Indirect costs in the Australian for-purpose sector: Paying what it takes for Australian for-purpose organisations to create long-term impact

Abstract

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