You’ve probably heard it – a question many of us consider when donating to a charity: “Where is my money going?”
It’s gratifying to know so many people think of others and want to be part of creating change, but it’s unfortunate that many seem to believe that not spending money on ‘administration and fundraising’ (or ‘overheads’) is the most important factor to consider when selecting an organisation to support.
There’s frequently a perception that too much money is being filtered towards organisational overheads: staffing, offices, systems and indeed the fundraisers asking you for a donation.
Surely those funds would be better spent on food, medicine, research or the focus of that particular charity?
I believe this question is partly driven by perceptions of charity from days of old, where those who cared took action and volunteered their time. Perhaps they also contributed some of their wares when setting up a stall to kick things off.
Diana Ruano's 2016 TedX talk, Bursting the bubble of non-profits
This is something Diana Ruano touches on in her 2016 TedX talk, Bursting the bubble of non-profits. She also talks about the huge mission 21st century charities now have, for example:
ending world hunger by 2030
reducing the number of children dying from preventable causes from 16,000 every day to zero
ending avoidable blindness
As you would agree, not exactly missions you can achieve with a few roadside cake stalls and an organisation only made up of dedicated volunteers.
Instead it’s essential that charities or Not-For-Profits are not only allowed but encouraged to invest in skilled people, effective systems and fundraising. Only then can they scale up and achieve their missions effectively.
It’s of course a good thing to wonder where your money is going. Not-For-Profits and for-profits should be, and are, held accountable for their financial records and corporate governance.
Dan Pallotta’s 2013 Ted Talk, The way we think about charity is dead wrong
Watch Dan Pallotta’s 2013 Ted Talk The way we think about charity is dead wrong though, and you’ll soon get a feel for the uneven ground on which for-profits and Not-For-Profits play.
The disparity between these worlds, both from an operational and perception viewpoint, is enormous. For example, it’s okay to attract top-performing talent in the for-profit world by offering competitive salaries and benefits, but not okay to use these incentives to attract the same talent to Not-For-Pofits. Too many times I’ve seen great, talented people leave their jobs at Not-For-Profits in favour of higher-paid jobs in the corporate sector. The hidden costs of such talent loss is enormous.
Over the years I’ve had the opportunity to work with many charities around the world and while their missions and geographical locations vary, they all have one thing in common – questions about admin and fundraising costs are frequent, with supporters often expressing a wish for these types of costs to be as low as possible, or even zero, if they are to support the organisation.
However, this measure of a charity’s success or impact is heavily entrenched in a mistaken public perception and fraught with danger. Without investing in themselves, charities cannot deliver effective services, or indeed would find it difficult to exist at all.
Rather than only focusing on costs, charities must measure their success by the impact they have on their beneficiaries and how effectively they can deliver services.
To do so, it’s essential that charities invest in skilled staff, effective systems and fundraising programs that stretch the power of every donation. When charities allocate part of a donation to fundraising, they increase the overall impact of that donation. It’s a wise investment in the future and sustainability of the organisation.
In many countries, including Australia, there are no official guidelines for what constitutes a charity’s ‘admin’ or ‘overhead’ costs. It often includes, but is not limited to, investments in skilled staff, suitable premises, program evaluation, building effective and secure IT systems - all necessary to run an efficient operation.
Guidelines and expenditure vary widely between charities, to the extent that it’s not recognised in academic circles as a reasonable measure of a charity’s effectiveness. It’s careful investment that allows charities to achieve their missions.
So, the next time you wonder where your donation is going, think about how well the organisation is set up to achieve its mission.
It’s not always easy to find this type of information but asking the right questions can go a long way and a number of organisations such as The Life You Can Save exist to help guide your decision and to maximise the impact of your donation.
You may also like to read the Australian Charity Commission’s Fact Sheet on ‘Charities and Administration costs’, which concludes that, rather than evaluating a charity based on its admin costs, “It is better to pay attention to other factors of non-profit performance: impact, transparency, governance and leadership, as well as costs.”