Whether it’s spending money on groceries, mobile phones or charities, we all want bang for our buck. Telling the public that a large percentage of their donations goes to the program is an easy way for an NGO to look like they’re doing the right thing. However, in 2009, a joint press release from 8 charity-watchdog organisations stated that in trying to determine whether a charity is worth supporting, focusing on a low overhead ratio is meaningless. So why do so many NGO’s still talk about it when communicating to the public?
My guess is that it comes down to the perennial struggle between doing good development work and raising funds to support that work. Often, the former is a lot more complicated than the latter. And unfortunately, when it comes to conveying that information to the public from a quick glance at a website, or a short grab on TV, the complexities of it all often get lost.
The myth that organisations with low overheads are ones worth supporting has been actively propagated by the marketing departments of many large NGOs. Well, now there is a 20 page resource that well and truly blows this myth out of the water. Over at Good Intentions are Not Enough, Saundra Schimmelpfennig has written an excellent little eBook that will not only take just 10 to 20 minutes to read, but details exactly why stating that an organisation has low overheads is bad publicity, and also bad practice.
Possibly the easiest way to dispel this myth is by using the example that she does in her opening paragraphs. Imagine walking into a fast food chain and insisting that you will only pay for whatever costs make up the hamburger. You will only pay them a few cents for the cost of the bun, the hamburger patty, the tomato sauce and the pickles. What kind of a product do you think they would be able to produce then? Would such a business survive?
Similarly, NGOs need to be able to spend money on a variety of things if they are going to be viable organisations. They need to pay for qualified and professional staff, offices, office supplies, communications, innovation and yes, even marketing to get more funds.
Saundra goes on to tell us that not only are overheads necessary, but an organisation that claims that it has low overheads is likely to be doing this in a rather devious way – by simply fiddling with its accounting practices. An excellent and rather topical example of this is through the use of “Gifts In Kind”, where organisations take donated items such as clothing and pass them onto the recipients in their programs. As Saundra quite rightly points out, this is an example of the “tail wagging the dog”, where a type of program is chosen simply because the overheads are low, and not because it is actually needed or helpful.
As discussion continues around World Vision USA’s continued insistence on sending unwanted NFL T-shirts to African nations, Saundra states that “the mass donation of clothing has contributed to the destruction of local garment industries and high rates of unemployment”. Here is one pressing statistic that shows how destructive this practice is:
Used-clothing imports are found to have a negative impact on apparel production in Africa, explaining roughly 40% of the decline in production and 50% of the decline in employment over the period 1981-2000.
If, as Saundra states, the need to keep overheads low is pushing organisations such as World Vision USA to do bad development work, then the priority for those who care about good development is clear. We must actively dispel the myth of low overheads as an indicator of good development work. Once this irrelevant pressure is removed, we can instead start focusing on doing good development work.
So, what can donors and NGOs do to further dispel this myth? Here, at whydev, we love action points, so here we go again:
1) Download and read “Lies, White Lies, and Accounting Practices: Why nonprofit overhead doesn’t mean what you think it means” by Saundra Schimmelpfennig. Saundra has even made the price of the eBook determinable by the reader – which means you can pay nothing for it if you like (though I strongly suggest you throw even a few dollars in to compensate her for her time).
2) Get informed about which NGOs propagate this myth. This can be as easy as Googling key words such as “percent of money donated oxfam”, and then simply replacing “oxfam” with the name of another NGO. As a general rule, if an NGO is actively promoting a high percentage of money donated going to the program, you need to be sceptical about whether or not they are worth supporting. There are also a whole host of initiatives that Saundra mentions in her eBook, that aim to improve transparency, and bodies that you can complain to about NGOs that are creating this false standard.
3) Work to inform people about how meaningless this indicator is. Using low overheads as an indicator of good development work is tempting, but misinformed. This probably means that through a simple example, such as the fast food joint, we can get people thinking about how meaningless it really is. Whether it’s a dinner time conversation, or an aid forum, there is always an appropriate time to dispel such a harmful myth.
4) Instead of propagating a myth that is easy to market, NGOs should spend energy educating the public on what good development is. This sounds so ridiculously obvious when it is spelt out, but it’s often ignored rather than heeded. It’s far too tempting when people ask about percentages and overheads to simply answer with a number that they are expecting to hear. However, this only makes programs that are more meaningful increasingly difficult to run in the future, for fear of increasing overheads. In communicating with the public, NGOs shouldn’t use figures such as “for every $1 donated, $0.85 of your donated dollar goes directly to field programs that serve beneficiaries on the ground,” as has been done here.
In a class called “Ethics in Physiotherapy”, I recall learning about an old hypothetical that is highly relevant here. A patient comes to see you with chronic back pain that has lasted more than 2 years. You know that massage and other hands-on treatments are unlikely to do anything to fix this person’s problems, but rather, you need to start them on a combination of education and exercise. However, since the person has been told before that massage will fix it, they are insistent that you try that method on them. There’s also this old problem of the placebo effect – that if you do perform massage, their symptoms may be alleviated because their mind is so set on this being the correct treatment. Do you give them what they want, because you know that it may relieve them of symptoms, and therefore set up good return business? Or, do you spend the time educating them on which treatment actually has scientific evidence for solving their underlying problems?
Similarly, do NGO’s keep propagating this myth about low overheads, simply because that is now what the public wants to hear? Or do we spend our marketing dollars dispelling this myth once and for all?
You can download a copy of Saundra Schimmelpfennig’s eBook Lies, White Lies, and Accounting Practices via her site Good Intentions are Not Enough here.
You can follow this author on Twitter here.
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