The Most Boring Take on the State of Non-Profits
There are a lot of opinions about philanthropy and non-profits these days.
Dan Pallotta discusses the potential of non-profits when they embrace fundraising and business strategies.
The blog, Non-Profit AF humorously brings the voice of non-profit employees and operators to the conversation.
Phil Buchanan of the Center for Effective Philanthropy advocates for the uniqueness of Non-profits and charity and that over-reliance on business metaphors get in the way.
Anand Giridharadas wants to burn it all down.
I, on the other hand, bring a much more boring perspective on non-profits. I stand with the accountants.
I want to say from the beginning, I’m not suggesting that non-profits are committing mass fraud, or participating in nefarious activity. Non-profits I’m referring to all adhere to industry standards and GAAP. What I am criticizing is the industry standard. Non-Profit accounting statements might adhere to GAAP standards but are presented in such a manner as to obfuscate any real meaning.
The structure of Programs, Fundraising, and Management doesn’t illustrate much of how the organization is actually managed. It’s near impossible to understand the “Per unit cost of impact” and through joint allocation, these categories are near infinitely manipulable.
This three-line structure is the basis for the dreaded overhead ratio: (Fundraising +Management)/Total Costs. But since its beginning, this ratio has been useless.
A fun trip on the WAY BACK MACHINE, a website that archives old internet pages, shows just how easily the metric is juiced. Upon Charity Navigator’s introduction of the metric in their point system, organizations in a single year were able to reduce their overhead by huge margins. I just don’t believe that all these organizations fundamentally shifted their operating structure to cut management in half. Furthermore, there are now studies that suggest low overhead ratios are potentially counter-indicative of high-impact organizations. Meaning, that overhead is in fact part of how a nonprofit creates impact.
So what is the alternative? Certainly, chucking out overhead ratios is a start. Limiting joint allocation expenses is another. But I would suggest we could go even further to build accounting practices that actually reflect how an organization operates. What are the relevant business units and how are their costs structured?
I’ve said it once, I’ve said it a million times, but #savingtheworldisboring. And transparency in the non-profit industry is critical. Yet, even the most basic disclosures, such as the income statement, often leave donors more confused than enlightened.
