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Giving in Florida takeaways: Focus on outcomes, not overhead
By Alyce Lee Stansbury, CFRE, Notes on Nonprofits
Florida donors are concerned about how much nonprofits are spending on overhead and administrative expenses.
This is one of the big takeaways from the Giving in Florida report released by the Florida Nonprofit Alliance (FNA) with research conducted by Indiana University Lilly Family School of Philanthropy and funding from the Jessie Ball Dupont Fund.
I am frustrated we are still talking about this issue almost 10 years after author and activist Dan Pallotta’s TED talk titled, “The way we think about charity is dead wrong” went viral and was viewed over 4 million times. Not long after Dan’s talk, Charity Navigator, Better Business Bureau Wise Giving Alliance, and Guidestar coined the name The Overhead Myth to dispel the misconception that administrative expenses are not mission related.
Mismanagement is rare
In its report, FNA acknowledges there are examples of financial mismanagement but says they are “rare among the 98,000 nonprofits in Florida. Most nonprofits operate in ethical, transparent ways that maximize their resources to provide quality services and work towards achieving their mission.”
Overhead is generally defined as a combination of management, general and fundraising expenses. Overhead ratio is the amount of a nonprofit’s revenue dedicated to costs that don’t seem to be associated directly with program delivery. These typically include salaries, rent, technology, utilities, staff training, and insurance.
Describe overhead as funding core mission work
The Giving in Florida report reveals overhead is an issue for some donors and, in some cases, a stumbling block to greater giving. FNA believes the disconnect between what donors perceive, and what
is happening, stems from how nonprofit expenses are defined as overhead or indirect costs.
On the surface, these costs appear to be taking away from the program work. However, administrative costs are vital to the success of the programs and services provided.
Further, without overhead costs, program outcomes are not possible. Because overhead expenses are not optional, FNA proposes they be described as “funding core mission work.”
Focus on outcomes, not overhead
It is up to the nonprofit sector to be clear and transparent about the true cost of delivering services and to advocate for more effective ways to measure results.
A low overhead does not guarantee better results and, in fact, likely means the organization is starving itself with outdated equipment, lack of technology, low salaries, and run-down facilities. This results in what Stanford Social Innovation Review describes as the “nonprofit starvation cycle.”
A message to Board members
It is critical for Board members to understand the true cost of providing services and to advocate with funders and donors about these costs. This includes stopping the practice of describing direct costs as mission and indirect costs as overhead. They are both mission and cannot exist without the other.
To learn more about this issue and other outcomes of the Giving in Florida report, plan to attend an in-person presentation by the Florida Nonprofit Alliance at 10 a.m. Sept. 29 at Theatre Tallahassee, 1861 Thomasville Road. The event is co-hosted by Community Foundation of North Florida, Institute for Nonprofit Innovation and Excellence, and United Partners for Human Services. Register at flnonprofits.org.
I’ll close with a quote from Dan Pallotta, “The next time you are looking at a charity, don’t ask about the rate of their overhead. Ask about the scale of their dreams.”
Notes on Nonprofits is a column in the Tallahassee Democrat produced by Alyce Lee Stansbury, CFRE, President of Stansbury Consulting, and includes resources, responses to reader questions, guest columns, and timeless topics. This column first appeared on Sunday, September 25, 2022. Please send your comments and questions.