Who Feels Pressures to Contain Overhead Costs?

1
Who Feels Pressures to Contain Overhead Costs?
The Urban Institute
Kennard WingMark A. Hager
Center on Nonprofits and Philanthropy
ARNOVA 2004 Los Angeles
2
Isomorphism

• Organizations look and act alike because of
  pressures to conform to expectations.
• Mimetic Organizations scan other organizations
  in environment so that they can adopt similar
  practices.
• Normative Stakeholders encourage organizations
  to adopt practices that are familiar and known
  within a field.

3
Low Spending on Overhead Decreased
Organizational Effectiveness

• Underinvestments in management expertise
• Underinvestments in productivity tools

4
Funding Restrictions Low Spending on Overhead

• Institutional funders place restrictions
• Individual donors have high expectations that
  contributions go to program

5
Pressure Conformity

• Does your organization feel pressures from
  ________ to limit its overhead, fundraising, or
  admin expenses?

6
Consequences of Conformity

• Inadequate
• Infrastructure
• Conformity
• Mis-Reporting

7
Bottom Line is a Circle
 


8
Implications for Donors and Watchdogs

• Do not rely on self-reported financials to
  evaluate charities
• Question the effectiveness of charities that
  minimize spending on overhead
• Focus on program outputs

9
Implications for Financial Professionals

• Identify and raise concerns about quality of
  reporting in management letters
• Insist on disclosures regarding methods of
  accounting for overhead
• Provide qualified opinion letter that narrowly
  focuses on questionable allocation

10
Implications for Funders and Policymakers

• Raise or eliminate ceilings on allowable
  overhead, especially administrative expenses
• Introduce floors on overhead spending
• Eliminate competitive advantage given to
  proposals the reflect low overhead
• Give more unrestricted operating support grants