A Charity Commission inquiry has cast light on an area that lacks meaningful guidelines.
The costs of fundraising are a legitimate public interest, according to one of the conclusions of the Charity Commission's inquiry into the financial affairs of a charity that was found to have fundraising costs of 80 per cent of its income (Third Sector, 17 May).
The commission has reminded the trustees of the Diabetes Research & Wellness Foundation that "it is important to be sure that the costs of fundraising will be justified in terms of a realistic return".
But what is a 'justified' percentage of fundraising costs against income?
The answer is that there is no such thing. The foundation's £900,000 spend on fundraising in 1999, against an income of £1.1m, simply felt wrong, both to the commission and to the national newspapers that reported the story last week.
But neither the commission nor the Institute of Fundraising offer guidelines on what is an acceptable fundraising ratio. What's more, there is no legal requirement for charities to keep fundraising costs to a particular level.
The Charity Commission does not set a target for fundraising costs because it says that levels can vary depending on the size of a charity, its line of work and its plans. The commission adds that it scrutinised the foundation's operations only when monitoring teams identified irregularities in its accounts. A spokesman for the commission said it believed trustees were ultimately in the best position to decide whether a charity's fundraising ratio was in the best interests of the organisation.
But Luke FitzHerbert, senior researcher at the Directory of Social Change, believes there is a risk that similarly high funding ratios could remain unchallenged.
"If in one year a charity claims in its annual report that its fundraising costs are high because of a particular drive, then a return on that investment should show up a few years later," he says.
"But the commission doesn't monitor accounts year on year to check that."
Like the Charity Commission, and for the same reasons, the Institute of Fundraising believes fundraising ratio targets are meaningless.
"Donors are keen to get a bang for their buck," says Megan Pacey, director of policy and campaigns at the institute. "They expect their money to be spent on services. But with smaller charities there is often a point where overheads are high and service delivery is not."
The case of the Diabetes Research & Wellness Foundation appears to back up Pacey's view. Sarah Bone, executive director of the foundation, points out that it was still newly created when the high ratios occurred.
"In 1999, it was our trustees' intention to build a donor base as quickly as possible," she says. "So our fundraising costs were high. This was expected, because we were entering our first year and had no private endowment with which to begin operations."
Bone adds that the foundation has since achieved a fundraising ratio of 34 per cent, and that its target is to achieve 18 per cent by 2009.
Unlike the foundation, some charities have financial resources that allow them to claim fundraising costs their donors nothing. Last year, Lindsay Boswell, chief executive of the Institute of Fundraising, criticised charities, such as Comic Relief, that pledge to spend every penny in the pound on the cause. Boswell claimed that this approach undermines the efforts of other charities to be open about their fundraising costs.
But Comic Relief has argued that its promise to the public does not imply it doesn't incur costs to achieve funds. It believes it can keep its promise because running costs are met in cash or in kind from other organisations and from investment.
Joe Saxton, co-founder of voluntary sector think tank nfpSynergy, believes that, in the absence of guidelines, charities should establish what donors believe to be an acceptable fundraising ratio.
His company's latest Charity Awareness Monitor asked 1,000 people what they believed to be an acceptable percentage of income for charities to spend on fundraising. The response showed that the highest proportion of people, 36 per cent, believed that a spend of between 1 and 10 per cent was acceptable. Most UK charities spend between 15 and 25 per cent.
Pacey says the sector has "an education job to do" to convince the public that fundraising is a legitimate cost. She believes this is possible as long as charities are able to demonstrate that such costs are part of good strategic planning.
Saxton believes that most charities would struggle to convince donors that a funding ratio of more than 40 per cent was acceptable.
"What the public thinks has to be important," he says. "The sector might agree, for example, that 40 per cent is acceptable. But if donors aren't persuaded, it's a meaningless target."