Paying for Overhead
Patrick M. Rooney, Interim Executive Director and Director of Research

How do foundations pay for overhead and how do nonprofits approach funders about overhead expenses? This research report, based on a study funded by the Aspen Institute Nonprofit Sector Research Fund, shows that education and human services organizations surveyed report insufficient overhead funding. Yet, foundations surveyed said that they offer some type of overhead funding support. In the presentation that accompanies this report, Patrick Rooney gives more details about the report and some recommendations for charities seeking overhead cost support from foundations.

This study is a look at how foundations' overhead funding policies impact educational and human services organizations. The results of this study found that surprisingly most foundations, 69 percent, fund nonprofits' overhead expenses, especially within program grants. Large foundations and those that fund locally were statistically more likely than smaller foundations or those that grant nationwide to fund nonprofits' overhead expenses. Overall the study indicates that foundations' overhead funding policies do not directly impact the operations of most human service and educational nonprofit organizations. However, human service organizations in which a high percentage of their charitable revenue came from foundations were statistically more likely to report inadequate overhead funding. Case study results found that organizations tended to pursue diversified funding streams (i.e. they did not solely rely on foundation support) because they preferred more predictive, self-generated revenue. They tended to use foundation funding to enhance their programs or for periodic expenses such as capacity-building or board training.

Watch the presentation | PowerPoint Presentation in PDF format | Download the study

Study of Administrative and Fundraising Costs

The study of administrative and fundraising costs , undertaken in partnership with the Urban Institute, examined IRS Forms 990 and found that nonprofit organizations - even those with charitable revenue - do not always report fundraising or administrative expense.

Where costs are reported, characteristics of the organizations - such as age, budget, subsector - accounted for only a portion of the differences found in overhead cost ratios.

In a survey of nonprofits conducted as part of the study, 1,542 responses from a nationally representative random sample yielded information about the average return on investment in fundraising by fundraising tactic used. In general, fundraising costs 24 cents per dollar raised (2001 data).

Guides and Briefs from the Nonprofit Overhead Cost Project - Requires Adobe Acrobat to view.

www.coststudy.org

Research Handbook Released

Richard Steinberg, professor of economics and philanthropic studies, is co-editor with Walter Powell of Stanford University of the forthcoming second edition of The Nonprofit Sector: A Research Handbook.This work, published by Yale University Press, contains approximately 30 articles, each treating a specific theme in research about the nonprofit sector. Many vital topics have emerged since the 1987 publication of the first edition. Topics in the second edition cover basic information about the sector, its size, scope, and responsibilities, and explore new knowledge about the sector's growth and roles and responsibilities vis-à-vis the other sectors (government, the household, and the marketplace, principally).

Click here to purchase this book on Amazon.com

Human Resources Management at Nonprofits

• Debra Mesch and Patrick Rooney, Is There a Relationship Between Executive Pay and Performance? A Longitudinal Study of Compensation Practices at Goodwill Industries, working paper available on request; telephone 317-278-8909.
• Debra Mesch, The Effects of Human Resource Management Practices on Organizational Effectiveness and Satisfaction of Stipended Volunteers: A Study of the Israel Perach Program
• Careers in Fundraising by Lilya Wagner