15 May 2006

Guidance to Funders

Background

The cross cutting review of the Role of the Voluntary and Community Sector in Service Delivery recommended that Treasury publish Guidance to Funders, to clarify what is and is not permitted under Government Accounting as it applies to the voluntary and community sector (VCS).

The cross cutting review found that often there is a lack of consistency in the interpretation of Government Accounting Rules, and a widespread perception that so-called “Treasury rules” are inflexible.

The Government realises that getting the funding relationship right is increasingly important if the financial stability of service delivery organisations is to be assured, and if government can look confidently to the voluntary and community sector to deliver services.

Improving Financial Relationships with the Third Sector: Guidance to Funders and Purchasers

The guidance is intended to help government departments, non-departmental public bodies (NDPBs), other funding bodies themselves distributing public money to the third sector. It will also be of interest to the third sector, who as recipients of funding, can be able to better understand the considerations that funding bodies need to bear in mind during the funding process.
The document addresses four specific issues:

Stability in the funding relationship: moving from one year funding to longer-term funding arrangements where appropriate.
Timing of payments and the balance of risk: recognising that payment in arrears often results in the third sector bearing the upfront costs of borrowing and the risks that this entails;
Full cost recovery: ensuring that funding bodies recognise that it is legitimate for third sector organisations to recover the appropriate level of overhead costs associated with the provision of a particular service; and
Reducing the burden of bureaucracy: streamlining access and performance management requirements for multiple, and often very small, funding streams.

Documents

PDF file of Improving Financial Relationships with the Third Sector: Guidance to Funders and Purchasers (757KB) May 2006 (ISBN: 978-1-84532-175-8)
PDF file of A summary guide: Improving financial relationships with the Third Sector: Guidance to Funders and Purchasers (137KB) May 2006

Financial relationships with third sector organisations

This above guidance can also be used alongside ‘Financial relationships with third sector organisations: a decision support tool for public bodies in England’ developed by the National Audit Office (May 2006). This decision support tool (DST) provides practical support for ‘real-life’ decisions about the design of appropriate funding models. The tool is web-based and available through the NAO website.

Compact Working Group consultation on the Compact Funding Code of Good Practice

In addition to Guidance to Funders, there is a series of other guidance produced both by Government and by the voluntary and community sector (or representatives there of). One of these is the Compact Funding Code of Good Practice.

The Compact Working Group, the body which takes forward the Compact in the voluntary and community sector, issued a draft new version of the Compact Funding Code on 3 November 2003. For more information, see the Compact Working Group website , or contact Carol Osbourne.

Launched in 1998, the Compact aims to provide a framework for partnership relations between government and the voluntary and community sector. Over the past five years, five good practice codes on volunteering; consultation; black and minority ethnic community organisations; funding; and community groups have been developed.