Is there a recommended percrentage of a charity’s funds that should go to cover administrative costs? If so, what is it?
It depends on what the charity does.
If its primary job is to distribute food or clothes to the poor, then 10% or less administrative costs is pretty good.
If it’s service-intensive, like counseling, tutoring or therapy, administrative costs will be much higher, just as they are with any service-oreiented business.
My organization is not a charity, but it is a non-profit. We have what seems to be high overhead because a lot of our funding comes from grants that have very strict reporting requirements. It takes a long time to put the paperwork aand documentation together to satisfy the requirements. Some would argue that staff time could be better used on the actual programs, but if someone is going to give you a five-figure grant, they should be able to ask that you account for every penny of it.
Just curious, but does that accounting break down how much of the money is spent meeting their requirements? Maybe if they can plainly see how much of their money is wasted because they want paperwork, they won’t want so much paperwork?
The Minnesota Charities Review Council has this standard:
At least 70 percent of the organization’s annual expenses are for program activity and not more than 30 percent for management/general and fundraising combined.
(Details here.)
That seems fairly typical of what I’ve seen from other Charity Review organizations.
The most common disputes seem to be over classification of expenses – the charity says this large mailing was ‘educational’ material about their activities; the review organization says that it is mainly a fundraising mailing and should go in the administrative category.
One person’s paperwork is another person’s accountability, and everyone reads things differently. Here’s a quick example.
Strictly speaking, I’m a member of the administrative staff. If you look at head count, I’m on the “support” side of the organizational chart.
But about 75% of my time is spent directly working on programs. So those hours have to be accounted for when we document what we’ve done for each grant that funds those programs.
So I have to be clear whether I’m working on Program A, doing administrative duties to support Program A or doing my “regular” administrative duties that directly support the organization in general and not a specific program or grant.
Then there are expenses. If I make a trip that includes work for Program A, Program B and training, how do I divide my expenses to make sure that we don’t overcharge, undercharge or double-bill?
Yes, it’s time consuming, but it’s really no different than when I was working in the private sector, dividing my time among various clients and my employer.