New Regulations Address How Governments Fund Overhead Costs for Nonprofits - Generocity Philly

Funding

Jan. 14, 2014 3:48 pm

New Regulations Address How Governments Fund Overhead Costs for Nonprofits

The Office of Management and Budget (OMB), the federal agency responsible for helping the president prepare a budget and regulate certain financial procedures, has released a new set of regulations for how the government issues grants and contracts. A number of the changes will impact how the government funds nonprofits, which get about a third […]

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The Office of Management and Budget (OMB), the federal agency responsible for helping the president prepare a budget and regulate certain financial procedures, has released a new set of regulations for how the government issues grants and contracts.

A number of the changes will impact how the government funds nonprofits, which get about a third of their revenue from the government, according to a report by the Urban Institute.

The OMB began work on changing the regulations after President Obama issued an Executive Order calling for more efficiency and transparency in government payments. Two years later, OMB released its final version of the rule changes at the end of 2013.

The 759-page document contains a litany of changes designed to make it easier for nonprofits to operate with federal funds. These include new rules for how much of a government grant or contract should go towards indirect costs – often referred to as administrative costs or “overhead” – such as salaries, marketing and technology needs.

The new rules will require state and local governments that receive federal funding to negotiate with nonprofits to determine the percent of the grant or contract that goes toward indirect costs. Nonprofits can also elect an automatic indirect cost rate of 10 percent of modified direct costs. The government is then forced to honor the negotiated rate.

In addition, the new rules allow certain indirect costs, such as secretarial work, to be considered a direct cost depending on the nature of the program.

Prior to these reforms, there was very little consistency in how much nonprofits received for indirect costs from the government. A report by the Urban Institute, released in early December 2013, showed that less than a quarter of the nonprofits surveyed for the report received 10 percent or more towards overhead. Nearly the same amount received none.

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Some nonprofit experts have argued that the work required by the government’s own regulations, such as the paperwork surrounding audits, is enough to justify some reimbursement for administrative costs.

“The new guidance from OMB makes one point perfectly clear: that governments should pay the actual costs of the work performed under written agreements on their behalf,” wrote Tim Delaney, president and CEO of the National Council of Nonprofits, in a statement

Jennifer Ross, chief information officer for the Pennsylvania Association of Nonprofit Organizations (PANO), explained that Pennsylvania lacks uniformity when its comes to funding overhead, and that a task-force from PANO will be looking into ways to improve the system.

In part, they will reference a list of “common sense solutions” developed by the National Council of Nonprofits, which works with state nonprofit organizations on policy and other issues.

Ross added that the Urban Institute will soon release a study on the state of nonprofit contracting specific to Pennsylvania.

(Image via kenteegardin/SeniorLiving.Org)

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