New York’s Donors Still Interested in Overhead Expenditures

January 24, 2017; You.Gov

The results from YouGov’s latest poll of people in New York who give to charity bring some good news and bad news. Almost half of the respondents who donated in 2016 indicated that they would be giving again in 2017, with 34 percent indicating that they would be giving more money this year. The fact that donors are preparing to be even more generous would be great—except that the survey also found that donors are still awfully focused on overhead expenditures.

Over 72 percent of respondents would want to know how nonprofit organizations spend money on overhead. Furthermore, this concern is correlated with income level, with a greater number of individuals at higher income levels being concerned with overhead spending. Perhaps this is because their gifts are larger and they want to know how their money is being spent. Or, more likely, perhaps it’s because they have been taught for years to hold this as a primary standard.

But, as was noted in “The Nonprofit Overhead Baby and the Bathwater: A Need-to-Know for Boards,” there are some internal uses for the ratio. Moreover, recent scandals may have convinced a portion of the public that the need for transparency as regards overhead or how much of each dollar donated goes to services makes sense. The problem comes, however, when overhead expenditure becomes misconstrued as a measure of effectiveness for a nonprofit organization. Overhead ratios are a measurement of input, not output, and a focus on this one variable detracts from an understanding of the true effect the nonprofit has in its community.

The Better Business Bureau, GuideStar, and Charity Navigator came together in 2013 and wrote a letter addressed to the donors of America regarding “The Overhead Myth.” In it, they say:

We ask you to pay attention to other factors of nonprofit performance: transparency, governance, leadership, and results. For years, each of our organizations has been working to increase the depth and breadth of the information we provide to donors in these areas so as to provide a much fuller picture of a charity’s performance.

That is not to say that overhead has no role in ensuring charity accountability. At the extremes the overhead ratio can offer insight: it can be a valid data point for rooting out fraud and poor financial management. In most cases, however, focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance does more damage than good.

While it is damaging to unnecessarily focus on overhead expenditure, there is some merit in knowing this information, as it can point to potential management flaws and room for improvement. Furthermore, in the spirit of good customer service, if donors want to know this information, it would behoove nonprofits to make it available. However, rather than providing a ratio or even a pie chart, perhaps a narrative or infographic is better suited to presenting this information. In writing for NPQ, Curtis Klotz presents several visual representations of overhead that not only relay pertinent information but also present overhead as an integral component of core mission support. At the end of the day, don’t donors just want to know that their gift made an impact on the mission they felt so strongly about?— Sheela Nimishakavi