FINANCE NEWS: Cause spending on the increase


The percentage of charities' income spent on the cause is growing, according to the latest research from Charities Aid Foundation (CAF).

Figures from CAF's annual Dimensions survey, due to be published later this month, will show that in 1999/2000 the direct charitable expenditure of the top 500 fundraising charities comprised 81 per cent of their total income. This compares with a figure of 79 per cent for the previous year and is a full six percentage points higher than the total for 1996/1997.

Fundraising costs as a percentage of total income were 8.8 per cent in 1999/2000. According to CAF, this figure has remained steady over the past 20 years, moving only between 8 and 9 per cent.

Administration costs ranked 4.1 per cent of income last year. This is also close to the average of 4 to 5 per cent during the 1990s and lower than the band of 6 to 7 per cent during the 1980s.

Cathy Pharoah, CAF's director of research, said that the research should calm anxiety over charity performance. "The figures show that in spite of, or perhaps because of competitive pressures from within the sector as well as outside, charities are keeping their costs under control,

she said. "There is still a need for transparency but less need to worry about charities' actual costs. The sector may not have been transparent in the past, but it hasn't anything to hide,

she said.

But doubts were expressed as to how relevant CAF's research is as a guide to the fundraising performance of charities. CAF calculates fundraising costs as a percentage of total income, which includes investment income and earned income from government contracts, rather than just voluntary income.

Paul Breckell, finance director at the Church Mission Society, suggested that its application was limited.

"The CAF research does not make a link between fundraising expenditure and fundraising income,

he said. "It therefore should not be used as an analysis of or comment on fundraising performance.

"For example, a charity that is almost completely reliant on state funding, and only spending a small amount on fundraising, will have a very low ratio fundraising expenditure to total expenditure. From this you cannot tell the effectiveness of the actual fundraising they do,

he said.

Breckell's own research, based on an analysis of the accounts of more than 870 charities and published in June last year, found that the average cost of fundraising as a proportion of donated income was 27 per cent, or 23 per cent if legacies were included. Just over a fifth of the charities had a ratio of more than 40 per cent, while 8 per cent had a ratio of more than 60 per cent.

According to Pharoah, while the CAF data does not suggest that charities have become more cost-effective, it does indicate that costs are now growing.

"It is important to acknowledge that the overall ratio has been maintained throughout a period of huge expansion in the sector,

she said.


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