Nonprofit Overhead

It often causes troubles when nonprofit managers are trying to describe how their organization fulfills its mission to potential donors, but, as the excellent book, Uncharitable: How Restraints on Nonprofits Undermine Their Potential, explains:

“Overhead is a Fiction

“The very thing we are trying to measure is a phantom. We are taught to think of overhead as the enemy of all good causes. Its evil is supernatural. But there is no such thing as overhead—not as we have been taught to think about it, as something separate and distinct from the cause itself.

“The definition of a cynic has been said to be a person who knows the cost of everything and the value of nothing. The issue of nonprofit overhead ratios is a cynic’s paradise. When we ask, “What percentage of my donation goes to the cause?” we are asking about overhead, and we give rise to this illusion of something other than the cause—something that has little or no value to the cause. We create a sharp dividing line between one kind of expense and another kind of expense, both of which are going to help the cause but one of which we are told is not. The word “overhead” explicitly encourages us to create a distinction about expenses that has no basis in reality. Not only is what we call overhead not bad, it’s not not going to the cause. In fact, it is. The distinction is a distortion.

“One hundred percent of the money we donate to charity goes to charity, unless one kind of fraud is going on or some kind of ineptitude. And if there is fraud or ineptitude, asking what percentage of donations goes to the cause is hardly likely to reveal it. People who commit fraud don’t report it in line-item detail. People who are inept are as inept at reporting their overhead percentages as they are at performing good works. Absent these problems, we should assume that every cent out of every dollar we give to charity is going in good faith to serve some kind of charitable purpose, as the charity best sees fit to serve that purpose.” (pp. 162-163)