Tuesday, December 23, 2008

The importance of overhead

A portion of any general-purpose donation to a nonprofit, whether it be to a church, health clinic or a battered women’s shelter, goes to administration of some kind. And that’s not a bad thing. Sure, giving to defray “administrative costs” sounds unglamorous, largely because the blanket term “administrative costs” is sometimes used as a synonym for “wastefulness” or “inefficiency.” While some administrative expenses might be wasteful, they are not by definition wasteful. They are just costs that enable a mission, like a social service, to be carried out. ...

While there is something to be said for charities that know how to keep their administrative costs under control, lower costs are not always better. For example, many nonprofits seem to cut corners on backroom tasks like bookkeeping and record-keeping because these expenses aren’t viewed as critical to the “mission.” But spending less money on such administrative costs can actually make a charity less effective because it invites embezzlement, a crime that perpetually afflicts nonprofit organizations.
--Catherine Rampell, NYT, on why low administrative expenses aren't always a good thing

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