Should Nonprofits Appease Funders’ Overhead Concerns?

Funders are increasingly skeptical about how their donated resources are managed

This remains one of the hot topics of the nonprofit world, considering the hard fact that today’s nonprofit organizations (NPOs) are subjected to funding restrictions. The thing is, donors are not always confident that their philanthropic dollars will be used for their intended purposes. This is their way of reacting to the sector’s undignified credibility after years of exposure to public disrepute over reports of fiscal indiscipline on the part of NPOs—leaving the sector with a stained image. Public scrutiny of overhead costs is the biggest challenge facing today’s NPO managers. However, in order to allow for effective spending, sound infrastructure, and ultimately generate charitable giving, NPOs must not succumb to intimidation induced by donors’ persistent demand for low overhead expenses.

Let’s take a closer look:

Charitable organizations are being scrutinized for spending ‘too much’ money on fundraising, advertising, accounting and technology. While these activities are directed at strengthening NPOs’ fiscal sustainability and performance, they are viewed as unnecessary pressure on a nonprofit’s budget because they are not directly related to programming.

Sadly, NPO leaders’ call for donors to focus more on project impact rather than costs, has yet to yield results  because funders are increasingly skeptical about how their donated resources are managed. As such, any cost that has no direct link to programming is considered a colossal waste.

But, today’s fast-paced economy requires NPOs to strengthen their effectiveness and efficiency in order to stay alive. They are under intense pressure to robustly explore innovative means to meet and exceed their mission focus. Yet, donors’ preference for low overhead expenses suppresses any attempt by organizations to hone their program quality and fundraising potentials. This leaves a rather scary future for the sector—it subdues organizational growth and ultimately undermines NPOs’ ability to effectively address those soaring social service issues. Excessive overhead obsession defeats innovation as it compels NPOs to shy away from daringly investing in robust infrastructure to improve program quality.

Moving forward….

  • Since it all boils down to the issue of impaired trust and confidence, it is incumbent upon NPOs to prove to the public that their donated funds are being used appropriately.
  • Nonprofit leaders must adopt certain ethical standards (conflicts of interest and whistleblower policies, no excessive compensation to executives, to mention a few) to strengthen their legitimacy in the public’s eye. Such governance best practice measures will improve financial accountability and transparency, and ensure that NPOs’ budgetary allocations are aligned with mission fulfilment objectives.
  • In sum, the screw on financial accountability needs to be further tightened; nonprofit leaders must exercise full control over their organizations’ fiscal and governance management in order to regain donors’ trust and respect—essential to shifting donors’ focus from overhead expenses to program result.

We would love to hear your thoughts. Should nonprofits bow? Please leave your comment(s) below…

4 Replies to “Should Nonprofits Appease Funders’ Overhead Concerns?”

  1. Ethics…
    A small word that means so much. It begins and ends with this. With every action you take, do you pause and think “how would this look in tomorrows newspaper?”. It does depend on the newspaper unfortunately, but this is where the thinking needs to be. Always with Ethics at top of mind…

  2. I am just amazed with your analysis. I mean it couldn’t be better cleared than how you wrote this article. I don’t think non profit should bow down, it shows red flag in my opinion, meaning you conceded to allegation by donors. Again, it depends on the historical path of certain non profit organizations. There are non profit organizations that have not live up to their mission statements and therefore has left some donors wondering and doubting the ethical responsibilities of recipients. Organization that can defend or that can justify their spending for improvement due to technology and others, should not now down.

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