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CHAPTER FOUR VOLUNTARY SECTOR FOCUS GROUPS
Introduction
4.1 Three voluntary sector Focus Groups were held in 3 contrasting areas:-
- A remote rural area, Inverary;
- A semi-rural area, Arbroath in Angus; and
- An urban area, Clydebank.
4.2 In each instance we worked with a local Council for Voluntary Service, or its equivalent, to invite a cross section of groups to attend.
4.3 Attendance was varied and, although the invitations went to a cross section of organisations within each area, there was a degree of self selection in those who attended. About half of the attendees either knew or had heard about FCR. The others, whilst not having much knowledge of it, felt that it was something that they should learn more about. One organisation had developed its own FCR model which it used when submitting funding applications.
4.4 Given the level of knowledge of FCR, it was not surprising that the attendees tended to be from the larger small and medium sized organisations. They ranged from councils for voluntary service, through medium sized care organisations to an advocacy service. Especially in the Arbroath Group, those attending tended to be involved in more than one organisation and could often contribute views and opinions from a variety of experiences. The Inverary group was largely drawn from social enterprises. Appendix 2 lists those who attended.
The current funding regime
4.5 Many of the organisations represented in the Focus Groups were being funded by a variety of public and private bodies. In the most extreme example, a project had 40 separate funders. The picture that emerged was of funders having different criteria as to what they were willing to fund, with there being a general desire to be associated with delivery rather than management, administrative or development activities.
4.6 Given that the costs of these activities needed to be covered, organisations survived by tailoring funding applications to the requirements of funders. This involved such things as describing posts in different ways to different funders so that it was possible to draw together a cocktail of money to cover the costs of, for example, management and finance staff.
4.7 The difficulties in covering core costs meant that attempts were made to gain additional income when this was possible. For example, when submitting contracts, which some attendees did, these would be costed at a level which it was felt that the funder would be willing to accept, rather than at a level related to the true costs involved. There was also a degree of cross subsidy with those funders that were seen as being more "generous" being used to pay some of the costs that others were unwilling to cover.
4.8 There were a number of examples of Service Level Agreements in which there was no provision for inflation or salary increases. The organisational response had generally been to reduce staff costs. This had involved such strategies as cutting back staff hours or regrading. When hours were cut back it was acknowledged that clients suffered. The service might still be delivered but clients might have to wait longer to be dealt with. It was also felt that project staff tended to be exploited in that they were often unwilling to see clients suffer and so they would work longer hours than they were contracted for.
4.9 A small number of attendees generated their own income from retail outlets, donations and bequests. Whilst these tended not to be significant, as a proportion of total income, they did enable costs to be met that might not otherwise be covered by funders. Retail outlets were also seen as being a good way of engaging volunteers who might otherwise be denied involvement.
4.10 The general picture that emerged of the current funding regime was that organisations were, for the most part, adept at what one attendee described as "muddling through". This was linked to a degree of sophistication in preparing and submitting funding applications to ensure that core costs were covered.
The voluntary sector ethos
4.11 As Paragraph 4.8 made clear, when full costs were not covered there could be adverse consequences for organisations and staff. The question that this begs is why do organisations continue to provide services when it is clear that the money they are being offered will, in some instances, not even cover the direct costs of provision? The answer that came out of the Groups is what can be summarised as "the voluntary sector ethos". Essentially this is a desire to meet local needs that others either do not recognise or are unwilling to meet. This is linked to an unwillingness to see clients suffer any adverse consequences. This means that there is a great reluctance to walk away from any service, almost regardless of the financial terms offered. Indeed in the consultations with the sector only two organisations were encountered that refused to deliver a service because of the financial terms 5.
4.12 The strength of this "ethos" means that it was often felt that the sector was either taken for granted or deliberately exploited. Thus funders felt that they could exert financial pressure on voluntary organisations in the knowledge that they were unlikely to refuse to provide a service.
