Busting the ‘Admin Cost’ Myth

You’ve probably heard it – a question many of us consider when giving money to a charity: “Where is my money going?”

It’s a question I hear often at this time of year, with Christmas just around the corner – one of the peak times for charitable donations.

It’s gratifying to know so many people think of others at these times and that there’s an interest in ensuring funds are put to good use, however, less so that people have an underlying suspicion not enough of their donation is going to the cause.

There’s frequently a perception too much money is being filtered towards organisational overheads: staffing, offices, systems and indeed the fundraisers asking you for a donation.

Surely those funds would be better spent on food, medicine, research or the focus of that particular charity?

I believe this question is partly driven by perceptions of charity from days of old, where those who cared took action and volunteered their time. Perhaps they also contributed some of their wares when setting up a stall to kick things off.

This is something Diana Ruano touches on in her 2016 TedX talk, Bursting the bubble of non-profits. She also talks about the huge mission 21st century charities now have, for example:

  • ending world hunger by 2030
  • ensuring all children have access to quality education and clean water
  • finding a cure for cancer

As you would agree, not exactly missions you can achieve with a few roadside cake stalls and an organisation only made up of dedicated volunteers.

It’s of course a good thing to wonder where your money is going. Not-For-Profits (NFPs) and for-profits should be, and are, held accountable for their financial records and corporate governance.

Watch Dan Pallotta’s 2013 Ted Talk The way we think about charity is dead wrong though, and you’ll soon get a feel for the uneven ground on which for-profits and NFPs play.

The disparity between these worlds, both from an operational and perception viewpoint, is enormous. For example, it’s okay to attract top-preforming talent in the for-profit world by offering competitive salaries and benefits, but not okay to use these incentives to attract the same talent to NFPs. Too many times I’ve seen great, talented people leave their NFP jobs in favour of higher-paid jobs in the corporate sector. The hidden costs of such talent loss is enormous.

STOCKHOLM + CO. works with many charities, helping to increase revenue, improve systems and further develop partnerships. Questions about ‘Fundraising and Admin Costs’ are common, with supporters often expressing a wish for them to be as low as possible, or even zero, if they are to support the organisation.

However, this measure of a charity’s success or impact is heavily entrenched in a mistaken public perception and fraught with danger. Without investing in themselves, charities can not deliver effective services, or indeed would find it difficult to exist at all.

I’ve recently been working with CanTeen, an organisation that helps rebuild the foundations that crumble when cancer turns the lives of young Australians upside down. They carefully invest every cent donated to support the wellbeing of young people living with cancer. Moreover, they strive to maximise the long-term impact of each and every donation.

At CanTeen, the largest part of any donation funds essential services. The rest is then invested in skilled people, effective systems and fundraising programs that stretch the power of that donation. It’s an equation that ensures investment in an effective organisation and a sustainable financial future to benefit CanTeen’s members.

When charities allocate part of a donation to fundraising, they increase the overall impact of that donation. It’s a wise investment in the future and sustainability of the organisation. And so, rather than only focusing on costs, CanTeen measures it’s success by the impact it has on young people and how effectively they can deliver services.

In Australia, there are no official guidelines for what constitutes a charity’s ‘admin costs’. It often includes, but is not limited to, investments in skilled staff, suitable premises, program evaluation, building effective and secure IT systems – all necessary to run an efficient operation.

Guidelines and expenditure vary widely between charities, to the extent that it’s not recognised in academic circles as a reasonable measure of a charity’s effectiveness. It’s careful investment that allows charities to achieve their missions.

So, the next time you wonder where your donation is going, think about how well the organisation is set up to achieve it’s mission.

You may like to read the Australian Charity Commissions Fact Sheet on ‘Charities and Administration costs, which concludes that rather than evaluating a charity based on its admin costs: “It is better to pay attention to other factors of non-profit performance: impact, transparency, governance and leadership, as well as costs.”

From 14 December, the Australian Charities and Not-for-profits Commission (ACNC) will introduce a ‘Charity Tick’. Available to registered charities, the Tick aims to give reassurance to the donating public that the charity is transparent and accountable by highlighting its presence on the ACNC Charity Register.