There is a cold war in the charity world.
On one side are the public and the vast majority of donors. The public don’t like admin costs, overheads and waste and they don’t like to think of their money going to anything but the charity’s cause. Our research at nfpSynergy shows this antipathy to costs and overheads very clearly. People typically think about 10% of their donation at most should go on admin and around 20% be spent on fundraising.
They see admin costs as worse than fundraising costs. Their top worry is how much of their money goes on ‘the cause’. They are also concerned about high salaries for CEOs and are more likely to see them as admin costs rather than the cause.
The average member of the public is very conservative about wanting their money to be spent on anything other than the cause. We may not like what the public think, but as donors they should not be ignored.
In the opposing corner are those who hate it when donors and philanthropists tell them how they think charities should be run. The very same people who would claim that it’s important to be donor-centric then bust a blood vessel when those donors tell them a home truth they don’t want to hear. Donors should be seen (giving) not heard (complaining).
I describe it as a cold war because for the most part, these two differing views on admin and overheads don’t get discussed much. Only occasionally does a skirmish break out that symbolises the whole debate. One such skirmish was the recent interview with philanthropist Gina Miller.
When people like Gina Miller, as a substantial donor, raise concerns about the levels of salaries and admin costs, it unleashes an outpouring of anger and venom from people in the sector. Yet from my experience and our research, her perspective is very close to many members of the public.
The polarised and subterranean nature of this debate is both sterile and unhelpful. The public appear to want no money to be spent on admin at all, while various sector commentators end up sounding like its fine for a charity to spend all its money on it.
There’s no doubt that we have managed to end up with admin costs branded as the kind of organisational stain even Cillit Bang couldn’t remove, rather than the lubricant that makes charities work effectively. But in my book, any charity whose formal accounts indicate administration costs of more than around 10% and fundraising costs of more than 20-30% has probably got the balance of its expenditure wrong.
My views matter little though – it’s the public and donors we need to persuade and telling them there’s ‘no such thing as admin costs’ is hardly likely to change many minds.
So, here are my five steps for moving the debate forward:
1. Let’s define admin costs. One key problem is admin costs appear to be poorly defined. The amount of money really spent on ‘admin’ is fluid. Is the CEO admin? Is the administrator to a team of service-delivery staff admin or the cause? What about the cost of buildings and offices? The list of queries is almost endless. The level of admin costs for a charity is currently what the charity wants it to be. The Charity Commission need to fix this; hopefully the forthcoming SORP consultation will help.
2. Let’s stop talking ‘admin’ and start talking ‘management’. We need to rebrand admin costs to indicate that they are a vital ingredient of effective charity management. As long as we give the appearance of admin being a waste we can’t quite eradicate, we shouldn’t be surprised that the public don’t like it. I must confess that charities that go on about every penny going straight to the cause don’t help – particularly when they have admin costs similar to most others, whether they like to admit it or not.
3. We need to explain more and attack less. In a battle of charities vs. the public, it will be charities that need to do most of the work to change attitudes. Whatever we call admin, we need to explain why it’s a necessary cost and why without it, donors’ money would be less well spent. We cannot expect that the average donor will have their views changed on overheads if it isn’t charities that tell them. It’s a fantastic opportunity to engage donors and supporters and explain how a modern charity works. So try this simple test - count on your fingers the articles by charities explaining why they spend what they spend on fundraising and admin. Bet you didn’t need two hands!
4. We need to come up with new indices to judge charities by. We can’t be surprised that the public judge a charity by its admin or fundraising costs since those costs are readily available and can be understood instantly. Compare that to the lengthy and usually turgid annual or impact reports that charities produce. If we want people to stop judging charities by admin or fundraising costs, we need to give them alternatives that are as simple and available as those they replace.
5. We need to admit that charities can spend too little on the cause. Recently, a charity rang me asking for money and it only spent 5% of its income on the cause. For me, that’s way too little and I sincerely hope that it would be too little for most people in the charity sector. I would suggest that the alarm bells should start ringing if any charity spends less than half of its income on the cause. There are exceptions to this, like charities with high levels of trading income and, on average, smaller charities. We could start with a clear analysis of the typical level of fundraising and admin costs for the largest fundraising charities. That way, we’ll know what the norm is.
