If you were a wealthy person and you gave, say, a million dollars to a charity working on building wells in Africa, you might expect (if you didn’t think about it too hard) that your money would go entirely toward those wells. That the group has to develop its own ideas and infrastructure to make sure it all goes off without a hitch is nice, but you’re not donating to pay the salary of a nonprofit worker: You want your money to do good. Many donors, following this logic, don’t want to spend money on back-end costs like buildings, equipment, leadership training, and salaries, when they could put cash directly toward a field project to make a tangible impact on the cause. And thus–even though it’s sort of like backing Google to roll out a search engine but not backing the servers and engineers to support it–they put restrictions on their donations: Those must not go toward what are called “indirect costs.”
“Our generation does not want its epitaph to read: ‘We kept charity overhead low.’”
This idea is known as “the overhead myth,” an industry catchphrase for what nonprofit watchdogs like Guidestar, the Better Business Bureau Wise Giving Alliance, and Charity Navigator, refer to in an open letter campaign as “the false conception that financial ratios are the sole indicator of nonprofit performance.”
And it’s a large problem: 75% of all U.S. foundation grant making is restricted, according to a 2011 National Committee for Responsive Philanthropy report. As Co.Exist has previously reported, the top U.S. foundations only allocate about 15% of their funding to indirect costs, according to a recent Bridgespan report. The result fuels another catchphrase–“the starvation cycle”–for where groups become so chronically underfunded that they have to spend their own resources chasing more money for more support, which hurts their ability to accomplish anything at all.
Read the full article @ Fast Company
