transparency

Transparency and the ‘Overhead Myth’

Because we recognize that our committed supporters care about the financial responsibility of the organizations they support, we wanted to share a joint statement released this week by the leaders of the three principal organizations that monitor and rate nonprofit effectiveness.

BBBThe open letter to America’s donors signed by the CEOs of GuideStar, Charity Navigator and BBB Wise Giving Alliance marks the beginning of a campaign to correct the common misconception that overhead — the percentage of a charity’s expenses that go to administrative and fundraising costs — should be the sole measure of nonprofit performance. Studies from Indiana University’s Center on Philanthropy, the National Center on Charitable Statistics at the Urban Institute and the Bridgespan Group back up this statement.

In response to donor expectations and funder requests, the nonprofit sector, which all three organizations provide information to and about, has often erroneously focused too heavily on overhead over the past few decades, which has prevented some nonprofits from investing in themselves as enterprises and created what the Stanford Social Innovation Review calls “The Nonprofit Starvation Cycle.”

guidestarAccording to the letter, “Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems — as well as their efforts to raise money so they can operate their programs. When we focus solely or predominantly on overhead … we starve charities of the freedom they need to best help the people and communities they are trying to serve.”

The message isn’t new, but this is the first time the three nonprofit reporting organizations are working together to make the public aware of all the important factors in charity accountability.

charity navigator“All three of our organizations — BBB Wise Giving Alliance as well as Charity Navigator and GuideStar — have been speaking publicly but separately for some time about the need to shift the conversation from overhead to impact and broad accountability standards,” said Art Taylor, president and CEO of BBB Wise Giving Alliance.

“Through this campaign, we want to encourage donors to give with their heads as well as their hearts, and consider the whole picture when determining which charities to support,” added Jacob Harold, president and CEO of GuideStar. “As we wrote in our open letter to donors: ‘The people and communities served by charities don’t need low overhead, they need high performance.’”

Ken Berger, president and CEO of Charity Navigator, noted, “A one-dimensional focus on overhead is not the right way to assess a charity’s performance. We believe that for a donor to correctly assess a charity, the organization must be viewed on three dimensions: its financial health (not just overhead), its governance practices and the results of its work.”

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