TY - JOUR
T1 - Anatomy of the Nonprofit Starvation Cycle
T2 - An Analysis of Falling Overhead Ratios in the Nonprofit Sector
AU - Lecy, Jesse D.
AU - Searing, Elizabeth A.M.
N1 - Publisher Copyright:
© The Author(s) 2014.
PY - 2015/6/9
Y1 - 2015/6/9
N2 - The nonprofit starvation cycle is a debilitating trend of under-investment in organizational infrastructure that is fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses. Since its original reporting in 2004, the phenomenon has been referenced several times, but seldom explored empirically. This study uses 25 years of nonprofit data to examine the existence, duration, and mechanics behind the nonprofit starvation cycle. Our results show a definite downward trend in reported overhead costs, reflecting a deep cut in administrative expenses partially offset by an increase in fundraising expenses. The organization’s size is instrumental to its behavior, with a sharp rise in reported overhead occurring when revenues equal $100,000, but diminishing at $550,000. Finally, the brunt of the cuts have fallen on nonexecutive staff wages and professional fees, which heightens the concern of potentially ill effects derived from a fixation on overhead cost reduction.
AB - The nonprofit starvation cycle is a debilitating trend of under-investment in organizational infrastructure that is fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses. Since its original reporting in 2004, the phenomenon has been referenced several times, but seldom explored empirically. This study uses 25 years of nonprofit data to examine the existence, duration, and mechanics behind the nonprofit starvation cycle. Our results show a definite downward trend in reported overhead costs, reflecting a deep cut in administrative expenses partially offset by an increase in fundraising expenses. The organization’s size is instrumental to its behavior, with a sharp rise in reported overhead occurring when revenues equal $100,000, but diminishing at $550,000. Finally, the brunt of the cuts have fallen on nonexecutive staff wages and professional fees, which heightens the concern of potentially ill effects derived from a fixation on overhead cost reduction.
KW - accountability
KW - expense ratios
KW - overhead costs
KW - starvation cycle
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U2 - 10.1177/0899764014527175
DO - 10.1177/0899764014527175
M3 - Article
AN - SCOPUS:84930748701
SN - 0899-7640
VL - 44
SP - 539
EP - 563
JO - Nonprofit and Voluntary Sector Quarterly
JF - Nonprofit and Voluntary Sector Quarterly
IS - 3
ER -