3 secrets you’ve never been told about Charity Administration Costs

Secrets about Charity Administration Costs

It’s probably a question we get asked more than any other – “What are your administration costs?”

And everytime we get asked that question, a fairy dies. Okay, maybe not – but it is a little frustrating.

Mainly because we’ve all been misinformed when it comes to administration costs. Somehow, we’ve been led to believe that if a charity has low administration costs, it’s a sign that a charity is doing good work.

Unfortunately, in most cases, the opposite is true.

Here are three secrets that you’ve probably never been told about charities’ administration costs.

1. Administration costs are easily manipulated through accounting practices.
There is no ‘one way’ to figure out how to calculate a charity’s administration cost. Every charity has a different approach. For example, when we pay $2000 for Volunteer Insurance, we automatically allocate that to ‘administration’ expenses. However, another charity may take that $2000 and allocate to 3 areas. Perhaps 50% will be allocated to administration, 25% to fundraising, and 25% to program costs. Why? 
Well, most charities can’t run without their volunteers – and volunteers support fundraising, programs AND administration.

Who is right? Well, we both are. There is no set way to work out administration expenses, so the maths behind each admin percentage is different. Essentially, charities can make their administration costs look however they want them to look.

2. Administration costs tell you NOTHING about the quality of work being delivered on the ground.
Studies have shown that charities who invest MORE in administration perform better than charities who boast about low admin costs. I’ve seen the impact of this first hand. I’ve seen charities who promise that 100% of your money goes to the cause, and they rely solely on volunteers to run the organisation. This is not a sustainable business model – and there is a lack of systems and support because of this. How can you know that your dollar is making a difference, if no money is spent on systems that monitor the impact of your donation?

“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.”

3. Like any business, waste WILL happen – but good charities do what they can to avoid it.
Just like any for-profit business – charities will make mistakes. There are times when we spend money on things we shouldn’t have. Last year, we made the mistake of ordering 2000 stickers for our Do It In A Dress campaign. Our sales forecasts were wrong, so we ended up with about 1000 stickers left over at the end of the campaign. Unfortunately they all have “2012” on them, so we can’t reuse them this year. It sucks, and it was a waste of money. But we learnt from it. This year we’re making sure that we NEVER date stamp any of our merchandise so we can reuse it year after year.

EVERY charity will make mistakes like this. Good charities will nip problems like this in the bud as fast as they can.

There is a fantastic TED talk (which went viral), that sums up everything that is ‘wrong’ with asking about administration costs. Watch it – it will be the best 20 minutes you spend all day, promise.

And look, there are dodgy charities out there who might not be doing the right thing with your money. But chances are, you’re not going to be able to figure this out by simply asking “What are your administration costs?” – as I mentioned earlier, this is easily manipulated through accounting practices, so let’s start asking some different questions:

1. Are you a registered charity in Australia? (Or your country)
2. Is your charity overseen by a Board of Directors? If so, who are they?
3. Are your financial accounts audited? (External audits are better)
4. Can I have a copy of your audited financial statements?
5. What systems do you have in place to track the impact of your programs on the ground?
6. What are some mistakes you’ve made recently and what did you do to overcome them?

At the end of the day, you’ve got to trust your gut. If it feels dodgy, then don’t donate – and if you want to take it a step further, then tell the charity WHY they missed out on your donation. If they’re anything like us, they’ll love the feedback, and do what they can to resolve it.

8 Comments

  • bethia92 says:

    Where can I find your answers to those six questions you suggest? I love the idea of ‘Do It In A Dress’ and want to follow your advice before I take part 🙂

    I also would like to ask how you decide what to do – for example, what is your consultation with the community like prior to investing funds in that community? Do you invest in practices which are sustainable when you are gone, or do you create (for example) facilities which assume tehre will be enough teachers to make use of them, or otherwise assume certain things are going to be there and then maybe potentially-helpful things that aren’t actually helpful because they are not at a stage to use them, or they are not at a stage to dispose of them appropriately, or provide appropriate transportation, etc.? In other words, what processes do you have to ensure that the help you are giving is the help that is needed/wanted in that particular community.
    Thank you very much in advance for answering my pesky question 🙂

  • bethia92 says:

    Where can I find your answers to those six questions you suggest? I love the idea of ‘Do It In A Dress’ and want to follow your advice before I take part 🙂

    I also would like to ask how you decide what to do – for example, what is your consultation with the community like prior to investing funds in that community? Do you invest in practices which are sustainable when you are gone, or do you create (for example) facilities which assume tehre will be enough teachers to make use of them, or otherwise assume certain things are going to be there and then maybe potentially-helpful things that aren’t actually helpful because they are not at a stage to use them, or they are not at a stage to dispose of them appropriately, or provide appropriate transportation, etc.? In other words, what processes do you have to ensure that the help you are giving is the help that is needed/wanted in that particular community. Thank you very much in advance for answering my pesky questions 🙂

    • Chantelle says:

      Hey Bethia!

