The first comprehensive report on the factors affecting administrative expenses and compensation at grantmaking foundations has found broad differences in how foundations spend their money and cautions against constructing a "one size fits all" approach to setting standards.
Foundation Expenses and Compensation: How Operating Characteristics Influence Spending, issued by the Urban Institute, the Foundation Center, and GuideStar, documents how a variety of characteristics influence expense levels at the country's 10,000 largest independent, corporate, and community foundations. With $372 billion in assets and grants totaling $24 billion in 2001, these organizations accounted for 77 percent of foundation assets and 78 percent of foundation giving for the almost 62,000 grantmaking foundations active that year.
The report found that, of the 10,000 largest foundations, 30 percent reported no charitable operating and administrative expenses, with community foundations the most likely to report such costs and corporate foundations — which are often staffed by company personnel — the least likely. Among staffed independent foundations, charitable operating and administrative expenses ranged from less than 5 percent of qualifying distributions (those that count toward federally stipulated payment levels) for 41 percent of the foundations to more than 20 percent for 14 percent; the median was 7 percent. Among unstaffed foundations, 84 percent fell into the 0-5 percent range, with a median of less than 1 percent.
At the same time, the research indicated shortcomings in the data obtained from foundations' annual filings with the Internal Revenue Service that frustrate clearer understanding of foundation practices. The authors of the report recommend changes to IRS Forms 990-PF and 990 to improve the reporting of expenses, direct charitable activities, trustee compensation, and staff salaries, and predict that electronic filing of foundation tax returns will permit better differentiation of expenses.
GuideStar provided financial, expense, and compensation data from IRS Forms 990 and 990-PF. The Foundation Center and the Urban Institute analyzed the data and wrote the report, which was funded by the Charles Stewart Mott Foundation in Flint, Michigan, and the Ford Foundation in New York City.