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So what if 90% of money donated goes to the program?

So what if 90% of money donated goes to the program?

Barnardo’s UK makes an active point of describing how low their overheads are.

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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Weh Yeoh

Co-Founder & Board Member at WhyDev
Weh Yeoh was born in Sydney, Australia, and has lived, volunteered and worked in Cambodia for the past 3 years. He is a professionally trained physiotherapist who has completed an MA in Development Studies. He has a diverse background, having travelled through remote parts of Asia, volunteered in an orphanage and adult shelter for people with disabilities in Vietnam, interned in India, and studied Mandarin in Beijing. He is an obsessed barefoot runner and connoisseur of durian.

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12 thoughts on “So what if 90% of money donated goes to the program?

  1. You made some good points there. I looked on the internet for the issue and found most people
    will approve with your website.

  2. My

    Some really interesting information, well written and broadly user pleasant.

  3. > if an NGO is actively promoting a high percentage of money donated going to the program, you need to be sceptical

    I disagree. If one charity spends 80% on programs and toots their own horn about it, and another quietly spends 80% on programs, what does it matter? Marketing is run pretty separately from programs, so if someone in donor relations realizes donors want to see that number, it says nothing about the efficacy of the program work that organization is doing.

    When I worked for a large nonprofit, the number one question donors called to ask was about program vs. administrative cost breakdown. The fact that we made that information easily accessible on our website (partly to reduce the number of people who phoned us to ask, thus saving employee time!) says nothing about the field work we were doing.

    Evaluate charities based on what they are getting accomplished, not their marketing tactics.

    1. Thanks Julia, I agree, but up until a point. Yep – program work and marketing are completely different things. But in the case of the myth of low overheads, marketing is driving poor program work. If NGOs actively promote low overheads as a meaningful indicator of good development, then they are essentially making it more difficult to do development that drives the overhead higher. Unfortunately, good programs need high overheads at times. The need for donations is driving the program, rather than the needs of the people in the program.

  4. […] Here’s another way of thinking about it, courtesy of Good Intentions are not Enough’s Saundra Schimmelpfennig: 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? NO! And for the same reason, NGOs can’t be expected to have teeny-tiny overhead costs. […]

  5. […] So what if 90% of money donated goes to the program? – whydev […]

  6. M Feldhof

    The public has a right to know how much of their donation is benefiting the people an NGO’s marketing promises it will. This is a crucial piece (but not the only piece) of the information necessary for donor and service provider (NGO) to come to an agreement.

    Consider this example. Imagine you go and buy a hamburger for your friend John who lives across town. The advertising says that John will get a nice meaty burger with cheese and pickles. You hand over your cash. You wait a while (the kitchen staff are all away on a “team day”) and then the delivery guy leaves to deliver the burger to John. Unfortunately when John opens the package, there’s maybe one mouthful remaining. The well-fed staff out back have been taking bites out of it. Then the driver took a bite. When the burger gets to John there’s not enough remaining to satisfy his hunger as the advertising promised — and as was implied to you in the contractual agreement you entered when you handed over your cash. You paid to get John a burger — would you feel disappointed? Angry? Would you look for another chain that promised John would actually recieve a whole burger? Ninety-percent of a burger even?

    It’s entirely valid for the public to expect transparency and honesty from the NGOs they support, and to expect that the funds donated will go to what the marketing promises. Yes, we should treat the public like grown ups and explain that the percentage of money that gets to the field is not the only piece of information they should consider. Quality programming costs money and we should explain that. But you can hire the brightest consultants in the world to design the world’s tastiest burger packed with nutrients, and ensure that it is distributed with consideration to climate change impacts, gender equality and contextual sensitivity. You can support them with staff engaged in admin, education, marketing, policy writing, staff mental care, research and capacity building. You can ensure they’re well led by paying your boss a handsome salary that competes with the for-profit world. But if that means you’re only delivering a mouthful of burger, the person who engaged you to do this work by their monetary support should know about it. And they should choose another NGO.

    1. Jenny Homan

      I agree. It isn’t the money used to run the organization that have people upset, it is the gross over indulgence of unnecessary spending. What I mean by this is overpriced gated beach front offices with a dozen $100 000 Landcruisers parked outside which will never leave the city streets. I mean, expensive retreats at exclusive resorts and first class airfair for workers. I mean, paying $15 000 a month for someone to sit in an urban office and oversee project funding possibilities for a rural project. Why can’t organizations rent office space in regular office buildings in the communities in which they are serving? Why can’t organizations buy smaller, used vehicles for getting around the city? Why do they need expensive retreats to have teambuilding sessions? Why can’t they head to a local area to do that? Why can’t they fly coach like the rest of the average working people? Why can’t they pay someone with a masters $3500 a month (like a normal possition would pay) and why wouldn’t the job description include regular site visits like a regular job would do? Again, it isn’t the money used to run an organization that have people upset, it is the use of the money for local job creation (in the first world country) and vacation type luxury jobs in the country they are supposed to be helping.

  7. Thanks both for your comments. Are we seeing a shift in this direction because of an increasing competitiveness for funding?

    I will check out Bruna Seu’s work Rachel – thanks!

  8. Kylie Astall

    Interesting post, Weh. I have also been giving some thought to this recurring problem in donor aid and I agree with your argument. The capability and integrity of an institution fundamentally matters. And this should be a significant consideration in determining which institute is best equipped to deliver. Investment is required to nurture and build institutional capability. I think the donor community has been in a trap of late, fixated on deliverables and outcomes. Sure, these are important, but useless if the results are not meaningful because the institution didn’t have the resources or infrastructure to setup and deliver x project.

  9. Rachel Tallon

    I think that most people would think that it’s because there is such a large level of public doubt and scepticism regarding ‘where the money’ goes, so NGOs are in a constant battle to try and improve this image. However, I think there might be a little more to it than that, in the sense that the ‘doubt of the admin expenditure’ is possibly one tool in a toolbox of ‘excuses’ that people use to ‘arm themselves’ against the demand required by the NGO appeal. In other words, to remain ‘intact’ people ‘shoot the messenger’, so as to evade the appeal required of them. There is some interesting work being done around this (see the London Institute oF Economics – search for Bruna Seu), but I think NGOs should consider that they are in a relationship with their audiences and there is more to it than just convincing them of how much good they (the NGO) achieve.

  10. […] So what if 90% of money donated goes to the program? An important message, that the percentage of overhead does not say anything about an organization’s effectiveness. […]

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