4.13 However, some felt that the adoption of FCR could undermine this ethos. This might come about in a number of ways. For example:-
- FCR might reduce the need to generate income. There might then be far fewer opportunities to engage volunteers thereby moving the organisation towards one that was dependent solely on salaried staff for delivery; and
- There might be a loss of independence as it was felt that if all costs were covered, especially if these were being covered by a single funder, then that funder would want to exercise a role in influencing the direction of the organisation. Independence was seen as being based on a diversity of funders and it was felt that the sector might have to accept that this came at a financial cost. Essentially those holding this view saw FCR as going hand-in hand with a loss of control.
Best value
4.14 Theoretically Best Value could be a way for the voluntary sector to differentiate itself from other service providers by being able to stress those elements that were earlier described as "the voluntary sector ethos". This was explored in the Groups. The response was invariably negative in so far as those who had any experience of Best Value had found it to be focused upon the costs of service provision with limited consideration given to the quality of the service or to the other benefits and added value that a voluntary sector provider may bring.
4.15 There was also a view that Best Value was biased against the sector in that like was not compared with like, especially when the costs of voluntary sector provision were being compared to local authority costs. Given the size of many voluntary organisations, and the fact that they were often providing niche services, some approximation of the full cost of service delivery was generally possible. However, experience was that local authority comparisons were often based on marginal costs, for example the hourly rate paid to a care worker. This invariably placed voluntary providers at an apparent disadvantage 6.
4.16 There was therefore felt to be a two-tier system: the true costs of voluntary sector provision being compared to the marginal costs of public bodies. Best Value had done little to level out this playing field. Few held out any hope that it would in the future.
What should Full Cost Recovery cover?
4.17 One of the full cost scenarios is that a list of items relevant for FCR be developed on which the sector and public funders would agree. This would then form the basis of any FCR negotiations. Given that the Focus Group attendees had considerable experience of the vagaries of funding, often over many years, time was spent identifying what, ideally, FCR should cover. It is, however, accepted that not all of these items are necessarily going to be relevant to all organisations at all times.
4.18 The following emerged as the main items:-
- Staff salary costs, covering:-
- Wages, including salaries, National Insurance and pension contributions;
- Cost of living increases;
- Incremental drift, with the argument generally being that this was justified as public employees received such increases annually and many voluntary sector staff were doing identical jobs;
- A contingency reserve to cover such unforeseen costs as maternity and sick leave;
- Insurance such as Public Liability or Professional Indemnity cover;
- Other staff costs such as:-
- Training;
- Recruitment;
- Health and Safety;
- Travel and other expenses incurred in service delivery;
- Accommodation, covering:-
- Rent;
- Rates;
- Repair and Maintenance;
- Utility costs, including water charges;
- Compliance costs such as:-
- Audit;
- Legal costs;
- Care Commission inspections;
- Disclosure Scotland checks;
- Physical and non-physical changes needed as a result of changes in legislation, for example access requirements and changes to employees' status;
- Administration costs covering:-
- Telephone, fax and postage;
- Stationery;
- Photocopier;
- CCT equipment;
- Furniture;
- Other consumables;
- Project development and governance costs:-
- Publicity and marketing;
- Strategic development and planning;
- Board meetings;
- Other Costs:-
- Bank charges;
- Depreciation on fixed assets;
- Non-staff cost inflation; and
- Building and asset insurance.
4.19 The above may be seen as a wish list. However, it was emphasised that it is simply detailing the costs that organisations currently have to find, either explicitly, from funders, or implicitly given the "grantsmanship" that many organisations have to indulge in to recover their costs.
4.20 Whilst there tended to be agreement that these were the costs that an organisation had to cover if it was to stay in business, it was felt that there were three main drawbacks to going down such a prescriptive route to FCR:-
- The difficulties in getting agreement from funders that all items on the list represented legitimate expenses that they should cover. For example, one of the case studies leased a car for its chief executive. Experience was that funders did not see this as being a cost they should cover;
- Even if it is possible to get agreement on a list of headings, there was likely to be disagreement on what was a reasonable cost, or proportion of costs, to set against each item for particular funding relationships and particular services. For example, what should staff cost of living increases be based upon? The forecast rate of inflation? The increase in local authority staff salaries? The increase in Grant Aided Expenditure that local authorities received from the Executive? Similar questions can be asked of many of the other headings; and
- It was unlikely that funders would be willing to pay above average costs that were based on governance decisions made by particular organisations. For example, one of Glasgow's Local Economic Development Companies ( LEDC) has staff costs that are higher than the LEDC norm because its board made a decision to give staff better conditions of service. Why should a funder be committed to paying these costs, simply because they represent part of the full cost equation?
