As we just passed the quarter pole of 2025, human service agencies are currently facing a range of opportunities and challenges. Across the industry, executives are grappling with financial pressures, operational efficiencies, and workforce shortages. Our firm has been deeply involved in audits and consulting engagements with agencies nationwide, and we’ve identified five key issues that are top of mind.
1. Rising Insurance Costs: A Mounting Challenge
One of the most significant financial burdens for human service agencies continues to be the rising cost of corporate insurance. Since the pandemic, organizations have experienced double-digit increases in insurance premiums, with some programs even facing the threat of coverage discontinuation.
What can agencies do?
- Work with insurance counsels to increase deductibles to lower premiums (risk/reward)
- Seek insurance counsel advice regarding ‘Captive’ Insurance models/ establishment of risk pools
- Advocate for increased funding at the state level to offset rising costs.
- Advocate for the availability of state indemnification for certain claims
- Advocate for Victim’s fund
2. Federal Funding Uncertainty: Preparing for a New Landscape
Federal budget shifts and agency restructuring are causing ripple effects throughout the human service sector. The potential closure of the Department of Education and funding reductions at the Department of Health and Human Services have raised concerns about the long-term sustainability of grant-funded programs. Additionally, state mental health and substance abuse agencies have begun reporting terminations of key grant funding sources.
How should agencies respond?
- Build contingency plans into budgets to mitigate potential funding cuts.
- Work quickly to get vouchers and other reporting into funding sources for work performed/costs incurred
3. Workforce Challenges: Addressing Staffing Shortages
Small and mid-sized human service agencies continue to struggle with staffing shortages, affecting both programmatic roles and back-office functions. In finance departments, these challenges are particularly pronounced, leading many agencies to explore outsourcing options as a strategic solution.
Considerations for agencies:
- Identify tasks that can be outsourced, such as billing, cost reporting, corporate compliance, and human resources.
- Consider full outsourcing of accounting functions to ensure financial stability and efficiency.
4. Operations Review: Strengthening Financial Oversight
With ongoing turnover in finance teams, many organizations are reevaluating how information flows through their financial systems. Ensuring adequate internal controls and updating policies and procedures has become a top priority.
Key steps for agencies:
- Conduct an independent financial operations review, particularly if it has been more than five years since the last assessment (or if no one can remember the last time policies or procedures were updated).
5. Mergers & Affiliations: A Strategic Path Forward
While the human services sector has not seen a surge in mergers, federal and state funding streams could hasten decisions. Consolidations and/or affiliations should be considered to address continued operational deficits and leadership transitions.
Best practices for organizations exploring mergers:
- Ensure strong governance and board development.
- Seek advice on best steps forward before affiliating (we’re happy to help!)
- Don’t wait too long before financial conditions determine the path for you.
Looking Ahead
As human service agencies navigate these challenges, proactive planning and strategic decision-making will be key to long-term success. Having a financial and accounting strategic advisor can help you navigate tough decisions. If you need further guidance or have any questions on these topics, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
