Good Charities Spend More - Report
7 May 2013 at 10:11 am
Low administration costs do not signal that a charity is good, rather good charities spend more on administration, according to a new analysis of UK and US charity spending.
The report is by Caroline Fiennes, Director of a UK consultancy Giving Evidence and author of It Ain’t What You Give, It’s The Way That You Give It.
“The popular idea that money spent by charities on administration is ‘wasted’ is wrong,” Fiennes said.
“Many people believe that charities waste money on ‘administration’, and hence that the best charities have low administration spend. This leads some charities – who should know better – to publicise their low admin costs, and to talk about the amount of their money which ‘goes straight to the cause’.
“This is wrong, as analysis from Giving Evidence shows,” Fiennes said. The analysis shows that in 2011 charities rated as ‘high-performing’ spent 11.5% of their funds on administration compared to ‘lower-performing’ charities that spent 10.8% on administration.
“We show – for the first time – that high-performing charities spend more on administration costs than weaker ones do. This analysis by Giving Evidence is the first empirical data to be published about what administration costs indicate about charities’ performance.
“If we look at what is included in the administration figure – such as systems for capturing learning, for improving, for reducing costs – we can understand the findings: it’s spending on those things which enables good performance. Scrimping on them is often a false economy.
“Assessing a charity by its admin spend is like assessing a teacher on how much chalk they use, or assessing a doctor on how many drugs they prescribe: they’re easy measures but don’t relate to performance.
“This isn’t to say that there isn’t waste in charities. There is: masses, much of it avoidable, and good charities try to avoid it. But don’t expect to find it clearly labelled in the financial statements.
The report comes as the UK Parliament’s Public Accounts Committee is considering limiting charities’ administration costs.
“The data indicates that such caps would nudge donors towards choosing weaker charities, at untold cost to their beneficiaries. It’s time for this to change,” Fiennes said.
“The clear implication is that donors shouldn’t favour charities with low administration costs. The empirical evidence provided here shows that they’re likely to be low performers.
“How then should donors judge a charity’s performance? Currently it’s hard. In the UK, and most countries, there is no reliable ‘ratings agency’,” Fiennes said.
“Charity Navigator in the US, the world’s largest charity ratings agency, is moving towards a model which looks at many aspects of a charity’s performance, including transparency and results.”