Streetsmart Financial Basics for Nonprofit Managers

Chapter 14Indirect Costs and Other Despised Items

A famous professional athlete's commercial advertised a fund-raiser for his charitable organization with the assurance that “all money raised will go to direct services, and none to administration.” This well-meaning pledge neatly summarizes the prevailing attitude toward administrative—or indirect—costs. First, it says pretty plainly that administrative costs are unseemly and should be avoided. This is the dominant attitude toward nonprofits' indirect costs among the general public, most board members, and many nonprofit managers themselves.

This is a laudable sentiment. Who wants to pay for costs not closely associated with direct service delivery? It's hard to see how managers' lavish offices, company-paid cars, and multiple perks could help deliver better museum exhibits, more health care for kids, or superior graduate school courses.

The problem with the sentiment is not its general direction but that it is hopelessly naive. Administrative costs are an inescapable part of providing services, and no amount of well-meaning huffing will change that fact. Pretending that administrative costs can be wished away is either self-delusional or hopelessly out of touch with reality.

The second problem is that the athlete's pledge was selfish. Even if it were somehow true that his fund-raising follow-up really could ensure that not a single dime of the proceeds went to administrative costs—a dubious proposition—all he was really doing ...