Covering your overheads!
Many of you will have seen that, after a 2-year transition period, the Ford Foundation is now focussing on combatting inequality, which is acknowledged as the greatest impediment to just, fair, and peaceful societies. What you may have missed, however, in the statement issued by the Foundation’s President, Darren Walker, is that the Foundation is rededicating itself to strengthening the partners and grantees that are recipients of its project support.
Walker writes “all of us in the non profit ecosystem are party to a charade with terrible consequences—what we might call the “overhead fiction.” Simply put, because of this fiction, foundations, governments, and donors force non profits to submit proposals that do not include the actual costs of the projects” being funded. We would clarify this by referring to the full costs of the projects, being both the direct project activity costs and the many support costs (which are often shared with other projects and called overhead or administration costs).
Walker refers to one US “local government request for proposals that gave extra points to applicants that submitted proposals with lower overhead, resulting in the winning groups receiving overhead payments of 5 percent” which he goes on to describe as “an absurd and self-defeating outcome”. I am sure that we could, within South Africa, highlight many similar instances. The Ford Foundation admits to being a “willing participant in this charade” as they believe that the policy of allowing a 10 percent overhead on project grants “in no way allows for covering the actual costs to administer a project” or to support robust organisations capable of executing projects. Thus, the Foundation will now double its overhead rate on project grants to 20 percent.
We hope that this will not only better equip those organisations that the Foundation supports but will also encourage more open and honest dialogue about the actual operating costs of non profit organisations, particularly between funders and their partner organisations. Every project needs the support of a properly resourced office base, a skilled and passionate workforce and the necessary tools to manage and report accurately and timeously on both activities and finances. Be sure that all such costs are fully costed into organisational and project budgets so that projects can be completed and can achieve the objectives proposed.
Watch out for part 2 of this risk alert which addresses “the overhead fairy tale” and if, as we approach a new year, you need support or assistance in putting together your budgets, please do not hesitate to contact us.