Charities hungry for change

Posted on 19 Mar 2024

By Greg Thom, journalist, Institute of Community Directors Australia

Charity overhead cost cutting

The Reframe Overhead movement is asking fundraisers to pledge their support to help create change and build a more sustainable sector.

Lisa Allan is determined to break the “starvation cycle’’ she is convinced is holding many charities and not-for-profits back.

The head of fundraising at The Smith Family is co-founder of a new campaign aimed at addressing the unequal battle faced by organisations trying to keep overhead costs down while still delivering on their purpose.

Lisa Allan
The Smith Family's head of fundraising, Lisa Allan.

The Reframe Overhead movement, launched at the recent Fundraising Institute Australia conference in Brisbane, is asking fundraisers to pledge their support to help create change and build a more sustainable sector.

The campaign has a website where visitors can download new research and a short guide containing practical steps NFPs and charities can take to reframe their approach to overhead costs.

Ms Allan said charities and NFP’s shouldn’t be judged unfairly on what they spend on overheads.

“Building robust infrastructure has been correlated to an organisation’s ongoing success, with caps on overheads leading to lower capability and effectiveness of an organisation,” said Ms Allan.

“By working with funders to have a true understanding of what sustainable and effective organisations look like and need, we can ensure we have what we need to create more impact.”

Fundraising Institute Australia CEO Katherine Raskob said the launch of the Reframe Overhead campaign had been enthusiastically received.

“We had a fanatic launch at the conference with a jam-packed session and lots of people committing to the movement,” she said.

“FIA are supporting this initiative along with several other peak bodies.”

The new campaign follows the release of the Pay What It Takes report in March 2022 by Social Ventures Australia and the Centre for Social Impact. The report found that many charities operate with limited reserves and strained finances, which threatens their day-to-day operations.

The report, which included interviews with sector leaders, a review of international research and analysis of financial data from more than 16,000 Australian charities, found:

  • indirect costs are not an accurate measure of the efficiency or effectiveness of a not-for-profit
  • NFPs true overhead costs often far exceed the amount they are funded for
  • caps on overheads lead to lower capability and effectiveness
  • the drivers of underfunding are complex and interrelated and can’t be solved by standardisation
"Thriving not-for-profit organisations are critical to the future productivity and wellbeing of Australia.”
The Smith Family's head of fundraising, Lisa Allan.

Ms Allan said The Smith Family's CEO, Doug Taylor, was involved in the launch of the Pay What It Takes report, which came about through the efforts of a Pay What It Takes industry coalition.

“About a year later, he asked me what we could do to support the aims of the initiative,” said Ms Allan.

“The more I looked into it, the more I believed there was a clear role for NFPs to take charge of our narrative and begin the reframe journey.”

What began with a couple of LinkedIn posts in February 2023 to test the waters on tackling the issue grew to a collective of 15 fundraisers committed to achieving change under the banner of the Pay What It Takes Charity Consortium Australia.

The aim was to create long term sustainability by changing social perceptions to support the true costs of the vital services the sector delivers.

“Over the course of three meetings we developed a plan to lead a transformative campaign working with Australian not-for-profits to address the critical challenge of the crucial, but often underfunded, area of overhead costs,” said Ms Allan.

“Our first step was the development of research- informed education resources to launch at the 2024 FIA conference as a pilot campaign to engage and rally a wider group of fundraisers.”

NFP report findings
A summary of key findings from the Reframing Overhead report.

In 2008, the US fundraiser Dan Pallotta wrote a book titled Uncharitable:How Restraints on Nonprofits Undermine Their Potential.

The book highlighted how a system long cherished as the hallmark of American compassion was undermining itself by enabling the demonisation of charity overhead and poisoning the perceptions of a public that didn’t know any better.

In 2009, Stanford Innovation Review coined the term “not- for-profit starvation cycle” to describe a situation in which for- purpose organisations were so hungry for general operating funds for decent infrastructure that they could barely function, let alone serve their beneficiaries.

The cycle perpetuates funders’ unrealistic expectations about how much running an NFP or charity costs, and sector organisations misrepresentations of their costs they skimp on vital systems, which in turn helps skew funders’ beliefs.

“[In Australia] this finding and Dan’s thought leadership generated a groundswell of awareness but lacked the tangible actions for not-for-profits to drive change,” said the Smith Family’s head of fundraising, Lisa Allan.

In March 2013 Pallotta produced a TedTalk titled The Way We Think About Charity Is Dead Wrong, which has since amassed more than 5.5 million views worldwide.

“The presentation reinforced the double standard that drives a broken relationship with charities as too many not-for-profits are rewarded for how little they spend – not for what they get done,” said Ms Allan.

In the same year, Pallotta established the Charity Defense Council, which is “the only organization specifically focused on teaching the public and the media to ask about results instead of overhead."

Ms Allan said the next steps for the Pay What It Takes consortium was to seek input and feedback on the recently launched online resources and share them as widely as possible.

The consortium is also working with the original group of 15 fundraisers to develop additional tools and materials to help charities and NFPs to change their approach to overhead costs, including information targeting CEOs, board members, CFOs and finance teams.

Research published by global not-for-profit advisory The Bridgespan Group as far back as 2008 found that unrealistic expectations about overhead costs placed pressure on organisations to conform to those expectations, leading to executive directors and their boards under-investing in infrastructure necessary to improve or even maintain service delivery standards.

“In the short-term, staff members struggle to 'do more with less'", the Bridgespan researchers said.

Guidance on the Australian Charities and Not-for-profits Commission (ACNC) website acknowledges there is no one size fits all ratio or percentage of “reasonable” overhead.

It says that because charities operate in different ways, and have different purposes, it can be misleading to use administrative costs to measure the impact or effectiveness of a charity.

Ms Allan said there is no doubt the issue of sustainable overheads is an important one and not just for the sector.

“Because thriving not-for-profit organisations are critical to the future productivity and wellbeing of Australia.”

More information

David Crosbie: Is the starvation cycle here to stay?

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