The terms blending and braiding are frequently used, often together, and generally with little definition. However, they refer to two very different approaches to fiscal coordination. Blending funding involves co-mingling the funds into one “pot” where case managers can draw down service dollars, personnel expenses can be paid, or other program needs can be met. In contrast, braided funding involves multiple funding streams used to pay for all of the services needed by a given population, with careful accounting of how every dollar from each funding stream is spent.
When funding is blended, it goes into the “pot” and when it is pulled back out to pay for an expense, there is no means for the fiscal manager to report which funding stream paid for exactly which expense.
Blending funding is politically challenging. Some funding streams cannot be blended. Other funding streams will require the funder to allow an exception to how the reporting normally functions. Instead of usual reporting, funders can opt to accept reports on services and outcomes across the population being served rather than exactly which children, youth, and families received services with their dollars. To blend your funding, you will need to work closely with your funders and ensure you can meet their reporting requirements.
Though it is politically challenging, once your funders are on board, blended funding is less challenging to implement than braided funding. There is significantly less workload, as the tracking and accountability happens across all funding streams. Rather than reporting to funders on their funding stream alone, reporting is done on how the collective funds are used. Blended funding can allow you to pay for services that may not be allowable with more categorical funding approaches. However, for many funders, the flexibility associated with blending makes it seem too risky as it often looks like supplanting, and they end up with less detailed information about how each of their dollars have been spent. For this reason, many funders are only willing to only contribute small amounts, if any, to a blended model.
Blending can be very beneficial for both your program and your funder. Imagine being able to report to your funder that your program costs $1,000 per youth on average, and, because of blended funding, the $25,000 they provided allowed the program to serve 50 youth eligible for their funding stream. With blending, this is the type of reporting that is possible: cost per person served, the number served who are eligible for each funding stream, outcomes for all people served and how blending multiple funding streams allowed more people to be served.
The diagram below shows how blended funding can allow for more kids or families to be served than each funder could have served alone. If a program costs $1,000 per kid served and 100 kids are served, it needs a budget of $100,000 to be successful. Imagine the following funding scenario:
- Funding Stream A: Eligible population is youth ages 15 – 18, at risk of suspension or expulsion.
- Funding Stream B: Eligible population is youth ages 12 – 18, involved with child welfare.
- Funding Stream C: Eligible population is youth under the age of 19 with families making less than $75,000 per year.
The actual population served is 100 youth between the ages of 15 and 18 whose families meet the income requirement of Funding Stream C. Among those 100 youth, 20 are at risk of suspension or expulsion, 40 are involved with child welfare, and 10 are both at risk of suspension or expulsion and involved with child welfare. This means all youth are eligible for multiple programs, as they are all eligible for Funding Stream C and 10 youth are eligible for both A and B as well:
- 30 youth are eligible for Funding Stream A (20 youth are at risk and another 10 are at risk and involved with child welfare);
- 50 youth are eligible for Funding Stream B (40 are involved with child welfare and 10 are at risk and involved with child welfare); and
- 100 youth are eligible for Funding Stream C (all youth are under the age 19 in families that meet the income requirements).
Now, let’s explore how the $100,000 in funding across three funding streams can support this program.
In this scenario, as is generally true with blended funding, all of the funders benefit by having more eligible youth served than their funding stream alone can support. With a case rate of $1,000 per youth served:
- Funding Stream A is paying for 25 youth to be served, but 30 youth eligible for the funding stream will receive services.
- Funding Stream B is paying for 25 youth to be served, but 50 kids who are eligible for the funding stream will receive services.
- Funding Stream C is paying for 50 kids to be served, but 100 kids who are eligible for the funding stream will receive services.
Document the cost of providing services
To prepare for a blended funding model, you must be able to demonstrate the cost of providing services. In essence, you are creating the “case rate” for providing the set of services you are offering in your program. That case rate lets your funders know what to expect from the funding they provide. Similar to negotiating an indirect rate, the basis for the case rate comes from your existing accounting information. However, unlike an indirect rate, the case rate is also tied to the capacity of your staff to provide services – how many youth, families, etc. they can serve in a given time period – and the length of time most of your clients stay in your program.
For the example program, if it is a predefined service of 10 weeks, the $1,000 might support the staff working with the youth for the 10 weeks, the stipends for youth participation and the cost of food or activities. It might also support 15% of the total budget that goes toward indirect expenses.
By knowing the case rate of your services, you can assure your funder that you are not supplanting another funding stream with their funding. Instead, you are expanding the capacity of your program to serve additional youth. A typical blended funding contract or grant will clearly articulate the number of additional youth/families/etc. who will be served as a result of the added funding.
