Should we worry about how much our favourite charities spend on administration?

Christmas might be a time of giving, but it is also a time of great need for charities helping those who need a hand. Many run special Christmas appeals to tap into the giving spirit. But it is the cost of such fundraising that has been questioned recently in a Fairfax Media study.

The analysis of 15 Australian charities shows that some are spending up to 41 cents in every dollar donated on the costs of administration and fundraising, while other charities spend as little as five cents of every dollar donated. The Fairfax report comments on calls for greater transparency in the charitable sector at the same time that that the Federal government is looking to abolish the body set up under Labor to regulate not-for-profit organisations. There is some concern that the abolition of the Charities and Not-for-profits Commission will result in increased uncertainty and fewer guidelines, making it harder for donors to understand just what does happen to their charity dollar.

Any organisation taking public money must be transparent and any reluctance to be clear about the cost of a charity’s operations should ring alarm bells. But shouldn’t we be just as focused on the outcomes of a charity’s works as we are on the cost to achieve them? The adage that sometimes you need to spend money to make money is as true in the charitable sector as it is in commercial business, yet many people have a strong aversion to money they donate being used for anything but an end project. Everyone wants to feel that their money is being used to help someone in need, but perhaps we need to expand our understanding of that idea. No organisation can run without staff - and paying for quality staff often means quality outcomes. Spending money on marketing can increase the visibility of an organisation and the issues it is seeking to address, leading to greater community understanding. There is often a multiplier impact as well: increased money spent on marketing can lead to more money being raised so those marketing funds can be considered an investment. And of course in most instances money spent on marketing and administration means increased employment, which can be a good in itself. 

In March, US fundraiser Dan Pallotta gave a widely viewed TED talk on this issue (posted below), arguing there is a real double standard in our relationship with charities. He argues that too many non profits are rewarded for how little they spend rather than for what they achieve. Pallotta suggests instead that we should start rewarding charities for big accomplishments even if that comes with big expenses.

A related issue is the actual number of charities that have tax deductible status and that are competing for the donation dollar. There are nearly 59,000 registered charities in Australia, with some 2300 registered in the past 12 months versus the 1200 registered in the previous 12 month period. Some of these charities are very small, started for a specific purpose, and in receipt of only a small amount of funds, but still needing to spend money on administration, regulation and fundraising. There is a question to be asked here as to whether the ends being sought by the people setting up these organisations could be better served by working with established charities instead to ensure more efficient outcomes.

While transparency and efficiency should be a key obligation of both, there will always be many differences between the charitable sector and for profit businesses. However when we are thinking about our favourite charity, perhaps the key question shouldn’t be what percentage of funds is being spent on administration, rather it should be what impact is being achieved with the money raised. After all, it isn’t just about the giving: it is about how what we give can change the world.