Not-for-profit indirect costs are not being covered by funders in Australia, leading to lower capability and effectiveness across the sector.
New research by SVA and CSI has shown that NFPs are underinvesting in critical capabilities, thanks to a belief that funders are unwilling to fund the full cost of impact. Solving this issue requires substantial shifts across NFPs, philanthropy, government, the public and the media to ask the question – are we paying what it takes?
The full report is now available.
See slides from the launch presentation here.
Indirect costs (or overhead) are a fraught topic in the not-for-profit world. Many people across philanthropy, government, the public and the media all expect them to be minimised, or not to pay for them at all. Yet they are essential to running a functioning, effective organisation.
In the context of a struggling NFP sector, this is a crucial issue to ensure the long-term effectiveness of Australia’s charities. US research has shown that one of the key drivers of NFP vulnerability is insufficient funding of charity indirect costs. This is called the “non-profit starvation cycle”, in which funders having inaccurate expectations of how much overhead is needed to run a not-for-profit means that charities under report their costs to funders. This leads to a sector starved of the necessary core funding required to create resilient charities delivering long-term impact on complex social issues.
Three organisations (Centre for Social Impact, Social Ventures Australia, and Philanthropy Australia) worked together to understand the extent of this issue in Australia, and start to unpack what could be done.
Our research uncovered four key points: