Dear Charity Navigator: Don’t Backtrack on Overhead Now!

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Arrows crawl along the ceiling / Cameron Russell

October 3, 2016; Charity Navigator Blog

We understand that in any recovery process there may be relapses, but it is important to acknowledge and learn from them. Therefore, we are going easy on Charity Navigator with regards to its latest blog, wherein it declared the achievement of an administrative overhead of 15 percent as “excellent.”

In fact, CN completely deserted the rest of us by going back to (even emphasizing) a simplistic framework we are all trying to eschew as we transfer to a “full costs” model. Most of us have recognized that the manipulations required to land in an “excellent” place with regards to administrative overhead take some backward kinds of figuring that are good neither for nonprofits nor donors.

Administrative (or simply “Admin”) Expense Percentage looks at the amount of money spent on management and general expenses reported on an organization’s Form 990 in relation to its total expenses. Any cost that is not allocated to actual program work or to fundraising activities is allocated here. It is important to note that this total does not consist of ALL employee salaries, as a significant portion of a staff member’s salary may be allocated to program, if the employee’s work is mission-related. For example, an administrative assistant’s salary at an animal shelter may be an admin cost, while the salary of a veterinarian at the same shelter may largely be allocated as program.

When looking at admin expense percentage, we check to make sure an organization’s admin allocation is in line with other organizations performing similar types of work. For most organizations, anything less than 15 percent spent on admin is considered excellent and is worth full credit for this metric.

In the interest of keeping this short, I can only say, “Wha?” I return to Clara Miller’s analogy of a hotel: Would the check-in staff be considered non-mission-related? Absurd! These obfuscating and arbitrary metrics are a distraction to our work. We realize that it is still how things are reflected on the 990, but let’s try not to make it worse.—Ruth McCambridge

  • SophieB

    Unfortunately, this is not a relapse. Despite CN’s participation in the breaking the overhead myth letter which acknowledged that these costs are necessary organizational costs, they never did update their policies and metrics to reflect this.

  • R Wade

    We cannot and should not establish metrics FOR THE SECTOR. Let the sector find a correct level for itself. OOPS, we cannot do that without transparency and metrics that are standardized across the sector.

    Why do we, who observe, consult, and work with nonprofits stick our heads in the sand and try to justify why the sector is so unique. There may not be an acceptable metric that we can all agree on that is equivalent to ROI but if we would put our mind to the challenge of standardizing reporting across the sector we could evolve the question such that there could be an answer in the future. I truly believe that a significant percentage of individuals within and among the organizations in the sector don’t want to be comparable to others, using the excuse that we’re unique.

    If I as an individual donor or corporation and would like to write a check to the GScoutsA or the BScoutsA there is no metric available to me that indicates how each organization is performing. The standard answer is “look at what I’ve done in the past” or “look at what I’m doing now” — appalling is the only response that I can forward. If I solicited information from a financial firm or individual and wanted to invest for the future, they would have a plethora of predictive metrics that I could look at for industry segments and even within a segment.

    Nonprofits that rely on PASSION are going to fall by the wayside as the number of those emerging continues to increase at amazing rates, while the available philanthropy grows at a MUCH slower snail pace. There will be competition for my resources and I’ll continue to ask the questions about what will your organization do with my resources in the future.

    I can’t wait to finish my dissertation on a model that will bring SOME of the best practices from the for-profit sector to the nonprofit sector. Nonprofits should not and cannot be run as profit generating business entities but they should be able to be accountable for their organizational capability and be able to be transparent when compared to any other like organization within the sector. We can no longer communicate using Outcome Measures or Performance Management statistics alone, yes they are a part of the overall picture but they are not the overall picture.
    Respectfully Submitted
    Ronald L. Wade

  • Marilyn Brown

    Wonder what CN’s admin expense percentage is? Seems it would be a lot of overhead…………….. Not much programming but a lot of monitoring.