After audit found lax oversight of Richmond’s grants to nonprofits, the city will now call them gifts

In response to an audit that criticized City Hall for having a sloppy process for giving public funds to charitable organizations, city officials say they’re going to stop calling the payments grants and instead treat them as donations with fewer strings attached.

At a meeting of the city’s Audit Committee Tuesday, Interim Chief Administrative Officer Sabrina Joy-Hogg came equipped with a legal opinion from the city attorney’s office declaring that — in the eyes of the law — the payments should be considered “gifts or donations” from the city.

“We were calling them grants when we really shouldn’t have, honestly,” Joy-Hogg told the committee, which is made up of residents and City Council members and focuses on oversight of city government.

It’s not yet clear what the change in terminology might mean going forward. Grant funding often comes with clearly defined rules about how it can be used, while donations are a more open-ended form of financial support. 

Though state law doesn’t require contracts for the use of donated public funds, Joy-Hogg said, the city still intends to have some type of written contract laying out how its charitable donations can be used by recipients.

After hearing Joy-Hogg’s response, City Auditor Riad Ali said it was “important to note” that the city should keep tabs on the money no matter how it’s labeled.

“Whether you call them grants or contracts, you have to monitor it,” he said. “That’s not going to take away our recommendation. We’re giving away a certain amount of money… Monitoring is still necessary for us to ensure that the money is being used accurately and appropriately.”

Each year, the city invites local nonprofits to apply for city money that can be used for a variety of charitable services ranging from youth programs to housing assistance to arts and culture initiatives. 

Officials have said that funding helps provide services the city can’t provide on its own, but it has come under scrutiny after the recent audit report said the city has opened the door to abuse through seemingly arbitrary funding decisions and weak oversight of where the money goes.

The move to give the funding a new label in the budget being prepared by Mayor Danny Avula also suggests the city isn’t planning a rapid overhaul of the process that could force local nonprofits to follow more rigorous rules to receive the same kind of money they got in the past.

Joy-Hogg said a “total revamp” of the program is being discussed, but would likely take two years to complete. 

For now, she said, treating the funding as donations will free the city from “grant monitoring” it never had the staffing to do. 

“When you attach the word grant to it, there is a process, there’s an application, there’s a review body. There’s a whole host of things that go along with it,” Joy-Hogg said. “The administration is not set up to handle grants on this level.”

Joy-Hogg said the city’s total amount of funding to nonprofits and the number of groups being funded have both “gone up a lot” with no equivalent staffing increase to manage the city’s growing role as a funder of local nonprofits.

In its recent look at the city’s nonprofit grant process, the auditor’s office found major problems.

The report issued last month found the city had given nearly $1.5 million to nonprofit groups that didn’t meet the city’s own application criteria to receive taxpayer funding, while denying funding to groups that met the criteria. Each application was scored based on the group’s ability to deliver services aligned with the city’s priorities. But the scores weren’t binding, the audit found, enabling city officials to award money to low-scoring groups they deemed worthy without a strictly objective process.

The city awarded $1.45 million to 15 groups that “did not meet the published scoring criteria or deadlines noted in the application packet,” the audit report said. Another 34 organizations that met the criteria that year were denied $2.37 million they had applied for.

The audit — which covered fiscal year 2023 — also found the city wasn’t diligently following up with those groups to track how the money was used and what services the city was getting in return. 

The loosely run program, Deputy City Auditor Bret Lewis said at Tuesday’s meeting, raised concerns city funding was at risk of “fraudulent use.”

Joy-Hogg indicated the city would still be monitoring the money. But the monitoring process, she added, also needs to be “refined.”

“In the other previous locality I worked in, we didn’t call them grants,” she said. “And we wrote a contract. And the performance monitoring was not as robust as here.”

Pre-budget application deadlines can only be so strict, Joy-Hogg said, if the City Council and the mayor can still choose to budget money for groups they feel are doing important work.

Several Audit Committee members said they didn’t fully understand why the city came up with the system it’s been using.

Member Don Cowles asked why the city was going through the motions of an open application process if it already has a firm idea about which nonprofits it wants to partner with in every budget cycle. He said he’s glad the city is rethinking its strategy, “because this doesn’t make any sense to me at all.”