10 Reasons Why the 15% Charity Overhead Myth Prevents Social Change

This past year, Charity Intelligence (CI) defined the Top 10 Impact Charities of 2016. That three of the ten “impact charities” are food banks makes the whole notion of impact charity a national joke, albeit a very bleak one all the same. If there was ever a synonym for Band-Aid in the charitable world, a world constructed of mostly Band-Aids, the food bank would be that synonym. Why attempt meaningful social change when you can hand out dusty cans of pasta sauce for which some solid citizen paid retail price?

But perhaps it was their balance sheets that looked attractive to CI. After all, in 2016, that’s where charities essentially lived—on their balance sheets. Ask anyone on the street the one thing they know about what makes a deserving charity and they are likely to say it’s the one spending less on overhead. “Like, uh, 10 or 15 percent or something like that.”

Left unchallenged, the myth of the 15 percent means Canadian charities will lead the charge on absolutely nothing—not climate change, a cure for cancer or world hunger. And here are the ten reasons why:

1. It makes board members stupid. The cost of overhead is often the only number many members of Boards of Directors care about when they look at financial reports, ignoring numbers that could give them a sense of how effective the charity is at fulfilling its mission.
2. It makes charities stupid. Designing financial tools around measuring overhead and administration as priorities means you don’t get the reports you need to actually see how you’re doing in relation to your mission.
3. It guarantees mismanagement among charities. A 15 percent cap on administration means essential resources for effective management—program evaluation, professional development and evaluation, strategic planning, long-term goal setting—go by the wayside as “administration.”
4. It impedes progress on issues. When the criterion of a “good” charity is keeping a 15 percent limit on your administration, what happens to your success in making the world a better place?
5. It keeps the people who work in the program area of the sector among the poorest paid people in the country. Fundraisers aside, the majority of people working in the nonprofit sector, like personal support workers, toil away at hourly rates of between $14 and $18. Not exactly McDonald’s wages, but having someone’s life in your hands is not exactly a Big Mac either.
6. It makes charities liars. Charities and auditors everywhere bend over backwards to make sure their admin expenses don’t exceed the 15 percent, “hiding” perfectly justifiable expenses (in a sane world) in other line items so a charity doesn’t see what it’s actually spending money on.
7. It institutionalizes inequity among organizations: $1 million is not always $1 million in the charitable sector. If 80 percent of your organization’s $1 million is from government and 10 percent comes from the United Way, the amount of money you have to raise is $100,000 and the resources you need to do that won’t break the bank. But if you get no government funding and are not a member of a United Way, your $1 million organization is dependent on a large number of small donations and the resources you need to generate that revenue are considerable, thus increasing “overhead.”
8. It institutionalizes inequity. Period. When an organization has a smaller number of large donors as opposed to a large number of small donors, the process of administrating that organization takes substantially less resources. So if you are friends with big government, big institutions, and big money, your position of “good” charity is all but guaranteed. If not, then your designation as a “bad,” administratively heavy charity is also all but guaranteed.
9. There is no threshold for risk. Risk-taking and experimentation with the world’s most intransigent problems should involve trying new things. Overhead caps prevent “wasting” money on things that may not work.
10. It sets up the wrong criteria for project success. Evaluative measures on charity projects are often transactional as opposed to taking a mission-oriented view, i.e., $10,000 = # of workshops delivered, as opposed to $10,000 = movement toward ending hunger.

What can be done?

Stop talking about money all the time. You are on the earth to change the world. Talk about that.

While you are at it, stop pandering to self-styled overseers like Charity Intelligence, who had their charitable status revoked in 2013 for failing to file proper CRA returns. The status later was reinstated when they made the same filings everyone else in the sector has to make.

But if it were up to me, someone who has a job to do and who sees this asinine scenario play out every day? If it were up to me, you’d print out this column and distribute it at your next board meeting.

Call it a report from the front line.

This article was posted in its original form at the Hilborn Charity eNews site. Hilborn is the publisher of Gail Picco’s nonfiction book, Cap in Hand: How Charities Are Failing the People of Canada and the World.