Anatomy of the Nonprofit Starvation Cycle

Lecy, Jesse D.; Searing, Elizabeth A. M.

doi:10.1177/0899764014527175

Cited by 153 publications

(81 citation statements)

References 33 publications

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“…Figure 4 shows that at least four out of ten respondents (for whom a source was relevant) indicated they feel pressure from their non-donor funding sources to keep their reported overhead rates low. These findings affirm previous research on the vicious "nonprofit starvation cycle" (Gregory and Howard 2009;Lecy and Searing 2015;Parsons, Pryor, and Roberts 2016) where funders reward low overhead rates, which pressures nonprofits to spend less on necessary overhead and report low (and sometimes misleading) overhead rates. In turn, such artificially low overhead rates result in funders expecting and demanding even lower rates.…”

Section: Grand Total N=supporting

confidence: 79%

“…This study, along with other work from The Nonprofit Overhead Project and other similar research (Lecy and Searing 2015;Ling and Roberts 2017;Brothers 2016) affirms that more research is clearly needed. Some specific questions that deserve attention by researchers and policy makers include the following: 1) Are these findings from California similar or different from other states across the country?…”

Section: Future Research and Inquirymentioning

confidence: 82%

“…Nonprofit overhead is a prevalent and controversial topic in the nonprofit and philanthropic sector (Bedsworth, Gregory and Howard 2008;Garven, Hofmann, and McSwain 2016;Gregory and Howard 2009;Lecy and Searing 2015;Smith and Lipsky 1993;Wing et al 2006;Wing and Hager 2004). Online raters (such as Charity Navigator) point to the overhead rate as a key indicator of nonprofit worthiness.…”

Section: Introductionmentioning

confidence: 99%

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Two-Legged Stool: New Findings from California on Nonprofits and Overhead

Berlin

Masaoka

Schumann

2017

Nonprofit Policy Forum

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Nonprofit overhead is a prevalent and controversial topic in the nonprofit and philanthropic sector. Online raters (such as Charity Navigator) point to the overhead rate as a key indicator of nonprofit worthiness. Different government entities use wildly different indirect cost rates when contracting with nonprofits, which translate into billions of dollars of funding being gained or lost. Foundations rarely have explicit guidelines, but most have informal rules of thumb that affect how a nonprofit can use grant funds. Meanwhile, nonprofit executives struggle to make sense of it all as they manage their operations amidst the conflicting requirements of their funding sources. To gain insights into how overhead costs are handled in nonprofits, the California Association of Nonprofits (CalNonprofits) conducted a survey of 451 California nonprofit executives, as well as interviews with elected members of county boards of supervisors and their staff throughout California in the spring of 2016. This paper reports on both of these, which were part of a larger initiative of CalNonprofits called The Nonprofit Overhead Project.

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Section: Grand Total N=supporting

confidence: 79%

Section: Future Research and Inquirymentioning

confidence: 82%

Section: Introductionmentioning

confidence: 99%

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Two-Legged Stool: New Findings from California on Nonprofits and Overhead

Berlin

Masaoka

Schumann

2017

Nonprofit Policy Forum

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“…Administrative expense ratios (but not fundraising ratios) have fallen substantially in recent years, primarily driven by reductions in the proportion of funds spent on staff wages [9]. Since staff wages generally make up a large part of administrative costs, an emphasis on reducing administrative costs almost necessarily means paying below-market salaries and providing less generous fringe benefits.…”

Section: What Effects Does the Focus On Overhead Costs Have?mentioning

confidence: 99%

Are overhead costs a good guide for charitable giving?