We could rant and rave about people who criticise the levels of admin costs in charities. But I’d rather we accepted that their views are typical of many and work to change them. Shouting at outsiders for their ignorance may satisfy a feeling of righteous indignation, but it will do little to change anybody’s views. And if we want people to donate more, we need to understand where they are coming from, not just tell them where we want them to go.
Are you Russian to agree with us? Or did you hit the Wall reading this? Leave us a comment below.
Point 3 is the key for me; we
Point 3 is the key for me; we have to help the public understand just how charities work these days. We must show that it's no longer a case of a few do-gooder volunteers rattling tins (most of my friends are still there in their thinking!) but that most charities are now run in the same way as successful commercial businesses with the same kind of costs and expenses incurred by premises, management and staff, and service delivery. The major difference being their impact on the world we live in.
If people were first aware of this and second, understood both the necessity and the strategic advantage, we wouldn't see the kind of 'shocked outrage' over admin costs that is so common. People are not stupid they just need some things explained before they can see the logical sense for themselves. It's time, in today's open source transparent online world, to stop trying to hide a modern and sophisticated nonprofit organisation behind a simplistic fundraising ask; it's like trying to hide an elephant behind a lamppost. And I agree, stop referring to necessary and strategic expenditure as ‘admin’. We should be up front and honest and excited and proud about what great management can achieve; how investing and testing in new techniques can improve fundraising; how our people make the money work hardest for the beneficiaries; even how our sector is developing a recognised profession and contributes to employment and the country's economy... My point being we should appeal to our donors' practical common sense as well as to their hearts so that the whole costs issue becomes an accepted non-issue.
Point 1 - The Charity
Point 1 - The Charity Commission "solved" this problem 8 years ago through SORP 2005. There is no category of Admin in accounts any more, it's just a pity that some commentators are so far behind! Part of the problem is that in passing the Regulations in Parliament our MPs, who are so in touch with the sector, insisted on needing to know what charities spend on admin. We don't spend anything on admin! Be positive and say that! All of our costs are either delivering charitable activities, generating funds or meeting external requirements (governance costs). There is a very simple answer that I give to someone who asks what a charity spends on admin, that is to ask them what they think is admin - that opens up a debate which enables me to explain the importance of management, of proper support costs, etc.
One other point which came up in the Guardian a few years back. How much a charity spends on fundraising costs will depend entirely on how it raises its money. A high proportion of legacies tends to reduce the costs but a charity raising its income exclusively through events will have a cost as high as 70%. Is that wrong? Should that charity be told you need to change the way you raise your income to be more efficient? I hope not, it's all about communication and there I agree, let's be positive, let's be brief and, above all, let's use language the audience understands.
This has been a problem for
This has been a problem for years and the sector has never really organised itself to explain the facts. Its time the IoF took a lead on developing a strategic response that sets out the reality and lays down some markers - at the risk of great interest from the press that might be negative. I agree with Joe that we need clear indications on what exactly admin costs are and what is considered to be a reeasonable range, without being too prescriptive. I also think we as fundraisers could raise our game in explaining this more clearly, also picked up by Joe. Some charities make a virtue out of low admin costs as they know this resonates with the donors, but these same donors expect to have well run operations which would be impossible at this level. Promoting low admin costs is a disservice to the sector as it is misleading.
At a dinner party recently, one of my fellow guests was berating charity "administration" costs not realising my background - my response was to confirm that Waitrose have admin costs, his bank has admin costs, his own company has admin costs, so why is a complex charity such as MacMillan, for example, somehow at fault for having admin costs? I think the point was made. We need a strategy to educate.
The real issue is not about
The real issue is not about admin costs (which after a 40 years working in charities I still cannot define) nor about management costs (I have no idea what that term may mean) but about waste. The 2005 SORP pushes charities to analyse costs by activity - listing fund raising, charitable activity and governance as the central areas - and thus the lack of 'admin costs' in the SORP.
What we need the sector to do is be honest about what money is being spent on - by proper activity analysis - and look at how they can identify, drive out and report on waste - which can be found in direct charitable costs as well as the indirect costs which are so often labelled 'admin'.
We need a debate but it needs to be about the right issues. As a starting point how about charities being asked to show how much of their current income is currently used on current direct charitable expenditure?