Ensuring more funds go to directly helping families in regional communities - Only 15% of donations are spent on administration.
There is one thing that drives charities nuts – the person who asks about admin costs, or judges charities by the percentage of revenue that goes to admin costs.
But, it happens, so we have to address it.
To help in this task, I will be drawing heavily on excellent recent research undertaken by the Centre for Social Impact, Philanthropy Australia, and Social Ventures Australia in a report titled “Paying What it Takes”.
First: Some Context
Charities in Australia have annual revenues of $155 billion and employ over 1.3 million people. This represents 8.5% of Australia’s GDP and accounts for one in ten of Australia’s employees, nearly as many as in the retail industry (p. 1). Charities also engage over three million volunteers and provide over $12.7 billion of unpaid labour (p. 8).
As the report suggests: “Thriving not-for-profit organisations are critical to the future productivity and wellbeing of Australia (p. 1).”
Second: Charities are Doing It Tough
A survey of 16,000 charities last year showed that most operate on thin or no margins; many have very limited reserves; and more than half were at risk of not being able to provide their services (p. 1).
Third: Admin Costs Are as Many and Varied as They are Necessary
They cover IT hardware and systems, finance, human resources, learning and development, measurement and evaluation, insurance, regulatory compliance and reporting, fundraising, communication, rent, telephone, electricity, website development, system subscriptions, state and federal law compliance (e.g. WHS, Privacy), policy development, strategic planning, project application due diligence and monitoring, impact measurement – and the list goes on. And there is another list if, as we do, the charity operates overseas.
One example from the list above – compliance. To meet our legal responsibilities, we have over 40 written policy documents that have to be revised regularly to incorporate legislative changes.
To ensure compliance with these internal policies alone, we have a spreadsheet of 92 tasks that have to be undertaken each year. And some of those tasks are not trivial. One task can take many days of work.
Fourth: The Truth Is Very Different from Public Perceptions
The report comes to the following conclusions:
- Not-for-profits that spend less on admin costs are not necessarily more efficient nor more effective than those who do not. Indeed, there is clear evidence that spending insufficient resources on admin costs can potentially reduce overall effectiveness.
- Not-for-profits ‘true’ admin costs often far exceed the amount they are funded.
- Effective not-for-profits incur admin costs that need to be funded to enable them to achieve their impact. (p. 3)
- The average not-for-profit admin costs are also significantly lower than what businesses spend on admin costs. Companies under $1 million in revenue, for example, spend on average 48% admin costs, not including research and development (p. 19).
- A corporate sector benchmark study suggested corporates spent twice as much per employee on key capabilities such as IT, quality, training and marketing [as charities].
Fifth: And the ACNC Recognises This
The Australian Charities and Not-for-Profit Commission (ACNC) that oversees charities in Australia have put forward a similar view. They state on their website “All charities spend money on administration – without it, they wouldn’t be able to operate and pursue their charitable purposes. It can be misleading to consider administration costs as separate from a charity’s cause, because this fails to recognise parts of a charity’s operations that enable it to deliver services.”
Sixth: Dharma Care is Ahead of the Pack
One of the interesting findings of the “Paying What it Takes Report” is that: “The average indirect [i.e admin] costs of the not-for-profits analysed was 33% of the total costs, with significant variation between 26% and 47% (p. 20).”
When Dharma Care receives a donation, we ask donors to contribute only 15% to cover the many overhead costs mentioned above. This is significantly below the figures quoted above. We are ahead of the pack.
How do we keep this so low? For a number of reasons, we have always believed in generating as much revenue as we can ourselves through social enterprise.
For over 30 years, our beautiful Sine Cera Rainforest Retreat has contributed to the cost of the work we do. Of course, it cannot do it all because we also provide very inexpensive accommodation with discounts to families and other charities. Also, for the last two and a half years we have had limited incomes due to bushfires, floods and then COVID lockdowns.
Seventh: We Rest Our Case
Admin costs are not a good measure of the impact a charity is having. They may even be contraindicative. And even if they were relevant, we are way ahead of the pack.
Article researched and written by Irwan Freeman Wyllie (CEO Dharma Care). Nov 2022