Nonprofit Grading System Based on Overhead Cost a Thing of the Past?

June 17, 2013 Posted by Jessica Shofler in Fundraising, News

Is looking at a nonprofit’s overhead costs a good measure of its effectiveness? The leaders of three leading sources of nonprofit information – GuideStar, Charity Navigator, and BBB Wise Giving Alliance – recently wrote an open letter answering this question with a resounding NO.

The letter reasons that focusing solely or predominantly on overhead(the expenses that go to administrative and fundraising costs) creates “The Nonprofit Starvation Cycle,” which doesn’t allow charities the freedom to best fulfill their goals and objectives.

But who started this “Starvation Cycle?”

It is this firm’s observation that the practice of evaluating nonprofits based on overhead was both created and exacerbated, at least in strong part, by the practices of Charity Navigator and, to a lesser extent, BBB. Perhaps the open letter would be more effective if these organizations’ leaders owned up to their roles in creating the cycle in the first place. Then it might be easier to understand the origin of the practice and how best to get rid of it.

In the meantime, this is a step in the right direction.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits,1812 W Burbank Blvd, #7445, Burbank, CA 91506

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