10 Reasons Why the 15% Charity Overhead Myth Prevents Any Social Change

Ask anyone on the street the one thing they know about what makes a deserving charity and they are likely to say it’s the one is spending less on overhead, “like uh, 10 or 15 per cent or something like that.”

Canadian charities are getting stuck with the number 15. A “good” charity doesn’t spend any more than 15% of its revenue on administration and fundraising. “Bad” charities do.

Left unchallenged, the myth of the 15% means Canadian charities will lead the charge on absolutely nothing—not climate change, a cure for cancer or world hunger. And here are the ten reasons why:

1. It makes board members stupid. The cost of overhead is often the only number many members of Boards of Directors care about when they look at financial reports, ignoring numbers that could give them a sense of how effective the charity is at fulfilling its mission.
2. It makes charities stupid. Designing financial tools around measuring overhead and administration as priorities means you don’t get the reports you need to actually see how you’re doing in relation to your mission.
3. It guarantees mismanagement among charities: A 15% cap on administration means essential resources for effective management—program evaluation, professional development and evaluation, strategic planning, long-term goal setting, go by the wayside as “administration.”
4. It impedes progress on issues. When the criteria of a “good” charity are keeping a 15% limit on your administration, what happens to your success in making the world a better place?
5. It keeps the people who work in the sector among the poorest paid people in the country. Fundraisers aside, the majority of people working in the nonprofit sector, like personal support workers, toil away at hourly rates of between $14 and $18. Not exactly McDonald’s wages, but having someone’s life in your hands is not exactly a Big Mac either.
6. It makes charities liars. Charities and auditors everywhere bend over backwards to make sure their admin expenses don’t exceed the 15%, “hiding” perfectly justifiable expenses (in a sane world) in other line items so a charity doesn’t see what it’s actually spending money on.
7. It institutionalizes inequity among organizations: $1 million is not always $1 million in the charitable sector. If 80% of your organization’s $1 million is from government and 10% from the United Way, the amount of money you have to raise is $100,000 and the resources you need to do that won’t break the bank. But if you get no government funding and are not a member of a United Way, your $1 million organization is dependent on a large number of small donations and the resources you need to generate that revenue are considerable, thus increasing “overhead.”
8. It institutionalizes inequity. Period. When an organization has smaller number of large donors as opposed to a large number of small donors, the process of administrating that organization takes substantially less resources. So if you are friends with big government, big institutions and big money, your position of “good” charity is all but guaranteed. If not, then your designation as a “bad,” administratively heavy, charity is also all but guaranteed.
9. There is no threshold for risk. Risk-taking and experimentation with the world’s most intransigent problems should involve trying new things. Overhead caps prevent “wasting” money on things that may not work.
10. It sets up the wrong criteria for project success. Evaluative measures on charity projects are often transactional as opposed to taking a mission-oriented view, i.e. $10,000 = # of workshops delivered, as opposed to $10,000 = movement toward ending hunger.

What can be done?

Imagine Canada, which describes itself as “a national charity whose cause is Canadian charities” is now concerned enough about the problem it has issued a Narrative Tool Kit with talking points about overhead and, although they are not innocent bystanders in this whole 15% myth mess, you could give that a look. And Dan Palotta, author of the book Uncharitable, has been talking about this for years. Everyone in the sector should read this book.

You also must stop talking about money. You are on the earth to change the world. Talk about that.

And, while you are at it, stop pandering to  self-styled overseers like Charity Intelligence who, may I remind newcomers to this space, had their charitable status revoked in 2013 for failing to file proper CRA returns. The status later was re-instated when they made the same filings everyone else in the sector has to make.

But if it were up to me … a working girl who has a job to do and who sees this asinine scenario played out everyday … if it were up to me … you’d print out this blog and distribute it at your next board meeting. Call it a report from the front line.

Gail Picco is a strategist who has worked in the nonprofit sector for 25 years, most of which as President of Gail Picco Associates. She is the author of What the Enemy Thinks, a recent novel set in the nonprofit sector, and is Chair of the Board of the Regent Park Film Festival. Prior to starting her own company, she worked in a shelter for assaulted women and children for eight years. Her upcoming book of non-fiction, Cap in Hand:  How Charities Are Failing the People of Canada and the World will be released by Civil Sector Press on January 20, 2017.