In the realm of charitable work, particularly within churches, the topic of overhead costs often sparks debate. Some argue that these costs are excessive and detract from the primary mission of the organisation. You don’t have to have attended a hundred church meetings to have heard comments like: “Why are we spending so much on X, when we could use it for outreach?” However, some reflection reveals that overhead costs are often not only necessary but also crucial for the effective functioning and sustainability of charitable activities. This blog will explore why churches don’t just have to, but often should incur central or overhead costs to support their charitable work and dispel the myth that they spend too much on these types of costs.
The Stewardship Generosity Report insights
The Stewardship Generosity Report 2024[1] provides valuable insights into the giving landscape among UK Christians. One key finding is that regular church attendance significantly increases the propensity to give. The report also emphasises the need for transparent communication and trust-building with donors, which very often requires administrative support and resources – especially where a church grows and has become more complex in its activities and ministries.
Is there a ’chicken and egg‘ situation here? Does regular church attendance give rise to greater trust, and lead to greater giving? Likely. But, particularly in larger and growing churches, there is a need for investing in ’overhead‘ or staff cost to support the various ministries, run finance and governance functions, and enable ministry to happen. Without that investment, wheels can grind to a halt.
Dispelling the myth: Overheads as a necessary investment
The Institute of Chartered Accountants in England & Wales (ICAEW)’s project on dispelling common myths [Dispelling common myths about charities | ICAEW] addresses the misconception that charities, including churches, spend too much on overheads.[2] It argues that this myth can lead to short-term thinking and hinder a charity's ability to achieve its long-term objectives. Here are several reasons why overhead costs are a necessary investment:
- Operational efficiency: Effective administration ensures that charitable activities are well-coordinated, and resources are used efficiently. Without adequate administrative support, churches may struggle with disorganisation, leading to wasted resources and missed opportunities.
- Compliance and accountability: Churches, like all charities, must comply with legal and regulatory requirements. This includes financial reporting, safeguarding policies, and data protection. Adequate overhead investment ensures that churches can meet these obligations, thereby maintaining their credibility and trust with donors.
- Innovation and growth: Investing in overheads allows churches to innovate and expand their charitable activities. This includes developing new programs, reaching new communities, and leveraging technology to enhance their impact.
Real-world examples
Consider a church that runs a food bank. Without adequate administrative support, the food bank might struggle with inventory management, volunteer coordination, and compliance with health and safety regulations. By investing in overhead costs, the church can ensure that the food bank operates smoothly, serves more people, supports its staff and volunteers and complies with all necessary regulations.
Similarly, a church that invests in technology can enhance its outreach efforts. For example, during the COVID-19 pandemic, many churches that had invested in online platforms were able to continue their services and support their communities virtually. This required upfront investment in technology and training, which might be considered overhead costs.
What about churches that seem to have minimal overhead costs, particularly in the areas of finance, governance and administration? How do they do it?
We often hear from churches that they currently have their accounts prepared and examined “free”, or “the treasurer takes care of our payroll, so we don’t pay anything” – and they balk at costs quoted by professionals (including a charity like Stewardship) to provide these services.
It is a false economy, though, and those services are most definitely not free! We are aware of real cases where treasurers don’t sleep the night before they have to do the church’s payroll, because of the fear of getting it wrong when they’re not experts in this complex area. Our Accounts Examination team often see emails from treasurers sent at 1am or 2am, because that is when they get to the accounts after work, putting the children to bed and finishing the laundry…
Churches and charities rely on the work of volunteers, but when it comes to certain roles, the burden often falls disproportionately on some members, and this isn’t always visible to the leadership, “because the treasurer seems to always get it done”.
The Charity SORP allows for the contribution of volunteers to be excluded from the accounts, on the basis that it can be hard to quantify. That can mean that (bar any central building costs, for example), almost all expenses are incurred directly on particular ministries. It is probably right that the contribution of volunteers is hard to quantify, but unfortunately this practice often hides the reality that the church is incurring overhead costs.
Someone is paying those costs, but the costs are often hidden and not included in the accounts. Paying (overhead costs!) for an expert to carry these burdens may well be the loving thing to do.
It is clearly hard to compare between different churches, which have very different memberships and are in very different financial positions, with different facilities. But where one church incurs central administration and support costs, and another does not, we shouldn’t jump to conclusions and argue that the first is wasteful, where the latter is exhibiting good stewardship. It might be that the first church is enabling ministries to flourish by supporting them from the centre, where the second church is not recognising the full cost. Particularly as a church grows, or as its members are those who have less time of their own, it might be necessary for many to shift their thinking from relying on informal, volunteer-provided support to organised, paid-for central provision in order to function most effectively.
Conclusion
Overhead costs are not a burden but a necessary investment for the effective functioning and sustainability of church charitable work. The Stewardship Generosity Report 2024 and the ICAEW article both highlight the importance of these costs in building trust, ensuring compliance, and enabling growth and innovation. Dispelling the myth that churches spend too much on overheads is crucial for fostering a more informed and supportive donor community. Too often, our accounts undercount the true cost, and church members are mistakenly under the impression that all costs are covered, and they do not have to give financially to support the mission of the church. By understanding and appreciating the role of overhead costs, we can better support churches in their mission to proclaim the Gospel and serve and uplift their communities.
[1] Stewardship Generosity Report 2024
[2] Myth: Charities spend too much money on overheads | ICAEW
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