Charity Overhead Should Be 23 Percent, But Most Spend Much More: Report

By Patrick Sullivan, The Nonprofit Times

The difference between what nonprofits should spend and what they actually do spend, is about 14 cents -- at least in the mind of the average person.The average American believes that a charity should spend no more than 23 percent on overhead but that charities actually spend 36.9 cents on the dollar. These were some of the findings in “Where’d My Money Go?,” a survey by Phoenix, Ariz.-based Grey Matter Research & Consulting.

One in five Americans, about 21 percent, believe that nonprofits spend 20 to 29 percent of donations on overhead. Some 65 percent believe nonprofits spend less than 50 cents for every dollar on overhead, with 9 percent saying they believe charities generally spend less than 10 cents for every dollar on administrative expenses. About 8 percent believe nonprofits spend more than 80 percent on overhead.In terms of what Americans think charities should spend administratively, 27 percent said it should be 10 to 19 cents of every dollar, and 24 percent believe it should be 20 to 29 cents. Only 18 percent of those surveyed said that 40 percent or more is a reasonable amount to spend on overhead.

The survey, released Tuesday, is an update of a 2008 study of the same name. Grey Matter President Ron Sellers said he wanted to revisit the public’s perception of charities after the recession. “So much has happened, financially and socially” since 2008, he said. “Nonprofits are struggling, and there seems to be a concentration on intelligent financial design, belt tightening, things like that. I was curious whether any of that had any effect as to how people saw nonprofit organizations,” he said.Only one thing surprised him: how similar the recent results were to 2008. “I expected at least some variation. It was so identical I had to re-check the figures and make sure we didn’t use the data from 2008,” he said.

“From our experience, donors in general and the general public have, in many cases, unreasonable expectations about how much a charity should be spending on overhead,” said Bennett Weiner, chief operating officer of the Better Business Bureau Wise Giving Alliance (WGA) in Arlington, Va. “This expectation is fueled by a lot of influences but has been around for some time.”

The WGA recommends fundraising costs not exceed 35 percent of related contributions, but Weiner suggested that the public look at more than just the statistics. “Ratios in general can result in false positives,” he said. “You may have an organization with excellent numbers, but it may not have good governance, or have much of an impact with its mission. That’s one of the limitations of looking at finances alone.”

About 62 percent of Americans think that nonprofits spend more than is reasonable on overhead; a quarter believe they spend exactly what’s reasonable, and 13 percent believe they spend less than what they consider reasonable. There was some variation among certain demographics but not a lot.

Only 52 percent of Americans aged 18 to 34 believed charities spend more on overhead than is reasonable, but 69 percent of those respondents aged 50 and above believe nonprofits spend more than is reasonable. The less a person earns, the lower the likelihood is that they believe nonprofits spend more than is appropriate. For those with yearly household incomes less than $30,000, 55 percent think more than a reasonable amount on overhead is generally spent, compared to 70 percent for those making more than $100,000 per year.

There was very little variation on the amount people thought charities actually spent on overhead, but the range of what people thought was appropriate was slightly greater. People aged 65 and older thought 19.2 cents on the dollar was appropriate, which was the lowest figure, while African-Americans felt that 28.4 percent of donations was reasonable for overhead, the highest among the various demographics. Political and religious leanings did not make much of a difference either, though Democrats and those with no religious preference had the lowest percentages of those who thought not-for-profits spend too much on overhead.

This story originally appeared in The NonProfit Times