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CHAPTER THREE HOW WAS THE FUNDING ALLOCATED AND MANAGED?

Introduction

3.1 This section examines the process by which funding from the Futurebuilders Programme was allocated, the interest and demand that it generated, and the arrangements for managing the portfolio of grant awards.

Implementation Arrangements

3.2 In advance of its launch, the Scottish Executive consulted with the sector and its representatives on the proposals for Futurebuilders. Sector representatives have reported this as a welcome and inclusive process, and that the views of the sector were listened to, and largely heard.

3.3 An implementation model was introduced within a short timeframe, on the basis of the earlier consultation, and incorporated three distinct approaches to dispersing and managing the separate Funds. These included:

• Direct competitive funding - three open competitive grant funds:
  • the Investment Fund was managed and administered by the Social Economy Unit
  • the Seedcorn Fund was managed at a national level by the Social Economy Unit and administered locally by the Communities Scotland Area Offices ²⁰
  • the Learning Fund was managed and administered by the Social Economy Unit;
• Award partner funding - working through an established grant-giving organisation, Scotland UnLtd, to make awards on an open and competitive basis from the Social Entrepreneurs Fund; and
• Partnership funding - Support Programme projects, and some Learning Fund projects, were developed and co-financed by the Social Economy Unit in collaboration with sector intermediaries ²¹.

3.4 The above implementation arrangements might be regarded as overly complex for disbursement of a relatively modest funding programme totalling £18m. However, as a high-profile demonstration programme these arrangements allowed Futurebuilders to progress multiple objectives, meet a variety of needs, and test various approaches.

Promotion and Outreach

3.5 The various strands of Futurebuilders were initiated in late 2004 in a flurry of activity. There was much pre-existing interest on the part of the social economy sector and its representatives.

3.6 There is a sense that, from the outset, Futurebuilders has been burdened by the weight of expectations. Intermediary organisations have highlighted as significant the lengthy period of discussion and consultation prior to launch, and the expectations and misconceptions that built up within the sector during that period.

3.7 Feedback to the Interim Surveys shows that applicants found their way to Futurebuilders through a wide range of sources, both verbal and written. This reflects the importance of:

• central information and guidance through the central Communities Scotland Website;
• targeted and localised outreach, publicity, and promotional events through Area Offices and sector intermediary organisations; and
• the 'word of mouth' and communications that spread through the various support networks within the social economy sector.

3.8 The initial information provided was generally sufficient for applicants to judge the appropriateness of Futurebuilders funding to their needs. Across Investment, Seedcorn, and Learning Funds, this was judged to be the case by 93-96% of successful applicants that responded to the Interim Surveys.

3.9 The Social Entrepreneurs Fund also benefited from being integrated into a tried and tested Small Grants Programme (UnLtd Level 1 awards). This meant that publicity, relationships, and word of mouth already existed within the social economy sector in relation to this funding stream.

Application Processes

3.10 Futurebuilders involved parallel application processes for each separate funding stream.

3.11 Seedcorn and Investment Fund applications were invited through two main funding windows (ending March 2005 and August 2005) with a third restricted funding window open to Seedcorn projects in the latter part of the programme. The applications to the Learning Fund and Social Entrepreneurs Fund were invited on an open and continuous basis.

3.12 The initial funding window proved somewhat challenging for the Seedcorn and Investment Funds. Social Economy Unit staff have acknowledged that processes and materials were introduced hurriedly, were new to Communities Scotland, and were being tested for the first time.

3.13 With applicants reporting some confusion on the distinction between Funds and the detailed eligibility criteria, guidance was revised and priorities and eligibility more clearly communicated for Round Two. This represents willingness on the part of the Social Economy Unit and Area Offices to listen and respond flexibly to challenges as they arose.

3.14 Once applicants had navigated their way to the relevant funding stream, applications were made by way of a standardised application form for each of the Funds. Feedback to the Interim Surveys has revealed no significant difficulties completing and submitting these application forms.

