When Canadian donors examine and do a search on charities to donate, they want to know where the money goes and how the money is used. They wonder if their donation or giving will make a difference to the Canadian causes that they support.
Five Principles about Charity Administration Costs
- Charity Effectiveness and Impact are very important
- It costs money to run a charity to do great work. While some smaller charities can be run by volunteers, but larger charities with complex structure requires a more extensive program
- More than half of Charity have paid staff
- Charities come in all shape and forms, there is no one size fit all model for running a charity. Canadian Charities can be a University, a hospital, an international disaster relief organization, or a food bank.
- Canada charities may exercise different type of accounting to administration costs so it is hard to compare apple to apple
Charity Effectiveness and Impact are very important
Some charities make a high impact on the community but carry a high administration cost; some charities have less administration cost but also less effective. The more important note is to compare the administration costs to the effectiveness of a charity. The best charities are the ones with relatively lower administration costs with a very high impact. The best way to understand the administration cost is to improve the transparency of charities by knowing what happens behind the scene. Circle Acts is an organization created with the goal to support and promote such high impact and transparent charities.
Charity Costs Money to Run
All charities must use their funds to further their charitable causes – this is what it means to be not-for-profit, and is a requirement of registration with the Canada Revenue Agency. All charities spend money on administration – without it, they wouldn’t be able to operate and pursue their charitable purposes. Charity needs to spend money to delivery services, to educate the public, and also to pay the staff as we discuss later. When managing their finances, charities should exercise proper care and diligence and not be wasteful. This includes taking care when spending on costs considered as administration or overheads, such as staff, rent, transport and power. Wherever possible, a charity should use funds in a way that maximizes its impact and makes a difference for the people it was established to benefit. At times, charity does not have enough budget to hire best in class talents due to limitations of administration cost, they rely on great talents with heart to join an organization. It is seldom to be able to hire great resources for all positions in a charity and therefore charities sometime give the perceptions of being mismanaged.
There are over 85,000 charities in Canada, and chances are some are mismanaged, but many aren’t. As donors, we have to be aware and it is the donors’ rights to hold the charities accountable to our donations.
Charities have paid staff
Charities are still organization and it doesn’t mean they don’t hire people. Operating as a not-for-profit does not mean that a charity can’t employ people. The work of charities often requires qualified staff and these people need to earn a living. In Canada, while some charities are run by volunteers – most of these are organisations. However, majority of all charities do need paid employees to be able to deliver their services. Charities would not be able to attract the quality staff they need to carry out their work if they were not allowed to pay people fair wages for their skills, knowledge and experience.
Some larger charities may have paying board members too.
Different types of charity
Setting ratios or percentages as standard benchmarks for administration costs often ignores that the charity sector is made up of many sub-sectors that vary greatly. For example, the charity sector comprises: Universities, Private hospitals, Non-government schools, reduction of poverty, the advancement of religion, Social services/welfare organizations, Housing providers, and Environmental/animal protection groups.
Even within the same charity ‘sub-sector’, each charity will have a different set of circumstances and activities, based on its services, its size and its physical location. Applying a standard ratio or percentage as a benchmark can lead to unfair assumptions about a charity’s management and overall performance. Running a hospital has different staff and regulation compliance than running a food bank in a city of 50,000 population.
Conclusion
Donating or giving to a charity is an investment to bring a better world and supporting good causes. It is a donor’s responsibilities to be aware of the charities that he/she supports. It is not an easy tasks, and there are information online and solutions to help donors and are different between countries.
