Three charity information organizations caused a stir recently with the launch of their campaign against the overhead myth—essentially urging donors to look beyond administrative and fundraising costs and also examine other factors when deciding where to give. This is a commendable effort, and one many would say it is overdue.
The fact that BBB Wise Giving Alliance and Charity Navigator are focusing on this may come as a surprise to some, as their respective charity rating models have depended to some degree on how much money organizations spend on such costs (Guidestar is also part of the effort, but does not issue ratings). However, as this Chronicle of Philanthropy writeup indicates, this is an effort that has been building in the larger community:
The three organizations are attempting to build on efforts by a growing number of charities and nonprofit executives to suggest that journalists, foundations, government, and individual donors place too much emphasis on how much nonprofits spend directly on programs and are therefore discouraging groups from investing in critical areas like training, evaluation, and internal systems.
The hyper-focus on overhead costs is a major discussion point in the recent book “With Charity for All” by Ken Stern, formerly of NPR. Stern points out that many donors who try to do due diligence around giving have had little alternative but to look to this overhead number when evaluating, because it was largely all that was available. That’s starting to change with organizations like GiveWell, which take a more thorough approach in researching organizations and evaluating results and transparency. However, Stern provides a sobering account of the pushback GiveWell founders initially received in the charitable sector as they tried to get information from organizations about program success, follow-up and results—indicating that perhaps some nonprofits were a bit too comfortable with the status quo.
At the same time, a recent investigative reporting piece focusing on the “50 worst charities” showcased organizations that sent almost $1 billion to commercial solicitors and spent an average of less than 4 cents on direct cash aid to the needy over the past decade. Examples of such egregious, extreme abuse often can fuel the general overhead debate, and some in the charity world have expressed concern about the perceptions of the overall sector that may arise from looking at the report out of context.
Ultimately, the difficult answer here is that evaluating an organization’s success is not as easy as plugging numbers into a formula—and arguing otherwise actually can lessen effectiveness by discouraging nonprofits from making the investments that can increase their impact long term. Yet, even as this debate seems to make progress, laws are being proposed that would set a hard-line of how much an organization can spend on certain items and still be eligible for tax exemption (and receiving deductible contributions). Hopefully this won’t be a one step forward, two steps back situation.