3.15 By contrast the Support Programme did not adopt a competitive application process, but did seek to ensure a strategic and collaborative approach. Proposals were developed by intermediaries to address gaps in the support available to the sector. Where possible, project activity was funded jointly with the EQUAL Strengthening the Social Economy Partnership ²².

The Demand for Funding

3.16 Interest in, and demand for, Futurebuilders Scotland funding came early and was significant.

3.17 This demand was evident across each of the competitively allocated Funds and was greatest in relation to the Investment Fund. While consistently available information is not available on the total value of bids for all of the Funds, the available figures show that:

• the Investment Fund was heavily oversubscribed with 295 applications received, almost four times as many as could be funded;
• the Seedcorn Fund brought forward a high number of applications (502), almost twice as many as could be supported;
• the Learning Fund also received more than twice as many applications (335) as could be funded with available resources; and
• the Social Entrepreneurs Fund reported high and ongoing demand that had already been present through the UnLtd awards programme.

3.18 The highest number of applications came from Glasgow and the central belt of Scotland, although strong demand was evident across both urban and rural Scotland.

3.19 Overall, Futurebuilders tapped into strong latent demand for investment. The Interim Survey results showed that across the Seedcorn and Investment Fund, 95% of successful applicants had pre-existing proposals that were perceived to be well fitted to the objectives of Futurebuilders, and which had not been funded elsewhere.

3.20 The high levels of demand put particular pressure on the Social Economy Unit and Area Office staff responsible for the Funds. Staff have reported a substantial administrative burden. In part, this contributed to the difficulties and delays (particularly in Round One) that were experienced by applicants in securing project approval. These difficulties and delays were reported by 29% of Investment Fund beneficiaries and 22% of Seedcorn Fund beneficiaries.

3.21 Although not subject to as a high a level of demand, the Learning Fund and Social Entrepreneurs Fund avoided 'bottlenecks' in the process and were able to smooth demand by inviting applications on an open and continuous basis. Despite some inefficiencies in the processing of applications (which were later addressed), the Learning Fund generated a steady and manageable flow of applications (on average 17 each month).

Project Appraisal and Selection

3.22 The high number of applications and the competition for funding meant that it was important to ensure the robust appraisal and prioritisation of bids.

3.23 Applications to each of the three main Funds were assessed by Communities Scotland staff, on the basis of written submissions, and in line with an agreed scoring framework. The small grant applications to the Social Entrepreneurs Fund were assessed by Scotland UnLtd from a short application form and from a meeting with the applicant.

3.24 The Investment Fund assessment process was more rigorous and arduous, involving a second stage visit and the financial appraisal of business plans. According to the Interim Survey, around one in five applicants found difficulty in producing a sufficiently detailed and acceptable business plan.

3.25 Across the Communities Scotland administered Funds the selection of projects was influenced by factors other the quality of proposals. The Fund Guidance indicated that as a demonstration programme it was important to ensure a geographic and thematic spread of approved projects.

3.26 The appraisal of applications relied heavily on the judgement of Communities Scotland staff, developed through the delivery of other grant funding programmes ( e.g. the Wider Role Fund). Additional expertise was brought into the Social Economy Unit by way of the secondment of staff for the appraisal of Investment Fund Projects.

3.27 However, the decision-making process did not draw on the expertise of a grants assessment panel. This is common practice in many grant-making schemes and allows the opportunity for expert review and collective input to the grants assessment process. It should be noted, however, that the limited time available to manage the application/ appraisal did not lend itself to the set up of advisory group arrangements.

3.28 During the process there was a partly unsuccessful attempt to secure the input of LSEPs ²³. This proved problematic as: LSEPs were in their formative stages and unable to provide a coherent view on the fit of applications with local priorities; and conflicts of interest arose where LSEP members were asked to comment on the applications of peers or competitors.