4.21 It was pointed out by some attendees that, although the full costs of service provision might not always be paid directly by public funders, they often provided help in kind that was not costed. Examples given included: places on training courses; surplus equipment; and specialist advice. Some were happy to accept this and felt that FCR might put this at risk. Others felt it placed the sector in a subservient role and ideally it should not happen, with the sector being able to pay its way and not be reliant upon the vagaries of "charity".
The implementation of FCR
4.22 Most attendees felt that FCR was unlikely to be adopted. Even if the Executive were to increase its grant aid to local authorities, to compensate for the costs of implementing FCR, it was felt that it was very unlikely that the money would reach the sector.
4.23 Although most felt FCR would not be implemented, the consequences if it were adopted were explored. The benefits of FCR were seen as coming mainly to large national organisations many of whom, it was felt, had the bargaining power (because of their size and the fact that they often delivered statutory services) to be able to press for the full costs of service delivery. Indeed it was felt that many were already receiving full costs. The losers were seen as being the small to medium sized organisations that were likely to face further financial constraints.
4.24FCR might also see a move towards greater use of competitive tendering. This was seen as having the advantages of:-
- Potentially lowering costs for the public sector; and
- Avoiding the need to undertake a detailed scrutiny of costs and make a judgement as to whether these were reasonable.
4.25 The down side of competitive tendering for the sector might be that it could lose out in competition to private sector providers who might enter the market. Experience of Best Value was that arguments based on the sector's "Ethos" would be unlikely to be seen as a compensating for any price disadvantage.
4.26 A mid-way might be greater use of Service Level Agreements ( SLAs), which specify a minimum level of service and the price that will be paid for this. This could avoid the need for competitive bidding and detailed cost scrutiny. However, the experience of some attendees was that SLAs were often treated as grant funding with the emphasis being placed upon detailed cost scrutiny rather than the level of service being provided. This would need to change.
The rural dimension
4.27 The attendees from rural areas felt that FCR had a significant rural dimension. This stemmed from the view that the overhead costs in rural areas were greater than in other urban or peri-urban areas. This was seen as being especially problematic as funders often only considered an "urban model". One example of good practice in this area was the delivery of the New Deal in Argyll whereby additional resources had been given to compensate for additional delivery costs.
4.28 Key areas where expenses were seen as being greater included:-
- Travel costs, as lower population densities and spread of settlements forced providers to cover greater distances;
- Rental costs, as the lower population densities meant that appropriate properties were much less common than in other places; and
- Training costs. As specialist provision was unlikely to be available locally this often meant buying in providers or sending people to places where training was offered.
These dimensions resulted in higher overhead costs. Were these not taken account of in any FCR calculations then rural voluntary organisations felt that they might be disadvantaged.
Conclusions
4.29 The Focus Groups brought together a range of organisations that collectively had many years experience of delivering services for a range of public and private bodies that were often reluctant to pay the full costs of service delivery. Despite this, they had managed to survive and cover their costs through a mixture of grantsmanship, cross subsidy from other funders and their own resources.
4.30 Although there was interest in FCR the feeling was that, even if there were a commitment to it on the part of public service funders, it was unlikely to result in greater resources coming to them. Were there to be winners then these would be the larger organisations. The remainder of the sector would either:-
- Be squeezed out, as the public funder's response would be to look for cost savings by placing more contracts competitively; or
- Continue to "muddle through" as was current practice.
4.31FCR was therefore seen as being an ideal that was unlikely to be attained. Yet were it to be implemented then it was seen as having real dangers for the sector, ones that were likely to create divisions between the small, locally based organisations (who could suffer) and the national players who might be the winners.
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