The Charity Sleuths

What the Intelligent Giving researchers are uncovering, and whose turn it is to make the tea

Tuesday, August 15, 2006

The truth about non-charitable costs

A year ago we - like many donors - had preconceived ideas about which financial figures would help point to the effectiveness of a charity. In particular we were planning to rely on those old chestnuts: administration and fundraising. But the more research we conducted, the more we were convinced that they are almost meaningless.

The truth is that admin and fundraising costs are often plucked from thin air. Discussions with a wide range of charity workers indicate that - for all the guidance of SORP 2005 - both figures are guessed at, then reduced, and are therefore utterly misleading. One CEO said they could get away with presenting their fundraising costs as two per cent of total expenditure, when in reality they would be nearer 50 per cent.

If we presented these figures as a comparative option, we'd probably end up penalising honest charities. It's a sorry situation - and for the time being we'll respond by garlanding the admin figure with caveats and hiding the fundraising figure in the back of our reports.

Neill

3 Comments:

Anonymous Michael said...

"Almost meaningless" indeed. Even when they are accurate. A charity that is rapidly building a fundraising team will have very high costs in those few years, as the return isn't instant. But how can you tell whether they are investing long term, or just spending too much money?

9:27 pm  
Blogger The Intelligent Giving Team said...

I take your point. There's also the matter of (three-year, usually) funding cycles. And then of course the nature of the organisation and work which makes such a big difference to the administration costs. We reckon SORP 2005 has addressed the admin ambiguities more closely than the fundraising ones.
Dave

9:03 am  
Anonymous Ian said...

Another factor is the type of fundraising any charity undertakes. Local fundraising events generally have low income-to-cost ratios unless run by volunteers, whereas as funding from trusts generally has fairly high ratios - and legacies even higher.

The annual FundRatios report on the detailed fundraising costs of a selection of (mainly) large national charities shows fairly consistent average ratios over the years, with some fundraising methods at about 2, whereas with others rate 40+ - but you need to be around for several decades to get much legacy income - and work in specialised areas like medical research or animal welfare!

Ian

3:13 pm  

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