The Administration Fallacy
Accountability and best practice is so important to charity work that 2/3s of participants in my recent survey identified that these were key factors in determining whether to support an organisation. However one-third refuse to pay for it.
As part of my recent survey, I asked the question:
“If you were checking a charitable organisation’s model of practice or legal accreditation, what sort of things would you be looking for?.”
The importance of Accountability
Of the 60 people who responded, 39 people said that organisational accountability was the thing that people would check for the most. Examples of this included:
board structure and accountability.
external organisations that they were accountable to
what policies they have
financial transparency
legal registration and compliance
external audits and program evaluation.
All of these activities are crucial for making sure that a non-government organisation is trustworthy, free from corruption, and making the impact that they want to achieve. Without a strong policy foundation, strategic direction and internal structure, decisions will be made on the fly by people who may not see the full picture of a situation. Without collaboration and accountability with external organisations, charities become focused on their own solutions rather than seeing the impact that is being made collectively. Making sure that the legal requirements are being met is also important. And external audits and evaluations ensure that the impact of programs are actually being measured. As Mony said in his video the other day, the impact of not having these things in place has long-term consequences for entire communities.
When we break these tasks down further we might determine that in order to be implementing best practice and accountable to others, charities need to have:
A strong finance department with people who are well trained in taxation expectations, and accounting procedures, who can track and receipt fundraising income, grant income and expenditure (in each of the ways required by donors), organisational costs and regular bills, and oversee program budgets and spending as well as payroll.
A strong HR department to ensure that the right people are doing the right jobs and are up-to-date with and obeying policy.
A strong compliance department who are working with lawyers to ensure that all government registration requirements and program legal requirements are being met. This compliance department may also have to do things like making sure that all program staff are meeting WHS compliance requirements and project record compliance by doing spot checks. This group might also be responsible for making sure that the office space is well-maintained and that all staff have a safe working environment.
A well developed monitoring and evaluation system that is able to do regular program evaluations and provide training to staff when gaps appear. This job mostly involves interviewing beneficiaries, local community leaders and government officials to understand the impact of projects. These staff then interview programing staff to see if their understanding correlates with the beneficiaries understanding. Often these processes require working with all involved to redesign projects, negotiate with donors and change the program requirements if needed.
A marketing and communications department who are responsible for collecting impacting stories in an ethical manner, who understands the limits of confidentiality and consent of clients and who has up to date knowledge on the most efficient forms of marketing and storytelling. This team is also responsible for collecting, writing, editing, copy-proofing and publishing materials.
A strong charity needs a strong board with regular meetings with board members. These members may or may not be paid and they may or may not require accommodation and travel expenses when attending meetings.
And of course, all of those things require functional technology such as computers and phones and good internet connectivity.
All of these groups and factors are crucially important.
And all of them are charity overheads or administrative costs.
However
“21 people in my survey said that making sure that the money was spent on meeting the needs of the direct beneficiaries and not administration costs was an important factor in deciding who they supported. ”
We can’t have it both ways.
The truth about charity administration costs
We have been taught to believe as donors that the most important thing to look for is low administration costs and for many charities that is a good indication. But while the gold standard is around 15% for admin costs and fundraising, we have been fooled into thinking that that number itself is more important that what it represents.
The number does not represent program efficiency or good governance in itself.
Without the governance processes mentioned, it is impossible to tell if a program is efficient and if the beneficiaries are getting the benefits promised to them. It also doesn’t tell us if the processes are being done.
The number does not allow for organisational size.
One of the reasons we think that 15% is the magic admin number is because that is the number that a lot of large NGOs operate on. According to their 2020 Annual Report, World Vision Australia spent 7% of its income on administration and 9% on fundraising. Both of those numbers sound impressive - and they are. Without any context though, those numbers hide the fact that 7% of World Visions 2020 income was $28 million. It is possible to have a well resourced organisation, doing effective program management, reporting and governance when there is that much income to use for it. If you are a smaller NGO -say a locally registered NGO in a developing country - and you have a budget of $100,000 - then 10% on administration is not going to be enough to pay for all of the people needed to do those processes properly. We should expect that smaller organisations have higher administration and overhead costs. We should also be wise and check what those costs are going towards though.
The number hides who is actually doing the work.
If you can’t afford to pay someone to do the work, one of three things happens. It doesn’t get done. You have to recruit volunteers to do the role. Or, most likely, you split those roles up between other team members. So your finance and HR department are the same person. Your manager is also your M&E expert. And the people on the front line - the ones actually interacting with the clients - are the ones collecting stories, filling in financial forms and receipts etc. They spend more time doing work in areas that they aren’t trained to do and less time doing the jobs they are trained to do, because as donors we won’t fund someone who is trained to do it. This means the projects actually become less efficient and the beneficiary outcomes suffer because they do not get as much staff support and time as they perhaps need.
So what can we do to help a small NGO?
Volunteer time in administration - help write reports, do communications, support the finance team, do policy reviews. It’s unglamourous but it's important stuff that needs to be done.
Donate money - Unrestricted funding is the most useful form of funding, but if you want to tell them how to spend it and make their day - tell them that it can only be used on Administration.
Don’t assume that low admin = good governance. Ask good questions to see whether they are the sort of organisation you want to support. Check out this due diligence checklist from ACCI (Australian Christian Churches International) Relief to help think through some questions (again, we will discuss this more later).
As donors, we know there are checks and balances needed to ensure money is being well spent. It’s time we commit to spending the money.
Further ideas for thought:
www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong/transcript
