Letter to the Donors of America

The following letter to the donors of America was penned by the leaders of the country’s three leading sources of information on nonprofits – GuideStarCharity Navigator, and BBB Wise Giving AllianceThe letter is made available the the public under the Attribution-NoDerivs Creative Commons license, which allows for it to be shared and distributed for any purpose so long as it remains unchanged. You may download a PDF of the letter here

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To the Donors of America:

We write to correct a misconception about what matters when deciding which charity to support.

The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as “overhead”—is a poor measure of a charity’s performance.

We ask you to pay attention to other factors of nonprofit performance:  transparency, governance, leadership, and results.  For years, each of our organizations has been working to increase the depth and breadth of the information we provide to donors in these areas so as to provide a much fuller picture of a charity’s performance.

That is not to say that overhead has no role in ensuring charity accountability. At the extremes the overhead ratio can offer insight: it can be a valid data point for rooting out fraud and poor financial management.  In most cases, however, focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance can do more damage than good.

In fact, many charities should spend more on overhead.  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.  These expenses allow a charity to sustain itself (the way a family has to pay the electric bill) or to improve itself (the way a family might invest in college tuition).

When we focus solely or predominantly on overhead, we can create what the Stanford Social Innovation Review has called “The Nonprofit Starvation Cycle.”  We starve charities of the freedom they need to best serve the people and communities they are trying to serve.

If you don’t believe us—America’s three leading sources of information about charities, each used by millions of donors every year—see the back of this letter for research from other experts including Indiana University, the Urban Institute, and others that proves the point.

So when you are making your charitable giving decisions, please consider the whole picture.  The people and communities served by charities don’t need low overhead, they need high performance.

Thank you,

 

Art Taylor
President & CEO
BBB Wise Giving Alliance

Jacob Harold
President & CEO
GuideStar

Ken Berger
President & CEO
Charity Navigator

10 thoughts on “Letter to the Donors of America

  1. It is no myth when many of the charities that you speak about pay their “senior executives” in the several hundreds of thousands of dollars a year plus other perks. When I look at which charities to give my limited funds I look at compensation paid, and the cost of fundraising. When the cost of overhead is more than what is used for projects, something is terribly wrong and doesn’t pass the smell test. Like the old saying if it walks like a duck…. Garbage stinks, which is what I think of your excuses that enrich the executives at the expense of programs.

    1. If spending on overhead and compensation is more than is spent on programs, then I agree that you should not support such a charity. But I don’t know of too many organizations like this, except for Blossom Care Network (BCN), of which I am Executive Director (pay=$24,000)

      We are a start-up, just beginning to deliver services, so naturally our percentages are going to be heavily skewed until we are fully operational. However I am continually frustrated by the Overhead Myth. You see, our budget for next year is $180,000. Only $33,000 of that (18%) is going toward services. But we can leverage that $33,000 into nearly $200,000 worth of labor and materials. However that takes staff, in an office, on the phones/computers. But many people & groups won’t support BCN unless we can show that at least 80% is going to beneficiaries. I won’t play that game!

      Using “nonprofit math” we could report that 100% of donations went to beneficiaries. After all, $180,000 came in, and more than that amount went out to the intended recipients. And a lot of nonprofits, if fact the vast majority will report it exactly this way. Complete BS accounting! This not the way to run a business!. This practice is misleading to both donors and management, and one of the reasons that the non-profit sector (minus health care) continues to shrink.

      Base your assessment on results, not arbitrary overhead percentages. There are no regulations that dictate how charities arrive at their percentages, and most of them are utter nonsense. Chose organizations with integrity, that aren’t afraid to openly, honestly justify their spending with the results that they achieve. And understand that any healthy organization will have significant overhead and compensation expense. We want to keep this percentage at reasonable levels, but it’s not something to be ashamed of.

    2. Why do you think nonprofit executives should not be compensated in the same way for profit executives are compensated? Is their leadership and expertise less valuable?

  2. I agree with Lester Bratcher. I want to give. But there is no transparency in these organizations. What are the salaries of the executives? I want to give to those in need. So I give a twenty dollar bill to the family standing on the street. I trust they would not be standing on the street if they were not in need. I do not trust the slick mailers I receive. I can’t see what is behind that.

  3. Even nonprofit CEOs that make the money you speak of make a whole lot less than corporate CEOs. Where is the fairness in that?

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