High-performing charities spend a bigger proportion of their funds on administration costs than lower-performing counterparts, analysis of a sample of charities suggests.
The conclusion is based on an analysis by Caroline Fiennes, director of the donor consultancy Giving Evidence, of a review of charity performance by the US non-profit organisation GiveWell, which is run by former Wall Street analysts and recommends charities from all over the world to donors.
GiveWell categorised charities as high-performing if they had demonstrable impact, highly cost-effective activities and a concrete need for more funds, and showed transparency and accountability to donors.
In 2009, a review of 239 charities found those that were judged to be high-performing spent 10.2 per cent on administration, compared with 9.5 per cent by lower-performing organisations.
A subsequent study of 27 charities in 2011 showed that high-performing charities spent an average of 11.5 per cent on administration, compared with 10.8 per cent among those that performed less well.
The 2009 study broke the charities down into four levels of performance. It found that charities judged to be in the top level spent an average of 16 per cent on administration costs, compared with an average of 9.5 per cent among those in the lowest bracket.
Fiennes said that although the difference between the administration spends was "not huge", the figures challenged those who believe charities waste money on administration costs.
"The popular belief that high admin costs indicate poor performance is hence shown to be wrong," she said.
Fiennes said it was "wrong-headed" of the Public Accounts Committee to be considering limiting charities’ administration costs, and of donors such as Gina Miller to suggest that administration costs be capped. "The data indicates that such caps would nudge donors towards choosing weaker charities, at untold cost to their beneficiaries," she said. "It’s time for this to change."
Fiennes said scrimping on work considered to be administration, such as systems for reducing costs and researching the impact of a charity, was a false economy.
"This isn’t to say that there isn’t waste in charities," she said. "There is: masses, much of it avoidable, and good charities try to avoid it. But don’t expect to find it clearly labelled in the financial statements."