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Elements for an Agency to be classified as NGO and strategies used to Reduce Government funding(USA)

Non Governmental Organisations, Strategies to Reduce Government Funding and interference by NGOs, Definition od NGO, the process of budget development by nonprofit agencies, addressing typical revenue breakdowns by percentage in terms of government funding, strategies these organizations employ to decrease reliance on government funding,elemen ,Has the growth of these agencies over the past decade filled the need for resources demanded by the public, or has it created a duplication of services?

Under the United States Internal Revenue Code (26 U.S.C. • 501(c), the 501(c) is a provision that has 28 kinds of non governmental organizations that are exempted from federal government income taxes.

Section 501(c) (3) is taxation law that exempts the non governmental organizations (NGOs) from federal tax income but employment taxes are not covered. The NGOs covered under this (Section) law must satisfy certain conditions. The NGOs must be managed and prepared absolutely for the excepted purposes as set in the 501(c) (3) section and further their earnings should not end up in the pockets of individuals or private entities. The NGOs under this section are not required to participate in legislation or campaigns for political activities.

These organizations are referred to as charitable organizations and any person who benefits and has control over these organizations leads to the very person and the firm being required to pay excise duty. That means, these organizations have controlled or restricted political activities.

Budget is a management tool that is aimed at ensuring firms to make optimum use of their resources in order to achieve their objectives. Budgets aid in ensuring that the funds are efficiently used and plays the control function of the management. Budgets should be adhered to measure the performance of the management.

In the Non Governmental Organizations, the budgets are very important control tools, this is because these firms do not engage in profit making activities and they source funds are mainly from donations, government contributions and the registration fees. This means that they have to manage their funds efficiently so that their financiers have faith in them hence continue to fund them.

NGOs budget development is very important since it reflects its policies and priorities and displays the source and the use of the available funds. The success or failure of any NGO can be attributed to a poorly formulated and implemented budget. The budget development must encompass issues such as the training of the management, building accountability, formulation of the best practices and setting up of policies that must conform to the existing legal framework within their area of interest.

There are three basic principles that NGOs adhere to while coming up with their budgets. These are;
1. Outlining the budget
2. Identifying the basic sources of funds, their use and spotting any problem that can arise
3. Identify the basics control tools to ensure transparency and development.

It is of paramount importance to note that the budget development involves four main stages, these stages are;

1. Budget formulation
2. Appraisal
3. Execution or implementation
4. Evaluation of the budget.

The above stages must be followed otherwise the budgets will not achieve its objective and this will result to ruining the public perception of the NGO and the donors may lose their confidence with the Organizations. There are many challenges that arise in all the four stages and the management must be in a position to handle them . The first two stages can be very political while the last two are affected by the accountants and the management.

It is important to address typical revenue breakdowns by percentage in terms of government funding, corporate giving, individual contributions, and other forms of donations. Different NGOs have different sources of revenue and expenditure, however, the major sources of their funding are the;

o Membership fees
o Government funding
o Sales of their goods and services
o Donations from firms and
o Donations from individuals

These major sources are simply classified as governmental, private and general public funding that can be from within domestic economy or external donor. It is difficult to determine the percentage of the NGOs funding from the Government, private sector and general public since different countries have different policies just like different NGOs’ have different strategies to raise funds, however, according to survey carried by “The International Journal of Not-for-Profit Law” in 1990s revealed the NGOs in Ukraine received about 12% income from the government and this presented about 0.1% of the gross domestic product . On the other hand a survey by “Collaboration between NGOs and the Government on Humanitarian Aid” in US revealed that 30% and 13% of the NGOs funds came from government and public sector .

Due to the limited of governmental funding, there are several strategies that are used by the NGOs to reduced dependency on governmental funding. Among the commonly used strategy is diversification of resources they get by boosting their income and eventually reducing dependency of funding, because in most cases the funding comes with strings attached and is unstable. Therefore NGOs have to adapt strategies to make them financially stable. Most NGOs meet their financial obligations by engaging in business or entrepreneurial activities.

According to Lee, (2004), a children home in Brazil, Organizacao de Ajuda Fraterna and Ekocenter, an environmental organization in Yugoslavia covers their running expenses by sale of furniture and wine project respectively. Other strategies include writing proposal and presenting them to donors, organizing fund raising and finding sponsors. The challenges facing NGOs in efforts to ensure that they are financially stable include ability to have competent personnel to manage them and external obstacles like political interference.

The growth of these organizations has had little effect on the public expenditure since they normally have their own planned sources of funds apart from the government funding. Governments have used their financial muscle to fund the NGOs and therefore control their activities. Some government fund the NGOs which are eventually required to provide some services or products to the public, this is most common in cases of disasters. This means that the NGOs indirectly affect the government expenditure on public.

