A charitable, stand alone organisation it has been caught in the storm which has engulfed the club since news of his arrival was announced late on Tuesday.
Councillor Judy Hamilton, who chairs the foundation, said the fall out of the signing was not risk assessed.
One figure within the foundation said it had been “decimated” as volunteers walked away in disgust, and sponsors re-assessed their commitment - threatening to un-do three years of work across the community.
The foundation has over 1000 people participating weekly and has been hailed for the work it has done across the community.
The hard work of its staff, volunteers and participants led to a national award last year.
Now it is trying to distance itself from the toxicity of the Goodwillie signing while remaining part of the Raith family.
But its own senior figures admits it is now treading a fine line as it re-assures families that its own vision and values remain unchanged.
Cllr Hamilton said on BBC Radio Scotland’s Good Morning Scotland show she was shocked to hear of Goodwillie’s signing.
She said: "I think the decision is very, very risky indeed and I did feel that the fall-out and the reaction to that decision was not risk assessed.
"I don't think anybody really realised the impact that this would have on our club and on our community foundation."
An online fundraiser created by supporter Martin Glass has now raised over £8000 for Rape Crisis Scotland.