Help for help

Only sixteen cents in the dollar – where did the rest of it go?

Public criticism of the Shane Warne Foundation appears well-founded when you consider the organisation’s 2014 financial statements.

Its reporting to Commonwealth charities regulator, the Australian Charities and Not-for-profits Commission, reveals it received revenue of $452,711, of which $279,198 was attributed to fundraising, yet spent $281,434 on raising those funds.

Why? That puts a ludicrous twist on the idea of spending it to make it.

It resulted in a “cost ratio” of more than 62% – the ratio of the cost of raising funds against the proceeds of fundraising. That ratio is more than 100% if you only use the actual fundraising income in the calculation.

The other major expenses were employee benefits of $150,507, and rent of $47,572. The charitable purpose does come into question when these figures are juxtaposed against the distribution to beneficiaries of just $50,000.

Similar criticisms have been levelled at larger well-known charities.

In 2011 the Surf Life Saving Foundation, Care Flight (NSW), and Make-A-Wish Foundation were all reported to have a greater than 50% cost ratio. Their historical distributions, spending on their charitable purposes, have been much higher than the Shane Warne Foundations’s 11% of revenue.

So why on earth would you want to donate your own money to pay for things like employee salaries and rental? Aren’t there ways that your generosity can be directed 100% to those in need?

Confirmation of the current high-cost activities of the “charity industry” appears in the following part of a report by Susan Pascoe, Commissioner of the Australian Charities and Not-For-Profits Commission.

While most Australians appreciate the social impact of Australia’s charitable sector, they may be surprised to find that it also has huge economic significance. Australian Charities Report 2014 shows us that Australian charities had a combined income of $103 billion and employed more than 1 million people in 2014 – this is a large section of the economy and Australia’s workforce.

When you consider this alongside the estimated two million volunteers working for charities, you get a picture of the size and significance of the sector.

Understandably, the public want to see that their money is making a significant and direct impact. However, immediately associating high administration costs with low effectiveness or seeking to place fixed percentage figures on administration costs could be misleading.

Many of the very small charities have low administration costs, due to size and reliance on volunteers. However, for the charities employing staff, renting premises, advocating for their causes and so on, there will be administration costs. This is legitimate and can be a mark of effectiveness – for example the charity that trains its staff and evaluates its programs may be more efficient and effective than the charity which does not.

Similarly, a charity that provides medical services in remote or rural areas would likely have higher costs in delivering its services than a charity that provides food for the homeless in the city.

Having said that legitimate administration costs underpin the operations of many charities, it is also important to note that the ACNC Governance Standards clearly expect that charities are prudent with donations and use money as effectively as possible.

Whilst we all want to ensure that as much of our donations are making as great an impact as possible, it is important to remember that running professional, sustainable and effective charities costs money. The effectiveness of a charity’s impact is the key factor by which you should decide whether a charity receives your donation or approval.

The Commissioner’s report is a summation of what is taking place at the moment, stating the obvious, but I disagree with an adjective in the last statement that “running professional, sustainable and effective charities costs money”.