What Percentage of Donations Go to Charity
You work hard for your money. So when you choose to donate your money to charity, how can you be sure the nonprofit organization will use your money properly?
There are a couple of things for you to do and consider.
First, do your research before donating. Take a few minutes to visit the charity profiles here on this site, as well as the nonprofit’s website where you can view their annual report, financial statements, and information about how they’re making an impact.
Secondly, when looking for charities to support, we encourage donors to check with charity validators like BBB Wise Giving Alliance and Candid (formerly GuideStar), two of the most highly regarded charity validators in the nonprofit and private sector.
- The BBB Wise Giving Alliance Standards for Charity Accountability were developed to assist donors in making sound giving decisions and to foster public confidence in charitable organizations. The 20 standards cover governance and oversight, measuring effectiveness, finances, fundraising, and informational materials.
- Candid (formerly GuideStar) is designed for nonprofit organizations to show their commitment to transparency and communicate directly with stakeholders.
Lastly, learn more about the Overhead Myth. It’s understandable that you want to invest in a cause, not line a nonprofit executive’s pocket. But the fact is that overhead—the percent of charity expenses that go to administrative costs versus program costs—is a poor measure of a charity’s performance. Overhead is a simple financial ratio that tells us nothing about a nonprofit’s true impact or effectiveness. In fact, with clever accounting, a nonprofit can skew their ratio. It’s far more useful to focus on true indicators of a nonprofit’s performance: transparency, governance, leadership, and results.
That is not to say that overhead has no role in ensuring charity accountability. At the extreme, 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 does 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.
Read more about the Overhead Myth campaign sparked by GuideStar, BBB Wise Giving Alliance, and Charity Navigator, and see the back of the letter for research from other experts, including our own Snapshot research—as well as Indiana University, the Urban Institute, the Bridgespan Group, and others—that proves the point.
So when you are making your charitable giving decisions, consider the whole picture. The people and communities served by nonprofits don’t need low overhead, they need high performance.
Key Stats and Facts
The following information from the Overhead Myth website shows that the overhead ratio is imprecise and inaccurate when it comes to measuring a nonprofit’s true performance:
Underinvesting in overhead creates a range of negative outcomes which undermine quality and sustainability:
Description of Underinvestment
1. Limited/no staff for administrative roles (e.g. finance, development, operations)
2. Limited investment in staff training and development
3. Inexperienced staff for administrative roles
|4. Poor IT infrastructure
|5. Poor donation management systems
|6. Poor performance management systems
Visit http://overheadmyth.com for more information like this.