The CEO and CFO: A Partnership Forged in Finance, Driven by Strategy

In the nonprofit world, funding is everything, but it’s not always fair or efficient. This post highlights a common reimbursement issue that drives up costs, sidelines grassroots organizations, and prevents dollars from reaching the people doing the real work.

A Tale of Two Workshops

Company A receives a grant to provide community-based education. That grant allows them to hire Company B to deliver the program for $1,000 per day. The full amount is reimbursed by the grantor.

Company B, meanwhile, is also a grantee. But when it uses its own staff to deliver the exact same service, only $100 is approved for reimbursement. The $700 in salaries and benefits required to run the workshop is considered “ineligible.” Only physical supplies are reimbursable.

Same service. Higher cost. Different rules.

Why This Happens

Most of the time, it’s not bad intent. It’s outdated design.

Many reimbursement models were built around a time when external consultants were the gold standard. Funders prioritized outsourcing over internal capacity. Training, technical assistance, and facilitation were seen as services that should be hired in, not developed internally.

Meanwhile, operating costs, even when directly tied to program delivery, were tucked into a separate, often restricted, funding category.

Add in compliance-focused systems that favor large institutions with back-office infrastructure, and you get a system that rewards subcontracting and penalizes sustainability.

How This Hurts Community Organizations

When organizations are pushed to subcontract, costs typically go up per participant served. Contractors charge more to cover their own overhead and risk. Meanwhile, many grants allow grantees to claim 10 percent of total costs as administrative overhead.

Let’s return to our example.

Scenario A: Company A hires Company B

• Company B delivers the service for $1,000
• Company A receives $100 in admin overhead
• Total cost to the grantor: $1,100

Scenario B: Company B delivers the service with its own staff

• $700 in salaries and benefits
• $100 in supplies
• $80 in admin costs
• Total needed: $880
• Total allowed by the grantor: $110

Company B provides the same service in both scenarios, but under current rules, the grantor spends $1,100 in the first case and only allows $110 in the second. This is not only inefficient, it prevents Company B from delivering services sustainably.

You might wonder, why wouldn’t Company B just take the $1,000 contract? The answer is that subcontracting often depends on established relationships. Company A may not be actively looking to subcontract, and Company B rarely has the time or resources to find and pitch intermediary partners.

So, Company B is stuck, underpaid or left out entirely.

Why This Matters

This is not just an accounting flaw. It affects:

• Funders, who want to stretch limited dollars
• Nonprofits, who need stable, equitable funding
• Communities, who rely on consistent, high-quality services

Outdated reimbursement rules waste money, hurt frontline organizations, and create unnecessary barriers to impact.

How Inequitable Reimbursement Policies Hurt Small Nonprofits

This model reinforces inequity across the sector. It disproportionately affects:

• Community-based organizations
• BIPOC-led nonprofits
• Grassroots teams without large administrative departments

These groups are often asked to “partner” on projects, but they aren’t given equitable reimbursement for their staff time, effort, or expertise. They’re treated as implementers rather than equals.

That is not collaboration. It is exploitation.

Recommendations for Funders and Nonprofit Leaders

We need to rethink how we fund impact.

For funders:

• Reevaluate reimbursement policies. If a service is reimbursable through a contractor, it should also be reimbursable through internal staff.
• Fund salaries and benefits when they are clearly tied to service delivery. This labor creates the actual impact.
• Trust grantees to decide how best to deliver services. Invest in their ability to build capacity internally if they choose.

For nonprofits:

• Track and share the cost difference between subcontracted services and in-house delivery.
• Be transparent about the limitations of current models.
• Advocate for changes in how reimbursements are structured and classified.

If $1,000 a day for a contractor is acceptable, then $800 a day for your own staff should be a smarter and more sustainable investment.

Closing Thoughts

Reimbursement models should reward impact, not inefficiency. They should support capacity building, not dependency. And they should value the people doing the work, not just those submitting the invoices.

We can do better. We must do better.

Because when dollars are tight and needs are high, we cannot afford to waste money or talent.