Accountability, Transparency, and the Overhead Myth by Kate Nelson

As one of this summer’s Standards for Excellence interns, I’ve been learning quite a bit about nonprofit management and governance. I have been continually impressed by the Standards for Excellence and the more I get to know them, the more I find myself thinking, “Of course!”  You see, after interning for a couple other nonprofits, I have seen some of the trends and challenges within the sector, and I came to Maryland Nonprofits armed with a zillion questions. I’ve realized that the Standards for Excellence program may be the source of some of the answers to my questions…

How do we address issues of accountability, effectiveness and sustainability in the face of the recent explosion of nonprofits over the past few decades? It is increasingly challenging to keep track of the multitude of organizations popping up, and although the trend towards philanthropy is inspiring, it seems as though few organizations are collaborating, instead opting to compete for funds with other potentially similar organizations. Further still, some nonprofits are poorly run or simply dishonest. This problem was highlighted earlier this summer in an article from the Bradenton Herald entitled “A Strong Case for Vetting Charities before Donating.” The story featured is one we’ve heard before: a seemingly well-intended organization raises millions of dollars from generous donors before investigations uncover fraud. To avoid potential hazards, the article essentially urges donors to do their homework before writing a check.

So, as responsible consumers and donors, how do we find out whether our dollar supports honest and effective nonprofit organizations? It is apparent that we need to ensure the causes and organizations we support are efficient and achieving results.

One way we can we make sure our dollars make a meaningful difference is smarter giving.

There has been a shift in thinking recently regarding charitable spending, as evidenced by the recent letter from the President & CEOs of Charity Navigator, BBB Wise Giving Alliance and Guidestar, some of the leading sources of information about the nonprofit sector. In an attempt to dispel the so-called ‘overhead myth’, these leaders begin the letter as follows:

To the Donors of America: We write to correct a misconception about what matters when deciding which charity to support. The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as “overhead”—is a poor measure of a charity’s performance. We ask you to pay attention to other factors of nonprofit performance: transparency, governance, leadership, and results.

The letter has received mixed feedback, but much of the nonprofit sector has reacted positively. According to the author of a Nonprofit Quarterly article entitled ‘Using Outcomes to Measure Nonprofit Success’ the letter is correct in saying that “the people and communities served by charities don’t need low overhead, they need high performance.” Some have been hesitant to drop overhead ratio as a metric altogether, suggesting that other evaluation methods may not be reliable. It is important to note that evaluating and measuring the success of nonprofits is a highly nuanced process, as Sara Schilling recently wrote in an article entitled ‘Doing the Math: Measuring Charitable Services is Not Always Straightforward’ featured in the Tri-City Herald.

In an excellent follow-up commentary the editors of Nonprofit Quarterly further explain why overhead cost is not always the best metric for vetting a non-profit, and further emphasize the importance of transparency, effectiveness and management. These measurements echo the Standards for Excellence program, an initiative designed to strengthen nonprofits by building capacity, accountability and sustainability.

Here at the Standards for Excellence Institute, we applaud leaders at BBB Wise Giving, GuideStar, and Charity Navigator for their letter and call to action. As Standards for Excellence Institute Program Director Amy Coates Madsen points out, “we, at the Standards for Excellence Institute, have been have been advocating this point that overhead is one small piece in the long list of considerations that individuals should consider when deciding which nonprofits to fund since the advent of our program fifteen years ago.”

The Standards for Excellence Institute has since become nationally recognized for strengthening nonprofits and holding them to a high level of accountability. In fact, the National Council of Nonprofits recently highlighted the Standards for Excellence in their newsletter as a program that truly understands and emphasizes accountability. Program Director Amy Coates Madsen further explains how the Standards for Excellence program calls for higher standards of accountability and transparency:

In our program, rather than provide a suggested threshold for what constitutes too little or too much overhead, we have always stated that each nonprofit board of directors should annually review the percentages spent on program, administration and fundraising. The Standards for Excellence: An Ethics and Accountability Code for the Nonprofit Sector also outlines a ratio for nonprofits to strive for regarding how efficient their fundraising activities should be. We also encourage donors to focus on “factors of nonprofit performance: transparency, governance, leadership, and results.” What we provide is the education and resources to help nonprofits demonstrate those qualities. The Standards for Excellence initiative focuses on encouraging nonprofits to embrace and carry out best practices in their leadership, management, governance, evaluation, transparency, financial, fundraising efforts. The effort outlines a set of standards nonprofits can and should follow, offers a comprehensive educational program, and provides a comprehensive tiered accreditation program as well. The Standards for Excellence program, which began as an initiative of Maryland Nonprofits, is now offered by nine licensed partners and promulgated by a cadre of licensed consultants across the country.

The Standards for Excellence Institute improves organizations by guiding them through a rigorous accreditation process to earn the Seal of Excellence, which can then act as a tool for donors to ensure that the organization they support will use their funds wisely.

So, in order to ensure that organizations are good stewards of the public’s trust and resources, it appears to be necessary to hold organizations to standards beyond overhead ratio. Looks like the Standards for Excellence Institute was ahead of the game on this one when the Standards were first published in 1998!

Click here for more information about the Standards for Excellence code.

 

Kate Nelson is a recent graduate from Dickinson College with a degree in International Studies and has held internships with several nonprofits before joining Maryland Nonprofits. As an intern for the Standards for Excellence Institute for the summer of 2013, Kate is learning more about nonprofit management and governance in hopes of starting a career path of utilizing innovative approaches to strengthening nonprofits and solving social issues.

 

 

 

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About Amy Coates Madsen

Amy Coates Madsen serves as the Program Director of the Standards for Excellence Institute.
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One Response to Accountability, Transparency, and the Overhead Myth by Kate Nelson

  1. nelsonk620 says:

    Reblogged this on Work in Progress and commented:
    Blog post I contributed to the Standards for Excellence Institute during my internship with Maryland Nonprofits.

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