      Hahaha – thanks for the comment 🙂 Here are the answers to your questions..

      1. Are you a registered charity in Australia?

      Yes we are. Our ABN is 81 139 793 623. We’re a registered charity with tax concession status.

      2. Is your charity overseen by a Board of Directors? If so, who are they?
      Yes we are – you can read about your board of directors who you can read about here. http://www.onegirl.org.au/about-us/our-board – we are missing one board member from there (Narelle Magee) who will be updated soon.

      3. Are your financial accounts audited? (External audits are better)
      Yes they are! We’re undergoing our external audit at the moment.

      4. Can I have a copy of your audited financial statements?
      You can, last 2 years are downloadable from http://www.onegirl.org.au/about-us/internal-docs

      5. What systems do you have in place to track the impact of your programs on the ground?
      We have a program manager in Australia (Lucy) who is accountable for our project deliverables, work plans and monitoring and evaluation. We also have a team of 6 on the ground in Sierra Leone who monitor each project on a monthly basis. We receive monthly reports from our team in Sierra Leone that details challenges we’ve faced, and what’s gone well on the ground – then we adjust our work accordingly.

      6. What are some mistakes you’ve made recently and what did you do to overcome them?
      We make mistakes EVERY DAY! Literally.. every day..

      Mistake in Sierra Leone
      We’re currently undergoing an audit in Sierra Leone (as well as in Australia) – about 2 months ago, we put an accounting firm called KPMG onto the case to get our audit done in Sierra Leone. For the last 2 months they’ve been promising to go and visit our office and they STILL haven’t come out. We’ve tried calling them, emailing them, you name it. Our board told us that sometimes an audit in a developing company can take up to 8 months. I think we let it go for too long, and we should’ve simply replaced the auditors when they didn’t turn up after a month, instead we stuck it out for way too long.

      We just got our audit completed in Sierra Leone and now the accounts are with our Australian auditors. We should have our finalised audit soon!

      Mistake in Australia
      This year we made some changes to the Do It In A Dress website which I thought would have more impact than they have. We integrated facebook into our fundraising platform this year, and I assumed it would drastically increase the traffic from Facebook. That hasn’t been the case, so in some areas our stats aren’t tracking like we projected which can be a bit scary. The platform we’ve got at the moment is doing a reasonable job which is good – but I’m definitely looking forward to build our own platform next year!

      *********

      As far as consultation with the community goes – we always conducts surveys with the communities that we’re working with so we can get a good insight into the challenges that they’re facing. We must make sure that the Chief of the communities we work with has the same values as us. We will only work with communities who agree to be fair and just (aka. we don’t pay bribes to work in communities).

      We are also ASK the schools, women and girls we work with what THEY want that will make a difference. Our Business Brains program was an idea our scholarship girls came up with, and the school awesomisation was a direct request from the schools we work in. Everything we do is in response to what the community has asked for and we have a very close feedback loop to ensure we’re on the right path.

      We see investing in education (scholarships) and business training as a sustainable model. The end goal is that each girl leaves school in Year 12, and she has undergone small business training so that she can support herself and her family in the future. We believe an educated girl becomes self sustaining and she will drastically improve the future of her family.

      As far as our school awesomisation goes, we’re just about to finalise our partners in Sierra Leone to build 9 classrooms over the next year or so – our partners have proven knowledge in the area of school rehabilitation, and we’ll rely on their expertise to ensure that we’re going about things in the right way. Each partner goes through a rigorous due diligence process to ensure that they know what they’re doing and that they’ve done it before. We know that the toilet we’ve built thus far has been very helpful (due to our monitoring and evaluation), but we can’t comment on the classrooms as they are not built yet!

      We’ve had to shift our LaunchPad model this year, as we discovered the market for sanitary pads in Sierra Leone was too small to ever be fully sustainable – we’re now moving into working with girls in schools in Sierra Leone. Currently this relies on us entirely. LaunchPad has been monitored very closely since it begun, and we’ve had no feedback around disposal problems as the women and girls currently using them are trained to dispose of the pads in drop toilets. Because they’re biodegradable, they break down without any issues.

      If you’ve got anymore questions (or if you feel like I haven’t answered these fully), please email me at cb@onegirl.org.au!

      Thanks,

      Chantelle

  • bethia92 says:

    A wonderfully detailed reply, thank you Chantelle! 🙂

  • bethia92 says:

    Just to confirm, your 2010 financial Report says that you ‘provides services to people
    regardless of race, sex, age, ethnicity, martial status, political persuasion or religion’. You don’t mention sexual orientation… Do you also provide services to people regardless of sexual orientation?

  • bethia92 says:

    Brill, thanks, I figured in all likelihood you didn’t, but just had to ask 😛

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