Overhead Stigma Creates a Vicious Cycle
That’s not to say that abuse and bad decisions have never occurred in the nonprofit sector. Your desire to monitor overhead stems from a sensible need to ensure that funds aren’t being misallocated and that your contributions are being spent wisely. But these factors shouldn’t be your only considerations when you’re gauging an agency’s health and effectiveness.
The burden of maintaining unrealistic overhead negatively impacts an agency’s ability to carry out its core mission. As a result, agencies are forced to underfund their administrations, which already lack modern technology and sufficiently trained staff. On top of that, in fear of losing support, nonprofits often underreport overhead expenditures. This is called “the nonprofit starvation cycle."3
The “Nonprofit Overhead Cost Study"4 researched this vicious cycle by surveying 1,500 nonprofits and examining more than 250,000 charities’ IRS Form 990s. The study found nonfunctioning computers, ill-equipped staff members and beaten-down furniture that even professional movers refused to transport.
Likewise, my agency’s anonymous partner agency survey found that the better an agency can complete its evaluative processes, the better positioned it is to acquire additional resources. However, our donors indicated that underpaid, overworked and less skilled staff members meant that the agencies worked so hard on their year-end reporting that their programs likely suffered. With limited funds, they make tough decisions between administrative tasks and direct services.
As a funder, you have to ask yourself whether this is really what you want in a nonprofit that you’re going to invest in.
Charities can’t change the world when they’re working under conditions like these. Every type of business — including nonprofits — requires solid IT systems, a qualified staff, sufficient skills training and quality control systems.
To successfully run an agency and help others, nonprofit employers must have the resources to offer competitive salaries and benefits. Working for a nonprofit demands passion and heart for taking meaningful action. Nonprofit work is more than just a job; it’s a calling, and it deserves appropriate training and a fair income.
Nonprofits touch a deep need in the world, but without proper funding and the ability to develop a strong infrastructure, they won’t be able to fulfill their purpose. The next time you’re considering donating, don’t base your decision on overhead alone. Instead, understand that your money helps nonprofits help themselves so they can be the change in the world.