3.29 It is also important to note that decisions were made on a project-by-project basis. This meant that organisations were able to receive funding from more than one Futurebuilders fund. Irrespective of the number of applicants that received multiple or related grants, this meant that awards were made without a holistic assessment of the needs of each applicant and the package of investment, training and support that might be most beneficial.

3.30 Despite its flaws, there was widespread satisfaction among applicants regarding the decision-making process. Around 95% of applicants that received a grant through the Communities Scotland administered Funds found this process 'clear, appropriate, and fair'.

3.31 As we might expect, dissatisfaction was more pronounced on the part of unsuccessful applicants (especially in relation to the Seedcorn Fund). Feedback to the Interim Survey highlighted particular concerns regarding the clarity and transparency of the process. In light of these concerns application guidance was strengthened after the initial funding round.

Funding Decisions

3.32 The high level of demand and stringent prioritisation of bids meant that there were losers as well as winners in the Futurebuilders funding competition.

3.33 In all, 673 of the 1,132 applications to the three Communities Scotland administered Funds went on to receive approval ²⁴. The figures in Table 3.1 highlight the particular pressure on the Investment Fund, where the sheer weight of applications meant that funding was only available for a significant minority of applicants.

Table 3.1: The Outcomes of Futurebuilders Funding Decisions

Source: Social Economy Unit
* Includes a small element of double-counting where applicants submitted similar applications to different Funds or resubmitted unsuccessful applications to different Funds
** Includes a small number of ineligible or withdrawn applications

3.34 The reasons for rejecting applications have varied across and within Funds. A review of funding decisions by EKOS points to a number of relatively common reasons for rejection:

• an inability to articulate an impact on public service areas consistent with one or more of the Closing the Opportunity Gap Objectives;
• a failure to demonstrate the contribution of planned activities to increased trading, contracts, and financial sustainability;
• a failure to demonstrate the additionality of investment or its potential to create a step change for applicants; and
• concerns regarding the ability of the applicant to deliver, or benefit fully from, the proposed activity.

3.35 With tighter eligibility criteria and clearer guidance at the outset, the number of ineligible or low scoring applications might have been reduced somewhat; thereby reducing the ultimately unproductive effort on the part of applicants and assessors. In any funding programme, however, speculative applications on the part of applicants are always to be expected.

3.36 In the case of the Investment Fund, revised guidance introduced after the first funding window seems to have contributed to fewer applications (24% less) and more relevant applications for Round Two. The use of a two-stage application process also meant that the vast majority of unsuccessful applications (94% of them) were identified during the initial appraisal.

3.37 The large number of applications rejected implies a high level of unsatisfied demand for investment funding in the social economy; although it should be noted that not all applications were of a high quality or consistent with funding priorities.

3.38 The high rejection rate (and the dissatisfaction noted) also highlights the need to carefully manage the expectations of applicants. Staff responsible for Futurebuilders reported that, where appropriate, unsuccessful applicants were invited to modify and resubmit applications or, where possible, were redirected to alternative funding sources.

Grant Management

3.39 The Futurebuilders Funds, and the portfolio of project activity arising from them, were managed in various ways.

3.40 The Social Entrepreneurs Fund was managed independently of government by Scotland UnLtd. It was managed using tried and tested grant-making systems that were developed to administer the UnLtd Millenium Awards scheme. This appears to have been effective and no significant issues arose in the EKOS survey of beneficiaries.

3.41 The grant management of the three main Futurebuilders Funds by Communities Scotland proved more challenging.

3.42 Financial management of the Seedcorn and Investment Fund grants has been straightforward, with no major difficulties reported. Learning Fund payments did prove somewhat problematic, however, as grant funding could be released to applicants only on receipt of an invoice from the training provider. This created delays and impacted adversely on the cash flow of one key training provider (this situation was later rectified by the Social Economy Unit).

