Federal Awards and Assistance Data System (FAADS); and analyzed nonprofit organizations' roles in 19 federal programs.

What GAO Found

The federal government uses a variety of funding mechanisms to achieve national priorities through partnerships with nonprofit organizations, and the relationships are sometimes complex and multidirectional. Nonprofit organizations receive federal grant and contract funds both directly and through other entities, such as states, for performing activities or providing services to particular beneficiaries. Federal funds paid to nonprofit organizations as fees for services follow a somewhat more complex path. Credit through loan and loan guarantee mechanisms facilitate nonprofit organizations' access to capital. Similarly, some tax policies result in benefits to nonprofit organizations by either reducing their costs or increasing their revenues. With direct federal grants and contracts, and with some loans and loan guarantees, federal agencies generally select the nonprofit participant, directly control the amount of funding provided, and monitor nonprofit performance. With other mechanisms, such as tax expenditures and fee-for-service programs, the federal government sets criteria for acceptable recipients but does not directly select or monitor nonprofit performance. Due to limitations and reliability concerns with tracking systems' data, the data presently collected provide an incomplete, unreliable picture of the federal government's funds reaching the nonprofit sector through various mechanisms, although they suggest these funds were significant. No central source tracks federal funds passed through an initial recipient, such as a state, and the nonprofit status of recipients was not reliably identified in FPDS-NG or FAADS. Factors contributing to data limitations include the nonprofit status of recipients being self-reported and no consistent definition of nonprofit across data systems. The development of a system to report funding through subawards, currently underway, may enable more complete estimates of funding to the sector in the future. However, until the accuracy of nonprofit status is improved, accurately determining the extent of federal funds reaching the sector is not possible, leaving policy makers without a clear understanding of the extent of funding to, and importance of, key partners in delivering federal programs and services. Funding data sources identified the following as the approximate amounts of federal funds flowing to nonprofits in 2006 under different mechanisms, although most sources did not reliably classify nonprofit status of recipients: (1) $135 billion in fee-for-service payments under Medicare; (2) $10 billion in other types of fee-for-service payments; (3) $25 billion in grants paid directly to nonprofits; (4) $10 billion paid directly to nonprofits for contracts; and (5) $55 billion in federal funds paid to nonprofits by states from two grant programs, including Medicaid. (GAO could not assess other programs.) In addition, approximately $2.5 billion in loan guarantees and $450 million in loans were issued to nonprofits, and approximately $50 billion in federal tax revenues were foregone due to tax expenditures related to nonprofits.