The risk of Direct Payment to Charities and Voluntary Organisations in Edinburgh

I hear that the City of Edinburgh Council is intending to move away from providing block grants to charities for the provision of services. For those readers who are not initiated into the world of voluntary sector funding the council gives money to charities to provide services in the fields of social care, children and families. The amounts of money given are usually very far short of the total cost of running the service and the organisations make up the rest through fundraising - usually providing a higher standard of care than what would be possible if the council was running the service.

Direct payment differs by making the payments to the users of the service which they then use to buy services from charities, the council themselves or private sector providers. This is supposed to improve choice for service users, but in reality it saves money for the council because not all of those personal budgets will be spent and if a service user does not pay their "bill" to the charity there is no way this will ever be pursued for payment. The council is obviously very keen on this method of funding, but it presents a couple of quite significant problems that are not obvious unless you have experience of fundraising or financial management:

1. Instead of having one customer (the council) organisations will now potentially hundreds of customers who will have to be set up in the organisations accounting system, sent invoices, tracked to make sure they are paid up to date and chased for non payment (in sofar as this is possible). This skews the market in favour of larger organisations who have the financial management infrastructure to administer it and income from other sources to pay for such a system (the council will not be interested in funding the admin costs).
2. Service users who are cognitively impaired and reliant on full time carers (e.g. people with dementia) will have to have their payments administered by a carer who may not have the skills themselves to handle payments to the many service providers they may be using.
3. The biggest problem of all is the financial insecurity which this brings. With a fixed grant system its possible to approach other funders (charitable trusts, individuals and companies) for the additonal money required to run the service They in turn can have confidence in the organisations ability to deliver the service because a certain amount has already been confirmed by the council. Without this confidence the success rate of funding applications will be a magnitude lower. My guess is that half of my own organisations larger voluntary funders only support us because we have some guaranteed money in the form of a council grant.

The real question is does the City of Edinburgh Council realise that these issues exist or are they just willing to make a switch to direct payment as a way of saving money now and deal with the problems later?