3.43 The management of grant/applicant information has been overly complicated. No single or unified management information system was put in place to drive Futurebuilders. As a result, various systems were used:

• the Government's TRS grant management system was used well from the outset to administer awards and payment information;
• a custom-built database to manage applicant/project information was introduced later by the Social Economy Unit, with limited consultation with Area Offices, but was not subsequently fully used; and
• various localised database and spreadsheet systems were also maintained by Area Offices which captured information in different ways.

3.44 Likewise, project monitoring and aftercare arrangements have varied. A robust Monitoring Framework was not introduced and enforced at the outset, meaning that it was not possible to gather specific, measurable or uniform information on project outputs/outcomes. The approach and staff capacity of Area Offices also varied, meaning that the level/scope of project monitoring and aftercare has varied significantly between the Funds and across Offices.

3.45 The complications made it difficult to manage Futurebuilders as a coherent programme of activity, and to monitor its ongoing performance. This situation resulted from two main factors:

• the complexity of the new funding streams and management roles introduced, particularly in relation to the Seedcorn Fund; and
• the speed at which Futurebuilders was introduced, which meant that grant management/monitoring systems evolved over time as the programme progressed.

3.46 It is also important to note that Futurebuilders was introduced at the same time as the formation of the Social Economy Unit itself took place and at a demanding time for the emerging Community Regeneration Teams ²⁵ within the Area Offices. This meant that there were varying levels of staff resources and experience on which to draw, both centrally and locally.

3.47 Any complications and tensions which arose during the management of Futurebuilders therefore owed much to the circumstances at the time and to the evolving systems that were introduced. Although this proved a steep learning curve, it has resulted in the development of a growing body of expertise within Communities Scotland.

Management of Seedcorn ESF Global Grants

3.48 The matching of ESF Global Grants funding with the Seedcorn Fund offered an additional funding source for small social enterprises. However it also resulted in extra management responsibility for the Social Economy Unit, and additional administration/development tasks for the Area Offices.

3.49 The purpose of the Global Grants programme was to make ESF funding more accessible to small organisations. ESF support can be used for community capacity building and social economy development. As such it was assumed that it would align well with the intended purpose of the Seedcorn Fund; and a number of small social enterprises did benefit from the additional resources.

3.50 In order to streamline the application process, ESF Global Grants funding was matched at source with the Futurebuilders Seedcorn Fund for eligible projects. In this there were two main and related challenges:

• ESF funding was awarded to Communities Scotland after the Seedcorn Fund criteria had been set and the Fund was open to applications - this meant that projects had to be matched against ESF eligibility criteria after funding applications were submitted; and
• it proved difficult initially to identify a sufficient number of projects/costs that were eligible under the ESF Global Grants element of the Seedcorn Fund - this meant that there was a larger-than-expected focus on capital development projects among Seedcorn Fund applicants which were ineligible for ESF funding.

3.51 The difficulties in allocating the ESF funding did not become fully apparent until the middle of 2006, after all of the Phase 2 Seedcorn projects had been approved. Corrective action was taken by staff within the Social Economy Unit and a plan was developed to ensure that all of the ESF funding was utilised. This intensive process was managed effectively.

3.52 Following agreement from the Objective 3 Programme Management Executive (the organisation that manages the ESF programme) there was a third round of funding approvals. This was restricted to organisations already delivering promising Seedcorn projects (and who could provide match funding) and was provided either to extend existing or to develop complementary activities that would be eligible for ESF support.

3.53 This process was supported by the Area Network on the ground, whose local knowledge and good working relationships with social enterprises were instrumental in identifying successful projects and securing the delivery of the Global Grants element of the funding programme.

3.54 Two ESF-funded Development Staff from SCVO (later reduced to one officer over a longer period of time) also played a valuable role in:

• assisting the Social Economy Unit to set up ESF monitoring arrangements (in the absence of in-house expertise at the outset);
• helping to identify ESF eligible Seedcorn Fund projects; and
• where appropriate, bolstering the pre/post approval support available to applicants, although the requirement for this varied significantly between area offices.

