We have come to expect that charities need to run their organisations as efficiently and of the same quality and standards of for-profit business; yet we are often questioning their effectiveness and integrity when they spend too much on "administration costs".
However, what is too much? Can we determine the social impact a charity is making by simply looking at their administration expense or fundraising expense ratio?
Understandably as donors, we are giving money to charities in good faith and want to ensure the money is being used appropriately and to further the impact to the causes and communities important to us. Therefore, it is critical that the charities we support are open, transparent, ethical and have high standards of governance and accountability.
In some countries, we see charities publicly reporting zero administration costs despite conducting a wide range of programs with paid employees. This is a reaction to pressure from donors to ensure their donation is only spent on the programs or services and not on the running of the organisation.
Charities that promise 100% of your donation will go to their programs, are saying that they will use other income streams to support their administration costs or may not be fully transparent in their cost structure or reporting.
A highly effective charity should not be measured on their expenses but how they utilise their funding to further their charitable cause. Often, charities who are making significant impact need to spend more money to expand their programs, find new and innovative ways to solve evolving social problems or remunerate highly skilled people who provide the best care.
When considering a donation, donors should focus on the nature of the charity's work, it's beneficiaries and the impact it is having, rather than solely focusing on its administration costs. Rather than asking yourself "How much of my donation is going to the charity's cause?", consider asking "What impact is the charity having and do I want to support it's work?".
If you think a charity is doing good work and achieving results with its funding, than it is worth supporting.
The ACNC has recently released a comprehensive FAQ Guide on Charities and Administration Costs, which is a must read for donors.
As part of our role at GivingSimple, we help donors determine which charities are delivering the highest impact programs and services for the causes and communities they care about.
Please contact us if you would like to learn more.