Additionally, once you know the case rate for your services, you can also open your doors to any organization with funding who has a client who could benefit from your services. Using the example program, perhaps there is a youth from a family making over $75,000, who doesn’t meet the qualifications for the funding streams supporting the program, but is behaving in ways that suggest he needs the services. By knowing it costs $1,000 to serve the youth, the program can contract with the referring organization to provide the service instead of turning the youth away due to lack of eligibility.
Track the eligibility of all participants in your program for all funding streams supporting your program
If you have multiple funding sources covering all of the clients in your program, it is critical to assess the eligibility of every client served for every funding stream. This is part of how you will be able to report the leveraging of funds to your funders. It will also prepare you to return to the funder to ask for more funding if their eligibility covers a larger portion of the population served than their funding is supporting.
For example, imagine the program described above stopped tracking family income after 50 youth with eligible income are served. Each year, the program could tell Funder C that it served enough youth given the funding provided. But what happens if Funder A pulls out their $25,000? The program would need data indicating that the 25 kids it can no longer serve are also eligible for Funding Stream C so the program can return to that funder with justification for asking for increased funding.
It is important to remember that youth who are eligible for two funding streams are not being served twice. In the example above, a youth eligible for funding stream C costs $1,000 to serve. A youth eligible for both funding streams A and C still costs only $1,000 to serve. No double dipping is occurring. Rather, the program as a whole is able to serve more youth eligible for each funding stream than could occur if separate programs were developed for each funding stream.
Measure the outcomes of your services
In a traditional model, a funder knows exactly where their money went and can feel good about the detailed services provided to a clearly defined set of clients. In a blended model, the funder loses that “widget counting” level of detail. By evaluating outcomes of your program, you are replacing the “widgets” with equally hard data, as well as providing data that helps the funder to understand what their funding accomplished, not just what their funding paid for.
If you currently lack the types of cost data described above or have no mechanisms in place to track outcomes, you may want to start with a braided funding model and transition to a blended model as you collect and analyze your costs, build improved relationships with funders, clearly identify your eligible populations and start assessing the outcomes of your services.
The term braiding is used because multiple funding streams are initially separate, brought together to pay for more than any one funding stream can support, and then carefully pulled back apart to report to funders on how the money was spent.
Braided funding is often the only option. Federal funding streams require careful tracking of staff time and expenses to ensure that a federal funding stream only pays for those things directly associated with the intent of the funding. Consequently, when multiple funding streams are paying for a single program or system, the system will need to be carefully designed to allow for sufficient reporting to ensure each funding stream is only paying for activities eligible under that funding stream.
Braided funding requires significant effort to create systems for tracking how funding is used. The design of a braided funding system that can respond to the individualized needs of many types of clients will require staff with the authority to decide which services will be paid for by which funding streams. Ideally, this decision happens after the needs of the individual or family being served are identified so the funding does not drive the services being provided. This type of braided model requires a clear understanding of the eligible populations and the eligible services so decisions on how to fund the services can be made post-hoc, rather than prior to discussing service needs with the families.
The design of a braided funding program is simpler than the design of a braided funding system. Programs typically have clearly-defined services that are provided and sometimes have very defined populations who are eligible for services.
Braided funding could be used for the youth program in the same scenario as the blended funding example, but instead of reporting to your funder that your program costs $1,000 on average, you will be reporting to the funder exactly what you spent their money on. Using the earlier funding scenario in which:
- Funding Stream A: Eligible population is youth ages 15 – 18, at risk of suspension or expulsion. Funding can be used for Service 1 only.
- Funding Stream B: Eligible population is youth ages 12 – 18, involved with child welfare. Funding can be used for Service 3 only.
- Funding Stream C: Eligible population is youth under the age of 19 with families making less than $75,000 per year. Funding can be used for Services 1, 2, or 3.
Imagine a youth arrives at the program and the front door staff determine she is eligible for Funding Streams A and C. This means any of the three services can be provided. The youth is allowed into the program and her case file documents the allowable services (1, 2, and 3).
As the youth is served, the back door staff bill the appropriate funding streams for the services. Although all of the services could be billed to Funding Stream C, the fiscal officer decides to bill Service 1 to Funding Stream A, to ensure spend-down of the less flexible funding stream. For all of the youth in this program, the financial officer responsible for the allocation of youth to funding streams would have the ability to choose the funding stream that will pay for the time and resources spent delivering services to the youth. The fiscal officer would start with the more restrictive funding streams (A and B) and allocate expenses for eligible youth to those funding streams until they are fully expended. What the fiscal officer is actually doing in allocating expenses to funding streams is creating an alternative to time and effort reporting. For more information about time and effort reporting and alternative ways of tracking personnel time, see the OMB Circular A-87.
