Proactive Citywide Oversight of Nonprofits Strengthened with Addition of New Contract Monitoring Requirements

SAN FRANCISCO — In December 2024, the Controller’s Office established mandatory new requirements for City and County of San Francisco (City) departments to follow when they contract with nonprofits to deliver community services. Today, the Controller’s Office published comprehensive new results about the City’s efforts over the last year to proactively oversee nonprofits. For the first time, the Controller’s annual reporting now includes an assessment of department-specific efforts to monitor nonprofit contracts.

A cornerstone in the Controller’s suite of oversight tools is the new Contract Monitoring Policy which requires departments to monitor nonprofit contracts over $200K annually. City departments were instructed to develop their own set of Policies and Procedures (P&Ps) that would detail the specific ways they plan to monitor nonprofit contracts that meet this threshold, and asked to include several key elements:

• Performance Measures: To outline what their department aims to achieve through the contract and provide clear expectations for both the contractor and contracting department.
• Regular Reporting from Nonprofit: To have nonprofits show their progress toward meeting performance measures and other performance goals, and to provide regular insight into program operations.
• Site Visits: To have department staff visit the program site(s) where the nonprofit services occur, such as a shelter, youth center, or community kitchen. City staff would do things like tour the service site and review documents like samples of client files.

In the inaugural report on Contract Monitoring Program activities, the Controller’s Office reviewed P&Ps from departments that had annual nonprofit contracts over $200K and assessed their readiness to perform contract oversight. The Controller’s Office’s assessment found that a majority of departments in the review (73%) have P&Ps generally aligned to Citywide standards and written with enough detail and clarity to support consistent implementation by staff and contractors. While some of these P&Ps (41%) require minor adjustments to support consistent application, the assessment identified just 3 departments (14%) needing to make more extensive updates to their P&Ps to meet the standards.

“As we implement the Contract Monitoring Policy, our focus is on demonstrating the impact of City spending,” said Controller Greg Wagner. “We want to ensure that City departments fund programs that work. This all starts with building a foundation of policies, standards, tools, and practices to get the results the public expects. This work is a significant step forward for oversight and accountability to ensure that public funds are used efficiently and responsibly for the greatest benefit of the community members they are intended to serve.”

In addition to the Contract Monitoring Program assessment, the FY25 Annual Report and dataset also provide results of the City’s fiscal monitoring of 206 nonprofit contractors. The City contracted with nonprofits to deliver $1.6 billion in services last year, and fiscal monitoring activities ensure service providers have strong, sustainable financial management practices. The 206 nonprofits monitored in FY25 received $1.4 billion in funding, or 87% of all nonprofit spending last year. The FY25 fiscal monitoring review found that 72% of monitored nonprofits met all City standards. Among the 49 nonprofits that did not meet all standards, the most common issues related to completing financial audits timely, cash flow challenges, and cost allocation practices. In most cases, the proportion of nonprofits with these concerns either decreased or remained steady from the prior year.

The Controller’s Office placed 16 nonprofits on Citywide Corrective Action due to fiscal monitoring results and other contracting concerns — which is 9% of all monitored nonprofits. This includes 14 nonprofits placed on “Tier 2” for serious financial management concerns and two nonprofits placed on “Tier 3” for more severe issues. Some of these nonprofits did not provide a current audited financial statement, while others had more widespread concerns related to invoicing and payroll practices, subcontractor monitoring, and material weakness or going concern within the audit.

These and other nonprofits will receive Capacity Building services in the form of training and tailored coaching from the Controller’s Office to build proper fiscal and management practices The Controller’s Office delivered over 267 hours of financial coaching to 12 nonprofits in FY25.

San Francisco’s nonprofit contractors continue to deliver some of the most critical services supporting residents in need. Monitoring results highlight areas where some contractors are struggling, and this allows departments and contractors to develop plans to address these issues quickly, sustaining essential services.

Background

In March 2024, the Board of Supervisors passed an ordinance (55-24) sponsored by former Supervisor Catherine Stefani directing the Controller’s Office to establish standards for measurable performance goals for contracts with nonprofit organizations, create a standardized Citywide programmatic and performance monitoring policy, and perform an annual review of departments’ compliance with the program.

While most nonprofits provide quality services, some high-profile exceptions over the past several years have shone a spotlight on the City’s need for greater oversight of these contracts. The new policies establish foundational requirements that departments must follow when they contract with nonprofits to deliver services to the public.

This year’s report, fulfilling reporting requirements established through ordinance 55-24, details for the first time how strong different departmental Policies and Procedures are. The goal of this new requirement is to help departments ensure nonprofits deliver high-quality and accountable services. The Controller’s Office expanded its longstanding Citywide Nonprofit Monitoring and Capacity Building Program to include new activities related to implementing the Contract Monitoring Policy.

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