Navigating Nonprofit Overhead

Transcription

1 Navigating Nonprofit Overhead Kate Barr, Nonprofits Kris Kewitsch, Charities July 23, 2015 OVERHEAD 1

2 SMALL GROUP/AUDIENCE RESPONSE: Why? Functional Expense Myths Salaries, rent, and evaluation expenses are overhead expenses. Ratio of program/overhead expenses measures efficiency. Overhead ratios are useful for comparing nonprofits to determine effectiveness. 2

3 Direct and Indirect Expenses Direct Expenses Indirect Expenses Expenses that are required to carry out a program May be exclusively for the program Frequently shared with other program areas Expenses that support the overall management of the organization Often called General and Administrative expenses or overhead Can be allocated to each program area 15 Functional Categories Program Services Providing goods & services to beneficiaries, customers, or members that fulfill the mission Management & General Planning, oversight & management of the overall organization, including governance & finance Fundraising Soliciting contributions, including volunteer & in-kind services 3

4 Measuring effectiveness? Six Minnesota youth development nonprofits Total expenses Program services Mgmt & General Fundraising A $ 1,085,561 70% 9% 20% B $ 948,565 72% 19% 9% C $ 4,268,914 66% 19% 16% D $ 3,452,182 80% 7% 13% E $ 5,329,656 76% 11% 12% F $ 1,424,234 83% 9% 8% True Program Costs 4

5 True Program Costs True Program Costs 5

6 True Program Costs Signs Program Expense Ratio Won t be Going Away At the extremes, overhead cost ratios can be a valid data point to investigate, and clearly do help identify fraud Copyright 2015 Charities Review Council. All Rights Reserved 6

7 Signs Program Expense Ratio Won t be Going Away Less than 30% program expense? No state charitable tax deduction for donations Copyright 2015 Charities Review Council. All Rights Reserved Signs Program Expense Ratio Won t Be Going Away Donors still expect worthy organizations to have low fundraising and administrative costs. Requires organization to certify its administration and fundraising rate. 7/20/2015 Copyright 2013 Charities Review Council. All Rights Reserved 14 7

8 Signs Program Expense Ratio Won t Be Going Away 7/20/2015 Signs Program Expense Ratio Won t be Going Away. 8

9 Small Group Discussion What is meaningful about measurement? What isn t meaningful? 7/20/2015 Copyright 2013 Charities Review Council. All Rights Reserved 17 Why Donors Give VS AND 9

10 Why Donors Give Make a difference Why Donors Give To feel appreciated 10

11 Why Donors Give Interest in Mission Why Donors Give Impulse 11

12 Why Donors Give Recognition Why Donors Give Benefit 12

13 Communicating Expenses Union of Concerned Scientists 2014 Baking a New Kind of Pie Use of financial resources WHY rather than WHAT 13

14 Working Together Communicating Impact Union of Concerned Scientists

15 Working Together Exercise Small Group What s an alternative way to talk about what you spend a donor s dollar? What s an alternative way to talk about impact? What will you do differently? What are the next steps for you relative to overhead? 15

16 True Program Costs Resources Resources Annual Report Checklist, Charities Review Council, Accountability Standards, Charities Review Council Overhead Myth The Way We Think About Charity Is Dead Wrong, Dan Pallotta Oregon Charity Law Punishes Nonprofits That Spend Too Much Money On Overhead Overhead Ratios are Essential for Informed Giving Thinking Fast & Slow Daniel Kahneman Six Reasons Donors Give Away Their Money, The Pitcher Group, 16

17 Thank You!