Industry-Wide Cost Savings of More Than $800 Million Feasible Through Use of Outsourced Administrative Services
Foundation Source, the nation’s leading provider of support services for private foundations announced today the results of its second annual study on operating and administrative costs of private (non-operating) foundations. The objective of the study was to determine the most efficient and cost-effective approach to managing a private foundation.
“The scale, severity and breadth of the current economic downturn has brought new urgency to the need to manage charitable dollars wisely,” said Page Snow, Foundation Source Chief Philanthropic Officer. “The supply of philanthropic capital has dwindled while the need for philanthropic dollars has increased. To maintain giving levels in this time of need, many foundations are focusing on how to run their operations more efficiently.”
The research compared the operating costs of two groups of private foundations:
- All 40,049 private, non-operating foundations with endowments up to $100 million that reported annual operating costs to the IRS on their foundation tax returns1 in 2006 (“All Foundations”).
- 436 private, non-operating foundations that were clients of Foundation Source for the entire 2007 calendar year. All of these foundations outsourced their back-office, technology and grantmaking support services to Foundation Source for the entire 2007 tax-year (“Foundation Source Clients”).
The study found that foundations outsourcing their back-office administration, technology and support services to Foundation Source consistently reported lower operating costs than the All Foundations group. Among the findings:
- Operating Costs as a percentage of Total Foundation Assets2 were lower across the board for foundations choosing an outsourced services model.
- All asset ranges up to $100 million: Operating costs for Foundation Source Clients were 46% lower than average operating costs reported by the All Foundations group: 0.54% of foundation assets for Foundation Source clients vs. 1.00% for All Foundations up to $100 million.
- Foundations with assets from $10 million to $100 million (representing 10% of the All Foundations group): operating costs for larger foundations outsourcing to Foundation Source were 58% lower than those reported by All Foundations in this asset range: 0.32% vs. 0.77%, respectively.
- Foundations with assets up to $10 million (90% of the All Foundations group): operating costs for smaller foundations outsourcing to Foundation Source were 38% lower than those reported by All Foundations in this asset range: 0.95% vs. 1.52%, respectively.
The study indicates that by outsourcing back-office, technology and grantmaking support services to Foundation Source, the 436 foundations included in the study saved more than $8.3 million in operating expenses relative to their peer foundations. Were the percentage savings realized by Foundation Source Clients applied to the All Foundation group, it is estimated that the nation’s private foundations would save more than $809 million in annual operating costs.
“We were very pleased by the research results, which underscore the value of an outsourced services model for private foundations,” said Daniel M. Schley, Foundation Source Chairman & CEO. Through outsourcing, foundations are able to shift the operating burden of their foundations to professionals, such as Foundation Source, and turn their focus to what matters most: their philanthropy. The cost savings they realize are significant and accrue directly to the benefit of the charities the foundations were created to support. The result: better run foundations with greater social impact.
“The integration of technology and best business practices for foundation administration has reset the bar for the efficient use of foundation resources,” added Andrew C. Bangser, Foundation Source COO and author of the report. “Although industry groups such as the Council on Foundations advise keeping operating and administrative expenses under 15% of total charitable disbursements, it is now possible to stay well under 10% while maintaining the highest standards of foundation management. While there are many different approaches to managing private foundations, the study indicates quite clearly that the outsourced model is the most cost-efficient for a broad swath of the private foundation universe.”
About Foundation Source (www.foundationsource.com)
Foundation Source is the nation’s leading provider of support services for private foundations. The company’s back-office, online and support services ease the administrative burden, freeing foundations to focus more on mission, strategy and family priorities and less on back-office administration and compliance tasks. The result: better run foundations with greater social impact. Foundation Source was recently named Philanthropic Group of the Year by the editors of Private Asset Management.
Today, Foundation Source provides its full range of award-winning services to over 800 family, corporate and professionally-staffed foundations representing over $3.2 billion in foundation assets. Foundation Source provides its services through partnerships with the nation’s leading private wealth management firms, trust and estate attorneys and CPAs. The company is headquartered in Fairfield, CT with regional offices in Atlanta, Boston, Chicago, Denver, Los Angeles, New York City, Philadelphia, Salt Lake City, San Francisco and Seattle.
Foundation Source is a registered trademark of Foundation Source Philanthropic Services Inc. All rights reserved.
Operating costs for the 40,049 foundations reporting to the IRS were tabulated from line 24(d) of IRS Form 990-PF. Line 24(d) includes all administrative, advisory, accounting and tax, legal, compensation and other expenses incurred in the course of managing the foundation’s charitable activities. Line 24(d) does not include investment-related expenses or excise tax payments.
Total Foundation Assets represent the fair market value of non-charitable use assets as of the tax reporting date.