More voices taking on the “overhead myth”

If you read this blog, you have probably already heard of the combined efforts of Wise Giving Alliance, GuideStar and Charity Navigator to take on the “Overhead Myth”. They join a long list of voices criticizing the overuse of overhead ratios.

New Voices

The three organizations have issued an open letter to the donors of America saying that it takes more than the simple overhead ratio to assess whether you should give to a charity. (The CPAs I know have been saying that for decades. I include myself in that group.)

Their letter says in part:

The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as “overhead”—is a poor measure of a charity’s performance.

We ask you to pay attention to other factors of nonprofit performance: transparency, governance, leadership, and results.

A new website, The Overhead Myth, provides a platform for presenting their comments.

A superb FAQ page addresses a lot of misunderstandings about overhead. You might be able to direct donors there for background on many ideas.

An ‘in the news’ page highlights a few of the many articles on overhead in general and this initiative in particular.

Existing voices The more the merrier!

The Chronicle of Philanthropy puts this into context in their article 3 Major Charity Groups Ask Donors to Stop Focusing on Overhead Costs:

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.

There are many loud, strong voices that have been in this conversation for a while, such as Dan Pallotta, and the Stanford study on Starvation Cycle.

Saundra Schimmelphenning published a great book on overhead ratios in early 2012 which I discussed then:  Lies, White Lies, and Accounting Practices. Check it out. You’ll learn some detail reasons why you ought not pay too much attention to the overhead ratio.

Even this little bitty blog has over a dozen posts talking about the problems with the overhead ratio.

There has been a lot of good discussion about the open letter. I do hope the discussion gains momentum. And even more voices.

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