Reading a Charity’s Financials: Overhead vs Programmes

‘What percentage goes to the cause?’ is the question nearly every donor asks, and for good reason — nobody wants their gift swallowed by salaries and fundraising mailers. But the watchdogs that once encouraged a pure focus on this ratio now warn that it can mislead you, and learning to read charity financials properly means understanding why.

The number in question is the programme expense ratio: the share of a charity’s total spending that goes to its mission-related programmes, as opposed to administrative and fundraising costs. Charity Navigator says it prefers to see 70% or more of expenses directed towards programmes. Crucially, it awards no extra credit for spending less on overhead, and states it has seen no evidence that a programme ratio above 70% leads to greater impact.

That position is part of a wider correction. In 2013 the three leading US charity evaluators — the BBB Wise Giving Alliance, Charity Navigator and GuideStar (now Candid) — launched the ‘Overhead Myth’ campaign to stop donors judging nonprofits chiefly by their overhead ratio. Their argument: starving organisations of money for staff, training, technology and evaluation can trap them in a ‘nonprofit starvation cycle’ that undermines the very results donors want.

The accounting itself is slippery. A charity reports its spending split — programme, administrative (management and general), and fundraising — on its IRS Form 990. But where a given cost lands is partly a judgement call. Money spent on planning, measurement and staff development can be classified as overhead or as programme depending on the organisation, which means two equally effective charities can show very different ratios.

Not everyone agrees the ratio should be downplayed. Some watchdogs, notably CharityWatch, argue that financial efficiency measures remain essential and that donors should still scrutinise how much of their money reaches the mission. The sensible reading is that overhead is one useful data point, not a verdict on its own.

So how should you actually read the financials? Start with the Form 990, which is public: Candid and ProPublica’s Nonprofit Explorer both let you view filings for free. Look at the spending split, but also at trends over several years, at executive compensation relative to the organisation’s size, and at whether revenue comfortably covers expenses.

Then look for what the ratio cannot tell you: evidence of results. A charity that publishes clear goals, measures its outcomes and reports honestly on what did and did not work is demonstrating something a cost ratio never can. Transparency about failure is often a better sign than a flawless-looking overhead figure.

In short, treat a very high overhead ratio as a prompt to ask questions, not as automatic proof of waste, and treat an extremely low one with equal curiosity. For the current methodology and definitions, consult Charity Navigator and the charity’s own Form 990 before drawing conclusions.

Source date: March 20, 2026. Contextual photograph; it does not depict the people or the specific event described in this article. Photo: Kacy Bao, CC BY-SA 4.0 ↗.