How a Nonprofit Can Attract A Regulatory Probe … Fast
06.08.2023 | Linda J. Rosenthal, JD
Marian Conway of The Nonprofit Quarterly says that “for nonprofits, this is a dream come true.” What is this much-anticipated gift? “The City of New York is planning to help pay indirect costs.”
Until recently, there has been a wall of resistance from donors and funders (foundation and governments) for supporting overhead items in grants and contracts. Traditionally, foundations have preferred making grants for “exciting programs,” not to keep a grantee’s lights on, and where it “gives them the most control of the funds.” Individual donors, too, prefer to support high-profile projects. Development officers want to please them, so often these contributions come with restrictions against “indirect costs.”
But in 2019, there have been some noteworthy breaches in that wall, although it’s still in fits and starts. Even so, the Big Apple’s announcement of a new policy to help social services organizations cover certain overhead costs is a big deal. Budget approval from the New York City Council came in June, “after years of complaints from local providers.” Beginning in late November 2019, certain community organizations got the chance to start applying for additional financial support “for indirect cost rates exceeding 10% of a city contract.”
Even for organizations outside that metropolitan area, it may be a signal to their governmental units that it’s long past time to toss out the Overhead Myth.
“But for the purposes of New York City’s contracts, indirect costs refer to expenses that may not be explicitly identified within a contract but provide benefits to it.” An example given is the “salary of a lawyer providing legal services” which “may qualify as direct costs.” On the other hand, the money going to pay the salary of an accountant “whose work supports the nonprofit in general” may be an indirect cost.
The examples given in the Cost Manual don’t necessarily make it all that much clearer. But the NPQ’s Marian Conway reminds us that the legalese and mountains of definitions are reminiscent of a certain “brilliant parody” video created about a year ago by the New York Human Services Council, called Pizza and a Laugh—A Reminder about Your Nonprofit Financial Stress Level.
There are tricky provisions about which organizations are or will be eligible for this overhead reimbursement. There are also complexities in how organizations can get the money. There are “three main options to access funding” with differing verification or documentation requirements or procedures.
But following the reasoning in Why Funding Overhead Is Not the Real Issue: The Case to Cover Full Costs (September 12, 2019), “the entire way nonprofits (and government partners) look at ‘overhead costs’ is in desperate need of a revisioning. The better solution may be to stop talking about overhead altogether, and advocate for funding ‘full costs.’”
05.31.2023 | Linda J. Rosenthal, JD