How Can Nonprofits Make the Most of Overhead Funds? ASU Lodestar Center for Philanthropy and Nonprofit Innovation

allocation bases

To prevent substantial overpayment or underpayment of A Board Members Guide To Nonprofit Overhead cost during the fiscal year, a revised provisional rate may be requested by the organization. Responsibility for the negotiation and issuance of NICRAs for foreign organizations, with no awards issued by USAID/Washington’s M/OAA, rests with the Mission providing the majority of the entities’ funding. A foreign organization is an organization located in a country other than the United States that is a non-profit and tax exempt under the laws of its country of domicile and operation. The cognizant Mission initially negotiates, and subsequently updates, the NICRA on a company-wide basis; not per grant/award. M/OAA/CAS/OCC provides support and guidance to Agreement Officers and Agreement Officer’s Representatives at Missions regarding the negotiation of NICRAs as requested.

  • The talented people that work for charitable nonprofits are worth investing in!
  • You must record promises of future donations when you receive the pledge instead of when your nonprofit receives the actual donation.
  • Using this approach has increased cash contributions to Harvesters from $2 million in 2007 to this past year $15 million–food contributions have similarly increased.
  • Remind businesses of the internal benefits of sponsoring mission-driven organizations.

For example, a board member who dislikes the idea of soliciting donations from a friend can connect with a company’s event planner to set up an event or request in-kind donations for an auction. As a new board member begins his or her term, consider having a signed board member expectation agreement, including a conflict of interest policy. This way, board members will have no doubts or confusion, and your board can stay clear of any liability issues when engaging in fundraising. Emphasize expectations whenever you’re conversing with candidates. Be sure to review the job description, including fundraising expectations, during outreach and screening interviews for new board members.

Limitations Effecting Reimbursement of Indirect Costs

Each of these evaluates nonprofits based on more complex criteria that should give donors and communities a better look at the work they’re doing. Alternatively, a person could simply reach out to an organization to find out more about them and determine whether or not that particular nonprofit is the type of organization they’re looking for. Lower overhead keeps nonprofits in better standing with the government and community, but it also allows more money to go toward the heart of the nonprofit, which is the services it provides. Imagine if more dollars every single month could go toward those causes–the difference an organization could make becomes limitless. Professionals in the actual field of endeavor of the organization might seem like the best candidates for the board.

What are overhead ratios for non profits?

Nonprofits typically have overhead ratios of around 20%, meaning that they spend about 1 out of every 5 dollars on fundraising expenses, accounting, publicity and everything else needed to operate. Some salary and benefits expenditures count as well, depending on what the employee does.

Discussions of nonprofit organizations and finances can quickly become murky because so many people simply do not understand that nonprofits still deal with money. In fact, they’re at least as aware of it as their for-profit peers. One area in which nonprofits sometimes struggle is in knowing how to approach and deal with overhead. Unfortunately, some nonprofit organizations place people on boards simply because they’re professionals, they’re wealthy, or they represent a particular group—woefully inadequate criteria for board participation. Ideally, board members should have “footprints”—a record of productive involvement with the boards of other organizations and a personal history of social service. Potential members can be screened and trained by serving on other committees of the organization.

How to Create a Budget for a Nonprofit

Government Accountability Office , and nonprofit leaders that underinvestment in infrastructure poses a serious threat to the effectiveness of nonprofit organizations. Grants providing for ceilings as to the indirect cost rates or amounts will be subject to the ceilings stipulated in the grants or other agreements. The ceiling indirect cost rates or the indirect cost rates cited in grants or agreements, whichever is lower, will be used to determine the maximum allowable indirect costs on the grants or agreements. Special attention will be given to the choice of the individual indirect cost rate allocation bases to ensure they result in an equitable allocation of indirect costs to final cost objectives. Any money spent on things like management, administration, and general costs fall into the overhead category, and these can vary greatly.


In short, any two people talking about overhead are statistically likely to be talking about different things without realizing it. This set of FAQs provides a brief introduction to the topic and the controversy. I thought it brought together a lot of fragmented information about overhead issues in a clear and understandable manner. As a result, Organization B has a higher overhead rate than A. In one study, respondents were asked which of the above was the closest synonym to “overhead.” No synonym got more than 40% votes.

Rules for Success Every Board Member MUST Know!

Each indirect cost pool must then be allocated individually to benefitting functions by means of a base which best measures the relative benefits. Often an entity will have a fringe rate, overhead rate and G&A rate or just a fringe rate and another single indirect cost rate (overhead/G&A). Note that 2 CFR 200, Subpart E, Section 430,Standards for Documentation of Personnel Expenses,indicates that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. Some issues that may be raised by an M/OAA/CAS/OCC indirect cost rate negotiator during, or after, the review of an indirect cost rate proposal, usually result from non-profit organizations not following the required procedures.

  • At the opposite end of the spectrum are the enthusiastic amateurs who become excessively involved in the organization’s work.
  • If the organization is planning new programs, management should present a plan that discusses the separable financial consequences of each of the programs and their combined effects on the organization.
  • Set benchmarks to provide greater visibility into your organization’s growth.
  • Oversight of this issue requires board members to understand the costs of providing different services and the accounting methods used to compute them.
  • The fringe benefits base of application is total direct and indirect labor dollars.

This indirect cost rate allocates employee benefits such as payroll taxes, vacation, sick, retirement, health care, bonus, deferred compensation, insurance, etc.). The organization must have an established accounting system prior to being awarded a grant or contract with a federal government agency. Identifies the following specific methods for allocating indirect costs. Greg Burris, president and CEO of United Way of the Ozarks, said there are 1,500-2,000 local nonprofits, and his organization has a team of donor volunteers to vet their financial statements and make sure they are serving their intended purpose. Prater said some rating organizations continue to apply a standard for program efficiency ratio, calculated by dividing program expenses by total expenses.

Instead, nonprofits should be evaluated based on more complex data, including reach, overall performance, cause you care about. Two brains are usually better than one when it comes to new ideas, so don’t hesitate to get your employees and board members involved in brainstorming ways to reduce or more effectively use overhead. They may be connected to a service provider who can offer a lower rate, know an expert who will increase the speed of a particular operation, or know a cool trick that keeps electricity costs down. Overhead is obviously important, and understanding how it operates within your organization is essential to your success. When you can effectively identify, define, and manage overhead, your nonprofit stands a greater chance of flourishing.

allocation base

Communicating your costs to a world lost in definitional fog and paradoxical thinking is a much bigger challenge. Set your budget before the end of the year and schedule a board meeting to approve it. The two primary components of a budget are income and revenue, and many subcategories fall under the umbrella of each.

The Board Member’s Guide to Fundraising:

Five is not an ideal number of board members but is intended to help avoid power being concentrated in the hands of one or two people and encourage a diversity of opinion, skill and talent. Examine financial statements from previous years for areas of growth and improvement. If you notice a slump in revenue, work with your team to revise past financial strategies.