Restricted Funds – Administrative Expenses are Sometimes Permissible

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Many of my clients receive much of their funding in the form of restricted gifts designated for specific purposes or programs.  I find that many of them unnecessarily pay for the administration of their restricted funds with general operating revenue – sometimes creating a cash-starved charity.  These charities are often unaware that many of these expenses can be paid by the restricted fund itself.

To clarify, a restricted charitable gift is a contribution of money or property to a charity with respect to which the donor specifies certain terms and conditions that govern the administration and application of the gifted assets. Many charities assume that restricted funds must only be used for the stated restricted use, such as research, scholarships, or program services and that administrative expenses relating to managing those funds, such as bookkeeping, oversight and the associated overhead are off limits.

Clients are often unaware that under the laws of several states and the Uniform Prudent Management of Institutional Funds Act (UPMIFA), administrative expenses associated with administering restricted funds can be paid out of the same restricted funds.  Such expenses are not only limited to investment fund manager fees but may also include any reasonable expense of administering the fund, including an allocation of salary and overhead if such salary or overhead was reasonably used to administer the restricted fund.  Also often overlooked are accountant fees, legal fees, payroll fees, subscriptions and memberships, postage, shipping, computer supplies, meals, travel, training courses and insurance.

As a case in point, New York’s Not-For- Profit Corporation Law (N-PCL) Section 513 “Administration of Assets Received for Specific Purposes” states:

“… the governing board shall apply all assets thus received to the purposes specified in the gift instrument and to the payment of the reasonable and proper expenses of administration of such assets… 

UPMIFA, which has been adopted in one form or another by most states, allows for “costs that are appropriate and reasonable in relation to the assets…”   [1]

The underlying question then is what exactly qualifies as “reasonable and proper expenses of administration”?   Any payments made to investment institutions for providing investment advice and management are legitimate expenses of administration because they require direct management of those restricted funds. But some allowable costs may not seem to be direct costs of administration.  For instance, some universities expense an allocation of fundraising costs to their endowment to reflect the cost of raising funds for the endowment.

There are various ways to approach establishing the legitimate use of restricted funds for the funds’ administrative expenses.  My own method is to review the organization’s financial statements and backup documentation line by line to determine which expenses can be distributed from the restricted funds.  Although this analysis may be arduous, the end result to the charity is that a reimbursement to the general fund can often be the best use of all of its resources.


One comment on “Restricted Funds – Administrative Expenses are Sometimes Permissible

  1. We are a county library foundation, a 501(c)(3). We have received some unsolicited, designated gifts, $20K, $200K, and >$200K. There is the potential for future, unsolicited but designated gifts, in large amounts. Historically we have taken an administrative fee from all gifts given to the foundation. Can we take this fee from these large gifts since they were/are unsolicited? I read somewhere that portions of unsolicited designations can be used for other purposes. See “Unsolicited designations” in

    On 28 Nov. I sent an email to the company that wrote the above cited article, asking them for information citing the regulations or sources for their statement. They acknowledged receipt (automatic) but have not yet provided any answers to my questions. Do you know of any regulations or rules that allow a non-profit to take portions of unsolicited, but designated donations, for their administrative operations? Thank you for any answers you can provide.

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