In defense of charity administrative costs

US-PDGov

By Sam Wright

When you give money to charity you want to think it’s doing the absolute best good it possibly can. If you give money to a charity fighting third world poverty you want that money to pay for wells being dug and schools being built. If you give money to cancer research you want that money to be spent on microscopes and lab coats and whatever else it is cancer cure doctors are looking for.

So it feels a bit rich when, after talking to the nice lady with the clip board who stopped you in the town centre last weekend, you find the charity you’ve given your credit card details to is using your money to pay for office equipment and spreadsheets. However, as with most things, it’s all a bit more complicated than that.

The figures you see might be deceptive

If a charity’s administrative costs are displayed as a percent of the fair market value of donated items it can actually create a false picture of how that money is being spent. A great example of this can be found at The Super Bowl. Obviously, every year, only one team can actually win the Super Bowl. But short of setting up a really quick production line at the stadium, or fixing the games, companies have no way of knowing which team will win, and so have to produce “We won the Super Bowl!” T-shirts for both teams.

Then, the “We won” T-shirts for the losing team are donated to charity. One such charity, World Vision, reported admin costs of $1.82 per shirt. These shirts were supposed to be put on sale for $20, but being for the losing team, their market value is probably closer to $5. So, are the admin costs 26% of the cost of donated items, or 8.3%? Either figure tells a different story.

A charity is still a business

Yes, okay, businesses exist to make money just so that the people who run them can become rich and sing evil rap songs at muppets. But charities also need to make money, they just want use that money for good, instead of evil.

Charities know that you don’t want your money being spent on administrative costs, but the trouble is this can lead to them cutting corners. Is that really what you want? Admin is the part of the machine that keeps everything else running. A few screw ups in the paperwork and you could see much more serious consequences later down the line.

As with any business, if you’re able to spend more you’re more likely to get a better product. A well run administrative department means that other parts of the charity are going to work better and more efficiently than they otherwise would do. Paid full-time admin staff are going to do a better job than unpaid volunteers no matter how dedicated they are.

The big picture

This isn’t to say that there aren’t charities who are being inefficient with their spending or that third sector organisations couldn’t use the money they receive in more effective ways. But judging a charity based purely on one number is to miss out on the larger picture. The real measure of a charity is in the impact they have on their chosen area. How much good are they actually doing?

By the same token, do you need to give your money to large charity in order for it to do good? If you look around locally you’ll find there are all sorts of smaller charity jobs and community organisations that could really use your help. You can only get to spend any given sum of money once, so make sure you’re fully informed before you do so.

About the author: Sam Wright is a freelance writer who covers issues affecting charities and small businesses.