Overhead Costs – 7 Ways Charities Can Cut Them


Some donors use charity overhead costs as a metric to measure the charity’s ability to manage funds. Furthermore, public discourse coupled with negative media reports tend to narrow down the issue of nonprofit quality to only overhead costs.

However, charity organizations do not agree with this. Their argument is that “doing good” compels them to spend more. During the first stages of rolling out programs, for instance, charities conduct in-depth research to confirm the need for the charity program. If there is a lower need for the charity program, they abandon the program. Whereas in a case where a need for the program is high, they’ll go ahead. So it doesn’t matter what the end result of the research is. What matters is, they will incur an overhead cost(s).  This necessary overhead cost is deemed wasteful by some critics, but without research how else charities would know which social issues are a priority?

Here’s why non-profit organizations disagree with critics:

  • using overhead costs as a measure of quality highlights only the efficiency of handling donated funds,
  • using overhead costs distracts attention from more important indicators such as the impact made by the NGO’s activities.

A major concern for Charity Navigator (an American independent charity watchdog) is how charity organizations perform out there. Charity Navigator works towards developing a system that helps to measure non-profit quality accurately. So the handling of funds has a profound impact on how organizations achieve this.

Charity Navigator CEO, Ken Berger, says donors should consider three components of a well-managed nonprofit organization before doling out funds:

  • a sound financial health,
  • a transparent consistent approach in all financial affairs,
  • accountability of nonprofit leaders and employees

Seven ways charity organizations can cut overhead costs.

1. Prepare an accurate annual budget

You can’t create budgets without having a solid base in the form of previous year’s figures.

Different budgets are prepared for different causes. For example, a budget prepared for a proposal cannot be in a similar format to that of a small project. What matters most is how accurate the figures are. Now you see why cooking books can fail your organization?

While preparing budget bear in mind that only organizations spending responsibly are more likely to secure more funds.

2. Allocate the right amount for the right charity project

Allocating the right amount for the right project begins with proper record-keeping of all transactions. Efficient bookkeeping is the cornerstone of a sound financial position. Without it, there is no securing of future funds.

You can record transactions on an electronic general ledger. And all accounts should reflect the real financial status of the organization. Remember this, it takes only one unrecorded transaction to mess up all your finances.

3. Set limits on funding long-term research programs

As I have indicated above, research plays an important role in making sure that non-profit organizations tackle the right causes.

One drawback with intensive research is that it’s impossible to conduct an all-purpose research without incurring costs.  Scientific research programs take time and involve a lot of trails, for example, renting out of labs and commissioning of seasoned experts.

The best way to restrict maverick spending is by adopting a software can do this.

4. Streamline resources without adding overhead cost

Charities utilize financial resources to do good.  For example, to provide relief to affected communities, organizations are expected to pay for petrol, cell phone bills, and other costs.

You can streamline resources without adding cost, for example, instead of paying for petrol allowance, organize one transport that can transport all your staff members.

5. Audit your financial statements annually

The only way nonprofit organizations can find out if their finances are in good order is to do an annual audit. It can be a very terrorizing moment when awkward questions from auditors should be answered.

Audits can be done when:

  • a donor requests that an audit be done to check whether grant terms were properly followed;
  • an internal audit is done to check whether charity policies and procedures are being followed, or
  • an investigative audit is carried out to look for evidence relating to a specific suspected wrong-doing.     

6. Change vendors regularly

It’s easy for nonprofit employees to collude with vendors in fraud. History is littered with such tales of an employee forging an invoice in cahoots with a corrupt vendor. The best way to avoid this problem is to change vendors at least once every year.

7. Appoint a clever purchase order system

NGOs still using paper-based system waste donated funds on unnecessary purchases. Their attempts on spending within budget always fail. This is because it’s impossible to monitor purchases while still using a paper-trail system.

It goes without saying that only an efficient purchase order system can help with that; a software system that can go on to do all the purchasing job for you while you continue with you charity programs. Let’s take a look at, a purchase order system that gives NGO COOs a peace of mind.

COOs and CFOs can approve, reject or comment on POs and get an instant view of budgets, even while on the road. Finance departments can get an accurate and paperless PO tracking system.

What are you waiting for? Sign up today and put it on the test drive.

If you’d like more info about (an automated purchase control system), please contact: [email protected]

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