American campaign launched to dispel admin cost myth

25 Jun 2013 News

Three of America’s largest charity sector information sources have penned an open letter to donors dispelling the myth that the proportion of funds spent on overheads is a measure of worthiness or effectiveness.

Three of America’s largest charity sector information sources have penned an open letter to donors dispelling the myth that the proportion of funds spent on overheads is a measure of worthiness or effectiveness.

The letter, released jointly by GuideStar, Charity Navigator and BBB Wise Giving Alliance on a new website created for the campaign, tells American donors:

“We write to correct a misconception about what matters when deciding which charity to support.

“The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as ‘overhead’—is a poor measure of a charity’s performance.

“We ask you to pay attention to other factors of nonprofit performance:  transparency, governance, leadership, and results…”

Signed by the organisations’ CEOs, the letter – the start of what is being touted as an unprecedented campaign in the US - cites research by other experts including the National Center on Charitable Statistics, to support its argument that, in fact, many organisations should spend more on overhead in order to improve their services.

"A one-dimensional focus on overhead is not the right way to assess a charity's performance. We believe that for a donor to correctly assess a charity, the organisation must be viewed on three dimensions: its financial health (not just overhead), its governance practices, and the results of its work,” said Ken Berger, president and CEO of Charity Navigator, a charity evaluation organisation.

Admin costs in the UK

Last month the UK’s Giving Evidence analysed figures produced by US-based GiveWell, an organisation run by former Wall Street analysts, and found that the average admin spend of high-performing charities is 11.5 per cent of costs, compared to 10.8 per cent for lower-performing charities.

The matter of admin costs has long been an issue back in the UK but reared its head most recently when Public Accounts Committee chair Margaret Hodge advised she would like to see charities spend 3 per cent or less on admin costs during a review of the Cup Trust gift aid tax avoidance scheme, and following the call by philanthropist Gina Miller for the Charity Commission to cap the amount charities are allowed to spend on running costs.

Speaking at the All-Party Parliamentary Group on Civil Society and Volunteering last month, Rhodri Davies, head of policy and campaigns at the Charities Aid Foundation (CAF) said the correlation between admin costs and public trust and confidence was worrying: “People often raise the issue of administration costs, as if that is a great way to tell the difference between a ‘good’ and a ‘bad’ charity. I’m very concerned about that.

“It fails to make the distinction between a charity that does very good work and spends a reasonable proportion on necessary admin, and a poor charity that has little or no impact and spends very little on admin.”

 

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