5. Charities Spend Too Much on Admin
Most people would say that the work of charities is valuable; in fact, some of us would go so far as to say the work of charities is essential for the wellbeing of society. But, against a backdrop of negative news stories, recent years have seen a perceptible shift and hardening in the relationship the public has with charities. In the fifth of a themed series of posts, addressing some of the more common complaints against charity, The Boiling Frog looks at a concern often raised by donors about how much charities spend on ‘admin’.
People are often sceptical about how charities spend their money and want to know how much of each £1 they give will actually be used for charitable work. The less a charity spends on admin, the argument goes, the more that goes to the cause.
It is a myth that good charities are able to operate with virtually zero overheads, unless a charity is very small and run exclusively by volunteers.
If you ever wanted a clearer example of that, we need only look as far as the collapse of Kids Company in 2015.
In her book about what happened, former CEO Camila Bamanghelidjh boasts about keeping overheads low. Yet an inquiry report by a committee of MPs in 2016 cited poor record-keeping as a significant factor in the charity’s collapse. Perhaps skimping on administrative costs wasn’t such a good idea after all. Batmanghelidjh describes how Kids Company kept paper records for the 36,000 children and young adults it claimed to support (the numbers were found later to be a lot fewer). She says they were “stored in 80 cabinets”. For a charity operating in the 21st century, it’s surprising that didn’t raise some alarm bells..
A few years back The Guardian newspaper reported on a study, conducted by Giving Evidence and Givewell, which looked at what administration costs tell us about charities’ performance. The research showed that whilst most of the 265 charities in the study spent on average between 10.8% ad 11.5% of their costs on administration, those which spent more were better performers: they had a stronger documented track record of impact, highly cost-effective activities and a concrete need for more funds.
Whether you are operating in the voluntary and community sector or the private sector, some essentials – including computers and relevant software, communication tools, insurance, HR, data management and health and safety policies, proper accounting procedures, insurance – are necessary to run any effective organisation. Whilst charities should spend prudently, they are still under obligation to get the job done properly.
So, to answer the complaint against charities for not spending every penny directly on their cause, perhaps instead we should be wary when charities are not spending enough
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I have been lucky enough to work with – and on – some good boards in the charity sector. That may surprise you, given that trustees generally come in for a lot of flak – not least from their own CEOs and senior managers. The thing is, good boards don’t happen overnight. You achieve them with patience, care and forethought.
My sympathy to all organisations having to cope with flood damage after recent storms. I know what it feels like because I have been there. I was responsible for putting a recovery plan in operation for a charity when its offices and community centre suffered flooding just a few years ago.
Charities are no different to any other sector in that they are being challenged by the rise of digital. But their slowness to adapt means they face being left behind.