Meer¹

2017

izawol

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The overhead cost ratio is the most commonly used metric to rank charities. However, for most charities, it is a crude measure that does not adequately evaluate their effectiveness. Despite the fact that broader measures of impact are far more meaningful, donors exhibit strong distaste for high administrative costs. Excess focus on these costs can lead charities to underinvest in crucial operating infrastructure, especially skilled workers, thereby diminishing their ability to deliver services. Policymakers should avoid these simplified measures, striving instead to utilize better impact metrics, despite their enhanced complexity and costs. ConsDonors' focus on overhead costs can lead to counterproductive outcomes for charities, such as underinvestment in staff and administrative support, which hamper their effectiveness. Measuring the quality or effectiveness of a charity can be difficult, and overhead cost ratios are often a poor metric for judging a charity. Imposing legal regulations to limit overhead costs can create large burdens for charities. Charities can find it difficult to compete for skilled labor due to donors' and regulators' desire to minimize overhead costs. Are overhead costs a good guide for charitable giving?Donors rely on overhead costs to evaluate charities, but that reliance creates disincentives for charities to hire skilled workers

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“…15 These rating regimes and associated societal pressure can be dysfunctional, notwithstanding sector and academic attempts to contextualise them. 16 Research indicates that this pursuit of financial efficiency may lead to a selfreinforcing loop of cost-cutting (a starvation cycle) resulting in reductions in internal investment, staff burnout and reductions in services potentially jeopardising an organisation's ability to be financially sustainable over time (Gregory & Howard, 2009;Lecy & Searing, 2012;McGregor-Lowndes et al, 2014).…”

Section: Financial Sustainabilitymentioning

confidence: 99%

An Accountability Framework for the Financial Sustainability of Australian International Development Organisations

Booth¹

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Non-government organisations (NGOs) are non-profit organisations (NPOs) that contribute toward the support and development of people and countries in need. They play an important humanitarian role in the developing world, acting as a conduit for government funding and an expression of donor concern.NGOs need to be financially sustainable in the long term as they face economic uncertainties. Their situation is more difficult than government or business organisations. For example, governments can access tax revenues and business can access the financial markets. Further, governments and business organisations have access to ongoing feedback for gauging and guiding the current and future sustainability of their enterprise through the use of well-developed tools, or the operation of the market itself. The NPO sector lacks the full discipline of business markets and analysts' metric tools for gauging current and future sustainability.Exacerbating these deficiencies are different stakeholder expectations for the stewardship of NGO resources in order to achieve their mission. The public have a perverse view about overhead expenses and there are confounding issues where beneficiaries are not the principal funders.Given the importance of financial sustainability, arguably there should be a level of accountability by officers for its achievement. While there are formal 'solvency' accountability regimes for organisations there are no similar requirements for the longer-term goal of financial sustainability. Extensive research exists proposing operational approaches to increasing organisational sustainability; however, there is no accepted framework which facilitates accountability for financial sustainability over time.This thesis first investigates the understanding of accountability for financial sustainability by officers of three, long-term, high-integrity Australian NGOs. Next the research assesses whether financial metrics can assist in enhancing NPO accountability through diagnosing and monitoring financial sustainability. The research aims are operationalised by using a qualitative participatory methodology. vi The research found that formal demonstrations of accountability for financial sustainability were mixed. 'Felt' responsibility-that is, responsibility informally accepted rather than externally imposed-presented as a strong lever for achieving an NGO's mission, with tensions identified between mission-generated felt responsibility and more traditional formal accountabilities. Officers of participating NGOs expressed personal responsibility for financial sustainability; however, no shared understanding of financial sustainability was observed either within or among the participant NGOs. The focus was commonly on individual strategies or shortterm solvency.While the outcomes of the research varied between participating NGOs, the theorybased framework developed proved successful as a diagnostic tool, with elements adopted, or intended for adoption, as measurement and monitoring tools.

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Anatomy of the Nonprofit Starvation Cycle

Cited by 153 publications

References 33 publications

Two-Legged Stool: New Findings from California on Nonprofits and Overhead

Two-Legged Stool: New Findings from California on Nonprofits and Overhead

Are overhead costs a good guide for charitable giving?

An Accountability Framework for the Financial Sustainability of Australian International Development Organisations

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