Research comparing the ‘admin costs’ of charities to their performance claims that on average higher performing charities spend more on administration than their lower performing peers.
Analysis by the UK’s Giving Evidence of figures produced by US-based GiveWell, an organisation run by former Wall Street analysts, 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 research, says Giving Evidence, is a clear indication that the Public Accounts Committee’s recent recommendation to limit administration costs is “wrong-headed”.
The Public Accounts Committee chair, Margaret Hodge, said during its investigation into the Cup Trust scandal that she would like to see all charities spending around 3 per cent of their income on administration, the figure she says Oxfam spends.
GiveWell looks for indicators of quality such as a documented record of impact and highly cost-effective activities to rank charities. The difference between average dmin cost spends of the highest performing charities and the lowest performing charities under GiveWell’s ranking system grows to 6.5 per cent, with the highest performing charities spending an average 16 per cent on administration. The figures are based on American and international charities, with the charity judged as the highest performing, Against Malaria Foundation, spending 17.1 per cent on administration.
Giving Evidence director Caroline Fiennes, author of It ain’t what you give, it’s the way that you give it, said the indication is that spending more on ‘admin costs’ produces better results: “If we look at what is included in the admin figure – such as systems for capturing learning, for improving, for reducing costs – we can understand the findings: it’s spending on those things which enables good performance. Scrimping on them is often a false economy.
“Assessing a charity by its admin spend is like assessing a teacher on how much chalk they use, or assessing a doctor on how many drugs they prescribe: they’re easy measures but don’t relate to performance,” she added. “This isn’t to say that there isn’t waste in charities. There is: masses, much of it avoidable, and good charities try to avoid it. But don’t expect to find it clearly labelled in the financial statements.”
