Widely used nonprofit efficiency tool doesn't work

At issue is something called the overhead ratio, which is the amount of money a nonprofit organization spends on overhead such as infrastructure, executive compensation and day-to-day management relative to overall spending. Overhead spending does not include funding spent on implementing programs, such as program staff salaries. The overhead ratio is important because it is used by many nonprofit rating sites, donors and nonprofit scholars to assess a nonprofit's efficiency at using its resources to accomplish its organizational goals. "But the overhead ratio doesn't actually measure efficiency, for two reasons," says Jason Coupet, an assistant professor of public administration at NC State and lead author of a paper on the study. "First, the overhead ratio doesn't account for what organizations are actually doing with their resources. And second, the ratio doesn't account for what organizations are accomplishing with their non-overhead spending.