Simon Cox Blog: Charity Navigator's Overhead Overhaul

Friday, 23 September 2016

Charity Navigator's Overhead Overhaul

New charity guidelines put ‘support expenses’ in a better light.

The pie graph showing Operation Blessing International’s expenses (above) is almost completely bright blue. Just two tiny slivers show that less than 2 percent of its budget goes to administrative and fundraising costs.

Those slivers make up the ministry’s overhead—a necessary component of charity work that has long been questioned by donors and downplayed by nonprofits.

But new metrics from Charity Navigator, the country’s top charity-rating site, represent ongoing efforts to de-stigmatize overhead in favor of a broader picture of financial health.

Operation Blessing is a humanitarian aid group with a budget of $250 million. Like most nonprofits, it emphasizes efficiency and assures donors it will “leverage every dollar of support to bless as many people as possible.”

That reassurance is necessary because a third of US donors believe charities can’t be trusted to handle money well, according to aChronicle of Philanthropy poll.

Donors are most concerned that nonprofits spend too much on themselves. In the 2015 poll, 40 percent said leaders are paid too much; 37 percent said too much was spent on salaries or other administrative costs. And though 68 percent said they gave based on a charity’s effectiveness, half said they preferred organizations with low overhead.

But the negative perception of overhead spending has started to shift. Philanthropy experts have backed away from the longtime go-to measure of nonprofit financial health. And the country’s largest charity-rating system recently adjusted its financial metrics, including reducing requirements for administrative expenses.

“Overhead does matter, but it shouldn’t be the only thing that donors look at,” ...