Assessing the application of Corporate Donations
Whether your passion is art or endangered animals in the rainforest, corporate giving can become the lifeblood of a particular charity. Business donations to the charity account for nearly 5 times the amount that individual taxpayers claim each year, it is a critical part of the success and growth of Australian Children charities such as Kids West.
Choosing a charity to support can be a confusing array of choices. It is very important to first do your research. Fortunately, not only are there charity watchdog groups but charities are also required to file certain documents for public viewing.
Kids West have proudly developed this new Corporate Giving Tool that allows us to report instantly on where every single proposed donation dollar would be spent.
We believe in two very important elements when it comes to Corporate Donations to Charity:
(1) Transparency of Funds – we want to show you where every single dollar will be invested
(2) No Admin Charges – we have a phenomenal team of volunteers, and a generous support program to ensure that our administrative costs are always covered and that 100% of the dollars donated to us goes into the community.
Business Donations to Charities
When people donate to charities, they want to know that their money will be used effectively and it will make a difference to the cause that they support. Some people try to assess this by examining the charity’s administration costs.
While it is reasonable to want to ensure that each dollar you give will be used well, assessing and comparing charity administration costs is difficult and it can be misleading.
- It costs money to run a charity – large charities with complex structures and extensive programs cost more to operate than smaller charities run solely by volunteers
- Charity effectiveness and impact is important
- More than half of all charities have paid staff
- The charity sector comprises many different types of organisations, including universities, hospitals, non-government schools, social welfare organisations, and environmental or animal protection groups
- Because charities are so varied, there is no one-size-fits-all standard ratio or percentage to measure reasonable spending on administration
- There is no mandatory standard accounting practice for reporting on charity spending
Defining administration costs
Many costs can’t be easily isolated from a charity’s ‘direct’ service and set aside as ‘administration’. For some charities, delivering a service consists of a wide range of connected activities which incur a range of costs – each crucial for the overall service delivery.
For example: a rural health service provider may spend a significant amount on petrol and travel, but these are vital to the charity’s service delivery. For other charities, these costs may be considered administrative.
It is important to recognise that when looking at the financial reports of two charities, you may see similar costs treated in different ways.
Ratios for administration costs
Setting ratios or percentages as standard benchmarks for administration costs often ignores that the charity sector is made up of many sub-sectors that vary greatly. For example, the Australian charity sector comprises:
- Private hospitals
- Non-government schools
- Social services/welfare organisations
- Housing providers
- Environmental/animal protection groups
Even within the same charity ‘sub-sector’, each charity will have a different set of circumstances and activities, based on its services, its size and its physical location. Applying a standard ratio or percentage as a benchmark can lead to unfair assumptions about a charity’s management and overall performance.
Looking into high administration costs
Charities are independent organisations and their governing body has responsibility for their administration.
If there is evidence that administration costs or salaries are unreasonably high the ACNC may look into the operations to establish that the charity continues to be run in accordance with the ACNC Governance Standards.
The ACNC considers all the factors that may affect the perception of high administration costs or salaries in assessing such situations.
How Does Some of the World’s Largest Charities Measure Up?
The following charities are hugely popular with donors and appear on Charity Navigator’s lists of most viewed charities. Do you know how much money they spend on actual programming?
American Red Cross
The do-gooders at the American Red Cross do a good job of spending your money when you donate. They manage to keep administrative expenses at less than 5% of their total overhead, and they spend about 91 cents for every dollar donated on actual programs that benefit the community. Whether it’s teaching CPR or managing a crisis during the aftermath of a disaster, the Red Cross puts your money to good use.
Approximately 85% of income donated to World Vision goes to help stamp out poverty around the world. While they are still well below the 33 percent benchmark, they tend to spend more on fundraising than other highly-rated charities in this category. Nonetheless, if stamping out poverty is your passion, World Vision does a good job with your money.
Doctors Without Borders
These brave folks at Doctors Without Borders go into the most deplorable conditions to bring healing to others. Your money here is well spent. According to their website, about 89% of total revenue goes to supporting their programs.
Sites like Charity Navigator are helpful in showing you what percentage of your giving goes to support the mission of the nonprofit, as opposed to administrative expenses. Some nonprofits may have quite a bit of overhead, but for a charity to truly be effective at meeting its mission, it should work to reduce fundraising and administrative (overhead) expenses and instead devote as much of their budget as possible to support their programs.
Charity Navigator reports Australia charities with administrative costs ranging from 2% – 10.8%. Kids West has operated for over 30 years, and is proud to have in place a structure that requires 0% of donations to be dedicated to administrative costs.