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Charity costs
Why can some charities claim to have no administration costs?
In our view any claim by a charity that ‘all the finds you donate will be applied directly to the cause’ should be viewed with caution.
It may be because it has attracted sponsorship from another organisation to pay the costs of management and administration.
They will still have these costs, it is just that they have fundraised separately to pay for them. It would therefore be unfair to directly compare the performance of this organisation against another that is not in a position to secure this additional income.
The charity may already have a management infrastructure in place and may be acting only as a conduit for funds.
This often happens when international aid agencies raise funds for disaster relief. Sometimes, as when the aid agencies were dealing with the aftermath of the Tsunami in the Indian Ocean, every penny will actually be spent on addressing need. Again though, the charities will have management and administration costs, it is simply that these are being paid for by other donors, probably those that have given in the past to more general funds.
Some charities claim that every penny of a gift will be spent on the cause creating the impression that no management and administration costs will be deducted.
In some cases this is technically true because the organisation undertakes no work with beneficiaries itself. Instead it makes grants to other organisations that actually do the work. These charities will certainly have administration costs of their own which will be deducted from the funding, but as far as the original charity is concerned, all its funding has been spent ‘on the cause’.
We understand why charities make these claims. They want to appear as efficient as possible and they know that donors are genuinely concerned about costs. The impact that these claims have, however, is considerable.
It creates the misleading impression that charities can be run effectively with no costs of administration, when in fact this is impossible. It is also undesirable because if charities are to be effective they need good competent managers and these individuals will need to be paid a reasonable wage for their knowledge and experience.
Would you really want to give to an organisation that isn’t well run?
They will still have these costs, it is just that they have fundraised separately to pay for them. It would therefore be unfair to directly compare the performance of this organisation against another that is not in a position to secure this additional income.
The charity may already have a management infrastructure in place and may be acting only as a conduit for funds.
This often happens when international aid agencies raise funds for disaster relief. Sometimes, as when the aid agencies were dealing with the aftermath of the Tsunami in the Indian Ocean, every penny will actually be spent on addressing need. Again though, the charities will have management and administration costs, it is simply that these are being paid for by other donors, probably those that have given in the past to more general funds.
Some charities claim that every penny of a gift will be spent on the cause creating the impression that no management and administration costs will be deducted.
In some cases this is technically true because the organisation undertakes no work with beneficiaries itself. Instead it makes grants to other organisations that actually do the work. These charities will certainly have administration costs of their own which will be deducted from the funding, but as far as the original charity is concerned, all its funding has been spent ‘on the cause’.
We understand why charities make these claims. They want to appear as efficient as possible and they know that donors are genuinely concerned about costs. The impact that these claims have, however, is considerable.
It creates the misleading impression that charities can be run effectively with no costs of administration, when in fact this is impossible. It is also undesirable because if charities are to be effective they need good competent managers and these individuals will need to be paid a reasonable wage for their knowledge and experience.
Would you really want to give to an organisation that isn’t well run?
More on Charity costs
- Costs of administration and management
- What is an acceptable figure?
- Why can some charities claim to have no administration costs?
