Overhead Assessments on Restricted Gifts

Q. What limitations does a ministry have when applying an overhead assessment on restricted gifts?

A. Determining whether to apply an overhead assessment on restricted gifts is a discretionary matter for a ministry. Some ministries elect not to apply an overhead assessment on restricted gifts. Other ministries choose to apply an overhead assessment, or a partial assessment, to certain gifts.

Since there is generally a cost involved in soliciting donations, it is plausible to either charge a restricted project with fundraising expenses or include a fundraising expense component as part of an administrative fee. Likewise, it is often reasonable to allocate certain general and administrative costs to the projects and programs for which funds are raised.

Givers generally understand that overhead is required to administer charitable programs. However, there may be less comprehension that overhead amounts are sometimes deducted from restricted gifts. With respect to disclosing overhead assessments to givers, it is important for a ministry to appropriately determine giver expectations and giver intent for all restricted gifts, being mindful of ECFA’s Standard 7.2 (giver expectations and intent).

If a ministry desires to utilize the overhead assessment concept, the proactive adoption of board or administrative policies to structure the arrangement is fundamental. It is also important to provide for proper accounting of assessments and periodically determine that the overhead rates do not exceed actual costs.

It is inappropriate for the overhead charged to a gift to exceed actual overhead costs, whether an arbitrary rate is applied or the rate is based on cost analysis. Applying this principle requires the determination of overhead costs (perhaps based on the ministry’s most recent annual financial statement) before the overhead assessment fee is established. Overhead charges should generally be established based on actual experience instead of budgetary projections.

There are various approaches used to determine the overhead charged to giver-restricted gifts:

• Only direct program or project costs

• Direct program costs plus fundraising costs

• Direct program costs plus an administrative assessment

• Direct program costs plus fundraising costs and an administrative assessment, or an assessment that includes fundraising costs

Communicating the overhead assessment to the giver. Disclosure to givers of administrative assessments charged to restricted donations is generally not required by law; however, the Financial Reporting Executive Committee of the American Institute of Certified Public Accountants (AICPA) has issued guidance indicating that if a ministry has a policy of designating a percentage of restricted gifts to offset the cost of raising and administering those gifts (“overhead” expenses), the organization should effectively communicate this policy to givers before receiving restricted contributions.

Disclosing overhead assessment policies and practices demonstrates maximum transparency. The overhead assessment policy could be disclosed in newsletters, on websites, and/or in brochures that are sent to givers about the ministry’s policies and practices.

If an overhead charge is assessed, the fundraising solicitations and any other communications with givers should not leave the giver with the impression that no overhead charge will be made against the gift.

Determining the maximum administrative assessment:

1. The resource-raising component. Compare the expenses allocated to fundraising with total cash and noncash contributions to determine the resource-raising component of the assessment. In theory, the resource-raising expenses allocable to raising each segment of restricted gifts, purpose-by-purpose, would represent the most accurate fundraising assessment rate. A more generalized approach compares resource-raising expenses to total expenses to determine the resource-raising rate of the assessment.

2. The general and administrative component. Ideally, the general and administrative expenses related to carrying out a program funded by restricted gifts would compare to the applicable restricted gifts, perhaps even program-by-program. This level of sophisticated expense allocation is rarely possible. What is often used is the more generalized approach of comparing total general and administrative expenses with total expenses to determine the general and administrative rate of assessment.

Limitations on the application of overhead assessments on restricted gifts. The following are the primary limitations on applying overhead assessments to restricted gifts:

• State laws. Certain state laws could apply in situations where a ministry accepts a restricted gift and uses an overhead assessment that exceeds applicable costs, expending less than the appropriate amount for the giver-restricted purpose. ECFA’s Standard 4 requires the use of resources in conformity with applicable laws.

• Giver restrictions. When a giver makes a gift to a ministry, the gift may be conditioned on no overhead assessment being applied to the gift. If a ministry accepts a gift with such a condition, no overhead charge may be made against the gift to keep faith with the giver’s restriction.

• Statements by a ministry. At times, a ministry states that no overhead assessments will be applied to gifts because overhead costs have been underwritten by a specific gift or gifts for that purpose. If such a statement is made, it is improper to apply an overhead assessment to restricted gifts.


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.


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