Fact: A charity can spend money on administration
Charities are justified in incurring administration costs. Running professional, sustainable and effective charities costs money, which includes spending money on their administration.
Generally, the administration costs of charities are those it incurs to allow it to operate. For example, the costs of renting an office, supplying it with electricity, purchasing and maintaining an IT system, and the salaries of the CEO and office staff who do not provide services directly to clients, are all administration costs.
- It is up to the charity’s Responsible Persons to decide how much money should be spent on administration, as long as they comply with the ACNC Governance Standards and ensure the charity’s financial affairs are managed in a responsible manner.
- The Australian Charities Report provides evidence of the diversity, variability, geographic spread, and complexity in the sector. All of these differences affect how much money a charity spends on administration. For example, a remote health charity employing a range of medical professionals and offering services such as dialysis, will have administration costs far greater than a charity based in the centre of Perth raising funds for a local childcare centre.
- High administration costs alone do not indicate that the charity is poorly run; in fact, it would be concerning if a charity had no such costs.
- Administration costs can be a mark of effectiveness – for example the charity that trains its staff and evaluates its programs may be more efficient and effective than the charity that does not. Sometimes there is a perception that it is better if a charity gives all, or most, of its revenue to its beneficiaries. For most charities, this isn’t possible.
- When trying to understand a charity’s effectiveness, it is better to pay attention to other factors of not-for-profit performance: transparency, governance, leadership, and impact.
- In Australia, there are no standards or clear definitions to guide which of the charity’s costs should be classified as ‘service related’ and which should be classified as ‘administration’. In the absence of any such standards or guidelines, information about administrative costs is not comparable and is often misleading.