Administration costs

Written by Fiona Higgins

‘I’m not interested in funding administration.’ These words are often uttered adamantly at trustee meetings, but what do they really mean? In our experience, they can be code for:

1. I am loath to fund certain elements of charitable administration, especially marketing and communications, fundraising collateral (appeals, direct mail, merchandise catalogues) and glitzy, high-cost events that might end up on the front page of The Australian.

2. I’m worried about control and impact. If I give an organisation an unrestricted grant, how will I know how it’s spent, and to what effect? Am I just contributing to consolidated revenue?

3. I don’t want to fund indirect charity costs – I only want to fund direct service provision.

The first two concerns are relatively easily managed through good communication with your grantees. It’s always your prerogative to stipulate your ‘no go’ areas for administration funding – and charities are generally accommodating of a donor’s wishes. As for control and impact, it’s good practice to develop a mutually agreed understanding of how progress will be charted over time – for any type of grant, and preferably before the funding is given.

The third objection is perhaps the most pervasive, despite the fact that Australia has no clear definitions around which of a charity’s costs should be categorised as ‘service-related’ and which should be understood as ‘administration’. As such, information about charitable administrative costs are not comparable and can feed unfounded assumptions – namely, that those charities with higher administration costs are somehow less worthy than those with lower overheads.

Intuitively, we all know that this premise is unsound. Adapting the old commercial adage ‘You have to spend money to make money’, in the for-purpose world we recognise that: ‘Good services are founded on good systems’. And good systems are usually funded out of the administration budget, which may scare off some funders. Yet if those same administration-averse funders are asked: ‘Are you prepared to help move a well-run organisation from good to great?’ the answer is usually a resounding yes!

Whatever the size or scope of your grantmaking, perhaps it’s time to start paying more attention to an organisation’s capacity: that unique blend of leadership, governance and well-delivered programmes that will enable it to deliver social impact (and the budget it takes to support that) rather than focusing on administration costs.

It’s an idea echoed by Sarah Davies, CEO of Philanthropy Australia, who at a recent Generosity conference called on Australian philanthropic foundations to move away from the prevailing project-based funding model, and instead to embrace capacity-building and unrestricted funding. Her suggestion is grounded in a growing body of evidence that low administration costs do not necessarily signal that a charity is good. In fact, it can indicate the converse.

So what, in practical terms, does that mean for funders?

It means that if you already have a funding partner whose mission you support, with well-run programs and a track record of results, untied funding can be a transformative act of good faith for that organisation, a kind of enlightened generosity. By funding basic administration costs, you liberate that organisation to do more of what it already does well, without a funding straightjacket. You back the organisation, not the project. You fund systemically rather than sporadically. It could be your greatest gift ever.

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