The ‘administration costs’ of charities are generally understood to be costs that are not directly incurred by charities in delivering charitable services. The relationship between administrative costs and total costs of running the charity is often expressed a percentage of the total costs of the charity.
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’.
Charity administration costs are not a reliable measure of effectiveness, as every charity operates differently. Some charities make a real difference in the community and have relatively high administration costs, and some charities may be less effective but have low administration costs. Similarly, a charity that spends money on evaluating its programs to improve them may make a bigger difference in the long run than a charity that does not assess its programs. Looking at what a charity achieves with its funding gives a better picture of its work than looking at financial information alone.