Many large charities do not have a clue how to calculate their core costs, delegates at this year's Charity Fair were told.
"They estimate their core costs on the back of a cigarette packet,
said Martin Brooks, economic adviser and research analyst with charity New Philanthropy Capital.
Brooks is leading research on an ACEVO project to produce a guide for voluntary organisations on allocating core costs. He blames a combination of funder ignorance and a lack of financial sophistication on the part of the charities for the persistent underfunding of core costs. This results in the incessant use of voluntary income to subsidise projects.
Brooks said that despite a commitment to paying core costs in full in the Compact, statutory funders merely honoured it in the breach. "It doesn't have any impact on the way central and local government behave. They pay lip service to it but nothing has changed on the ground,
The common benchmark of 10 per cent of project costs allocated to core costs by funders such as local authorities was completely arbitrary and invariably underestimated charities' real expenses.
"The playing field is incredibly uneven and biased towards funders. They have the clout and the received wisdom is against voluntary organisations,
The ACEVO guide is intended to redress this by establishing a method, accepted by funders and charities alike, to determine how to allocate core costs. It would enable organisations to determine what proportion of the work of their chief executive, HR department and finance team to include in bids.
The final report will take the form of a manual which charities would be able to apply to their particular circumstances - for example how to allocate core costs if they are a service delivery charity.