Interesting blog by Dan Pallotta in this week's HBS blog on the potential downfalls of efficiency.

Here is his gripe -- the drive to have 100% of donations go to the 'casue' drives npos to under report the actual cost of doing business.

"The Nonprofit Overhead Cost Project studied the Forms 990 of 126,956 charities. The following findings are remarkable:

• Nearly half of the charities studied reported zero fundraising expenses. Of the larger charities with annual revenues between $1 million and $5 million, one-quarter reported zero fundraising expenses.

• 27 percent classified some or all accounting fees as program expenses, despite the fact that the 990 instructions give accounting fees as an example of what is meant by "management and general" expenses.

• Only 25 percent of nonprofits receiving foundation grants properly account for those proposal-writing expenses as fundraising costs.

• Just 17 percent of nonprofits receiving government grants properly account for those proposal-writing expenses as fundraising costs.

Read the blog here:

http://blogs.harvardbusiness.org/pallotta/2009/06/beware-of-highly-efficient-cha.html