Why Should Overhead Be Considered When Donating to a Charity?


Quick Answer

Donors often look to the overhead expenses of charities to assess whether the non-profit organization is run properly and efficiently. An overhead ratio that is too high or too low can also be an indicator of poor financial management or fraud.

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Full Answer

There has been consistent debate about what is known in the not-for-profit sector as the "overhead myth." Many potential donors perceive overhead expenses as a necessary evil that reduces the amount of money that directly helps the cause. If they feel overhead expenses are too high, they simply do not contribute, as they may feel that their donation won't make a difference.

Critics call foul on this stance, saying that any organization that does not spend sufficient money on overhead cannot run properly. If a charity doesn't have enough money to purchase computers and develop an information technology infrastructure, for example, it may have trouble determining what programs are working and which ones aren't. These organization also need sufficient funding to hire and train employees to carry out their programs and continue to raise funds to ensure that they stay in business.

Despite the attempt to educate the philanthropic public, charities continue to have a difficult time overcoming the overhead-focused mindset, although some charities have been successful. Charity Navigator reports that the popular Wounded Warrior Projects spends more than 40 percent of its donations on overhead expenses as of 2015. Although this limits the amount of money that ultimately reaches military veterans and their families, it has allowed the project to grow, become financially sound and increase its overall reach.

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