Ongoing Support

3.55 Ongoing support to organisations assisted by the Futurebuilders Funds has been supplied by a number of providers.

3.56 The support offered by Award Partner Scotland UnLtd, as part of the Social Entrepreneurs Fund, extended to regular support meetings, networking/training events and ad hoc mentoring and advice. The beneficiaries that responded to the Final EKOS Survey found this informal, ongoing, and supportive interaction to be highly effective.

3.57 Most beneficiaries of the three main Funds have received ongoing advice and information from Communities Scotland staff. There has been widespread satisfaction with this support, with 85-98% of Interim Survey respondents across the Funds having found it 'helpful' or 'very helpful'. It was commonly regarded as 'encouraging' and 'supportive', although in places 'reactive' and 'infrequent'.

3.58 The type and intensity of support offered by Communities Scotland was to some extent limited by the time and expertise available to staff. It should also be pointed out, however, that Futurebuilders was never designed to offer hands-on technical or capacity-building support to applicants. It was expected that this support would be available from sector support bodies, although there was no formal role specified for these support providers.

3.59 Close to 60% of the beneficiaries of the two main support Funds (Seedcorn and Investment) received related development support. This included support from specialist social economy business support providers, sector intermediaries, Business Gateway providers, the CVS Network, and private consultants. Those that received support generally regarded it as satisfactory. Where it worked well it was variously described as 'regular', 'experienced', 'knowledgeable', 'flexible', and 'long-term'.

3.60 Overall, the various findings suggest that the main issue is not necessarily the availability of development support (although 40% did not receive any) or its quality (although quality inevitably varies). Rather, the challenge is to ensure that appropriate forms of guidance and technical assistance are better organised around the needs of applicants, and that this reinforces any financial investment.

Ensuring Equality and Diversity

3.61 During the course of the process of implementing Futurebuilders, action was taken by the Social Economy Unit to ensure that organisations addressing all six equality strands (race, gender, disability, age, sexual orientation and religion/belief) could benefit on an equal basis from the programme.

3.62 From the outset the Social Economy Unit commissioned awareness-raising events targeted at equalities groups throughout Scotland, incorporated equalities information into forms and guidance materials, and carried out an equalities check during the first assessment of applications.

3.63 On reviewing applications in the first funding window, three challenges became apparent: boosting the low number of applications from equalities focused groups; gathering clearer equalities information; and ensuring that equalities groups were not disadvantaged when applications were assessed against the Executive's Closing the Opportunity Gap Objectives (which focus partly on area disadvantage).

3.64 These concerns were addressed through a number of actions specifically targeted towards equalities groups:

• the Investment Fund ring-fenced up to £1m in the second funding round for applications from these groups;
• proactive support and advice was made available to groups that wished to resubmit after an unsuccessful first application;
• a number of unsuccessful applicants were signposted training at the Social Enterprise Academy in order to build business skills; and
• a tailored capacity-building programme to support ten ethnic minority-led organisations was commissioned from the Council for Ethnic Minority Voluntary Organisations (discussed later).

Key Points

3.65 The key points arising from this section are as follows:

• Communities Scotland introduced relatively complex arrangements to allocate funding from Futurebuilders Scotland, which were needed in order to administer and test its multiple funding streams;
• the arrangements for Programme administration were put under pressure by the high volume of applications, which partly reflected a high level of unsatisfied demand for investment in the sector;
• the Programme was managed in a generally effective way by the Social Economy Unit, given the timeframe available, the newness of the team, and the complicated nature of the funding scheme;
• given the design of the Programme, it has been challenging to organise the various funding streams and forms of support available to the sector around the needs of applicants; and
• the research has highlighted the importance of careful planning before implementation, and flexibility to respond to emerging trends (as did occur through action for equalities-focused organisations).

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