In this scenario, as is generally true with braided funding, all of the funders benefit by having more services provided to the eligible youth than their funding stream is supporting.
Know exactly what each funding stream can and cannot pay for
A braided model may be primarily necessary due to limits on eligible populations across your various funding streams. It may be that it is necessary due to limits on types of services you can provide under certain funding streams. It is likely that your braided model is a combination of both of these issues. Before spending any of your funding, it is important to develop a coordinated financing plan that distributes funding appropriately by funding stream.
Know the reporting and auditing requirements of each funding stream
A braided funding model can also be necessary even when you have funding streams equally eligible to pay for all the services you are providing to all the clients you are serving. Federal requirements for cost allocation can make it very difficult, if not impossible, to use a blended funding model. For more information about using federal funding see Summary of OMB Circular A-87.
To understand audit requirements, take the time to meet with auditors prior to spending any of the funding. Often, program managers are the only point of contact between a grantee and the funder. However, the contract manager or auditor can be a critical resource to your community as you develop braided and blended models. Not only do you need to ensure the approach you’re designing meets the expectations programmatically (from your program officer), you need to know it will pass muster fiscally (from your contract manager or auditor).
Develop decision-making systems if some populations you serve will not be eligible for all services due to funding limitation
A braided funding model needs very clearly defined decision-making authority and systems. You will need to clearly define what populations are eligible for services through your model and make sure the Front Door of your program knows the eligibility. When a family or individual enters through the Front Door, the staff assigned to that part of your system need to be vested with the authority to determine whether services can be provided.
A second stage of decision-making needs to be associated with the services that can be provided. Ideally, you have identified a sufficient number of funding streams with enough flexibility that any eligible family or individual is eligible for any service provided through your program or system. However, it may be that some services are limited to some populations you are serving. Your programmatic staff responsible for working with families and their natural supports to develop a case plan must be vested with the authority to allocate services and need sufficient information to understand if there are limitations on who can receive specific services.
The last stage of decision-making is the financial component, which should occur at the Back Door, not the Front Door. After services are provided, you need financial staff who can take responsibility for assigning the funding streams that will cover the costs. If your Front Door is well designed, your Back Door will never run into a situation where a service has been provided that cannot be paid for.
Develop tracking systems that allow you to account for how every dollar is spent, including things like personnel time and supplies
If you are using any federal funding, you will most likely need detailed time and effort reporting by all personnel and contractors. Ideally, your system will not ask your personnel to allocate their time to funding streams, but rather it will request that they allocate their time to activities. Then, your fiscal staff can determine which funding stream is appropriate and needs to be spent down at any given time. This ensures that fiscal braiding is occurring, not simply braiding of programs. To understand the difference between fiscal braiding and programmatic braiding, read the two case studies at the end of this chapter. Tracking systems will need to include:
- Eligibility of the families and individuals you’re serving;
- Decisions made regarding eligibility, services to be provided, and funding streams to pay for the services;
- Time and effort reporting for staff, tied to the allowable activities under each funding stream;
- Expense logs associated with staff time and activities or services being delivered, which can be used to justify the expenses allocated to each grant; and
- Anything else you, your funder and auditor and your fiscal staff identify as necessary.
The most important thing to remember with braiding is that each of your funding streams will retain their original requirements and expectations, including all of the tracking and reporting. You must manage your funds as if they are independent, even if you are using them collectively to support a coordinated package of services to shared clients.
Most non-profits are already doing braiding, but it is more accurately described as programmatic braiding, not fiscal braiding. Programmatic braiding is when you have multiple funding streams, each covering particular populations and services. The funding is largely used to pay for staff time and each staff person is responsible for keeping a timesheet that allows them to allocate their time to each grant. For example, a mentoring program supported with two funding streams might require your staff person to track time spent with Spanish-speaking youth and recruiting Spanish-speaking mentors (Funding Stream A) and to separately track time spent recruiting and supporting other mentors and youth (Funding Stream B). When an activity benefits both groups, such as organizing a social event for mentors and youth, the staff person might allocate one hour to one grant and one hour to the other.
This is programmatic braiding: the program staff make decisions on how to allocate funding by using their own time and effort reporting. In contrast, fiscal braiding would require program staff to report enough information on their activities for fiscal staff to allocate their hours, allowing flexibility in which funding streams are used and how quickly each funding stream is spent down. Fiscal braiding also allows greater flexibility in how funding is used, such as contracting out for a service that cannot be provided in-house. The term braiding is used throughout this guide. Unless noted otherwise, this refers specifically to fiscal braiding.