Charity donors need to know about the organisations they give to and that they are making an impact and being efficient, but the size of their overheads is a lazy proxy for that
Opinion: Each year New Zealanders give about $1.5 billion in personal donations to charities and charitable organisations. We are a generous bunch when it comes to opening our wallets for something we care about.
While we happily give our hard-earned cash to support rescued cats, tree planting, or bed nights for our local refuge, I doubt we would be so quick to donate if we knew our cash was going to be used for overheads – rent, staff salaries, power bills, and the like.
We aren’t alone in not wanting to fork out for overheads. Government agencies and philanthropic trusts fund activities and programmes but are often not so keen to fund the full costs of delivering them.
This leaves many not-for-profits in a pickle.
To get and keep good staff costs money. New IT systems cost money. Piloting new programmes costs money. While these are critical to supporting cats being rescued or lives being saved on the beach, they belong in the overhead bucket.
And that’s a bucket many of us who give donations or grants are allergic to.
Overheads are seen as money ‘wasted’ because they don’t directly contribute to the cause. Slim overheads are often used as a measure of how effective a not-for-profit is.
This ‘overhead myth’ drives a ‘starvation cycle’ in many not-for-profit organisations.
To be worthy of donations or grants, not-for-profit leaders minimise their overheads usually by not investing in staff or systems development. They don’t invest in innovation. Systems degrade, making work inefficient. Staff are not upskilled or retained.
The hamster wheel continues, meaning many organisations delivering critical services in our communities do so on the smell of a torn oily rag.
And we, the kind people who donate, are part of the problem. We want to donate to organisations that are throwing every cent at the cause we care about, not for IT upgrades or power bills.
But this attitude means we are likely getting less bang for our donated buck as we feed that starvation cycle, degrading organisation capability over time.
Transparency and accountability are critical for us to have confidence to keep giving.
We who donate need good information about the organisations we give to. We need to know they are making an impact. We need to know they are doing that efficiently.
But the size of their overheads is a lazy proxy for that.
Larger not-for-profits are now expected by government regulation to report annually not only their audited accounts for transparency, but also on what impact they deliver.
As donors, we should focus on this impact data, demanding transparency about results.
That is where it all gets real. Those who stand to lose the most from the overhead myth and starvation cycle are not us the donors, but the beneficiaries of the amazing work many charities and not-for-profits do in our communities.