In cases where the NGOs are properly and effectively managed, they achieve their objectives but where corruption is deep rooted, most funds are embezzled. According to a 2001 NGO Sustainability Index carried out in Estonia, (available online), there about 14,000 NGOs that are registered and they provide services on education, culture, human rights and issues on environmental protection. These services have not duplicated the services provided by the government, but linked between the gaps left by the government .

This means that despite the NGO indirect dependence on the government funding, they play a crucial role in development but not duplication of services since they engage in activities that the government is remotely involved so as to boost the government on issues of national interest. According to John, 1993, it is the relationship between the government and the NGO that determines the NGO’s contributions to national development since it is the government that licenses and sets the legal framework that the NGOs must adhere to.


REFERENCES
* Exemption from tax on corporations, certain trusts, retrieved on 10th, September, 2008, available at http://www.law.cornell.edu/uscode/26/501(c).html

* A Guide to Budget Work for NGOs, retrieved on 10th, September, 2008, available at http://64.233.183.104/search?q=cache:U_rTSBmVN3YJ:www.internationalbudget.org/resources/guide/guide1.pdf+budget+of+NGOs&hl=en&ct=clnk&cd=1&gl=ke-

* The International Journal of Not-for-Profit Law, retrieved on 10th, September, 2008, available at http://www.icnl.org/KNOWLEDGE/ijnl/vol6iss3/art_3.htm
Collaboration between NGOs and the Government on Humanitarian Aid, retrieved on 10th, September, 2008, available at http://64.233.183.104/search?q=cache:Mflx2ZmePy4J:www.icdf.org.tw/pdf/20041016International%2520NGO%2520and%2520USAID%2520_final_.pdf+NGO+percentage+funding+by+government(US)&hl=en&ct=clnk&cd=2&gl=ke

- The Estonian NGO sector, retrieved on 10th, September, 2008, available at www.ngo.ee/orb.aw/class=file/action=preview/id=6191/J%E4tkusuutlikkuse+indeks+2001_ik.doc

* A Guide to Budget Work for NGOs, retrieved on 10th, September, 2008, available at http://64.233.183.104/search?q=cache:U_rTSBmVN3YJ:www.internationalbudget.org/resources/guide/guide1.pdf+bummmdget+of+NGOs&hl=en&ct=clnk&cd=1&gl=ke

* Collaboration between NGOs and the Government on Humanitarian Aid, retrieved on 10th, September, 2008, available at http://64.233.183.104/search?q=cache:Mflx2ZmePy4J:www.icdf.org.tw/pdf/20041016International%2520NGO%2520and%2520USAID%2520_final_.pdf+NGO+percentage+funding+by+government(US)&hl=en&ct=clnk&cd=2&gl=ke

* Exemption from tax on corporations, certain trusts, retrieved on 10th, September, 2008, available at http://www.law.cornell.edu/uscode/26/501(c).html
* ISTR Sixth International Conference, retrieved on 10th, September, 2008, available at http://atlas-conferences.com/c/a/l/l/10.htm

* John Clark, (1993), The Relationship between the State and the Voluntary Sector, retrieved on 10th, September, 2008, available at http://www.globalpolicy.org/ngos/state/relationship.htm

* Lees Davis, 2004, The NGO Entrepreneur, retrieved on 10th, September, 2008, available http://www.isar.org/pubs/ST/NGOselffunding48.html

* New Public Management and Its Impact on NGOs in Hong Kong, retrieved on 10th, September, 2008, available at http://www.istr.org/conferences/barcelona/cd/pdf/abstracts/Rong.Tian.pdf

* NGO and Government Relations, retrieved on 10th, September, 2008, available at http://64.233.183.104/search?q=cache:i5CzSfgkEskJ:www.newschool.edu/Milano/docs/Final%2520Case%2520Study%2520Repoort%2520NGO%2520and%2520Government%2520Relations.doc+impact+of

* The Estonian NGO sector, retrieved on 10th, September, 2008, available at www.ngo.ee/orb.aw/class=file/action=preview/id=6191/J%E4tkusuutlikkuse+indeks+2001_ik.doc

* The International Journal of Not-for-Profit Law, retrieved on 10th, September, 2008, available at http://www.icnl.org/KNOWLEDGE/ijnl/vol6iss3/art_3.htm


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About the author or the publisher
-International Counsel & LAW SOCIETY OF UPPER CANADA and Ghana (Barrister - Solicitor)
-BA, BS, MA, LLB, LLD, MBA & PhD
President-Founder of NPPPC in D R Congo

www.npppc.org

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