Charity

I have a question that I’m hoping I can crowd-source here at Slaw, or perhaps Slaw-source. I have asked several friends and acquaintances and have yet to get a satisfactory answer. Charity as a legal concept dates back to 1601 and the Statute of Charitable Uses 1601 (aka. Statute of Elizabeth) wherein the preamble to the act contained the first statutory definition of charitable uses. Since that time the nature and scope of charities has changed dramatically; to the point where some have become leery of large charities that are run more like a business than a charity. This leads to the crux of the question I am hoping to have answered, that is: When donating to a charity what do you consider to be an acceptable overhead for administrative expenses, or more succinctly, what percentage of each dollar you donate going to administrative expenses are you comfortable with? 10%, 20%, 30% more?

Ontario details some of the duties and responsibilities of directors and trustees which include:

Duty to be Reasonable, Prudent and Judicious

Directors and trustees must handle the charity’s property with the care, skill and diligence that a prudent person would use. They must treat the charity’s property the way a careful person would treat their own property. They must always protect the charity’s property from undue risk of loss and must ensure that no excessive administrative expenses are incurred.

However, “excessive administrative expenses” is not defined. So in short, what do you consider to be “excessive administrative expenses”?

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Comments

  1. I don’t think one can answer that question with a firm number, because the nature of the charity and its activities make a huge difference. If one is a ‘flow-through’ operation, transferring donations to someone else, then a very small administrative percentage may make perfect sense. If one is performing charitable activity, then one has to ask where one draws the line between adminstration and charitable services. What part of a hospital’s administrative expenses are charitable? What part of a university’s?

    When I filled out the T3010 forms for a touring ballet company 25+ years ago, I included the cost of the tour booking person as charitable rather than ‘admininstrative’ because she helped the company perform its mission. Without her, no tours and no shows on the road.

    Similar issues arise with fundraising expenses. The party line, or the received wisdom, re fundraising is that a charity should not give a fundraiser a proportion of the take; fundraisers should have fixed costs. But one understands a small organization preferring a contingency fee arrangement, and a fundraiser taking up the work on that basis: if I do a good job, I’ll get paid well, and my pay here compensates me for the lower pay package I get when I’m unable to raise funds for my other charitable client.

    You might want to look at the Imagine Canada web site for guidance – and that site has a link to an excellent library of resources, and related sites. Meanwhile the Canada Revenue Agency has guidelines about fundraising expenses, which are only one element of administration.

  2. Mark Blumberg has useful advice for donors on this issue here:

  3. The Blumberg article is good and useful (if a bit long). It may make sense for people who do not want to do the amount of work needed to evaluate a charity’s operations to trust the United Way, which does a very thorough job – and not just on effective and efficient administration, but also on the need for the operation at all.

    Canada has a laissez-faire philanthropic registration system – anyone can get a charitable registration if they meet the technical requirements, whether or not it makes any sense in social/artistic/medical/artistic policy to have one more charity competing for the same funds and human resources and clients/patients/audiences as the existing charities in that sector.

    This allows for innovation and some healthy competition, and of course is consistent with a free society whose citizens can choose how to spend their time and money, but it also can be very wasteful. If the waste is a concern, then delegate … which is why the big collective charities like the United Way, or the managers of collective funds like community foundations, are so useful.

  4. Great topic Mark and timely given that this is the time of year when we are all bombarded by requests!

    I think quality of services (outcomes instead of outputs) rather than percentage of “administrative costs” should be the deciding factor on which charities to support. The article “Don’t Choose a Charity Based on Administrative Costs” ( http://huff.to/brftzO) presents some thoughtful arguments. The problem, of course, is that it is much harder to measure positive outcomes (what difference is the charity making in people’s lives?) than it is to use a simple mathematical calculation. Administration costs percentages can be manipulated and are not a trustworthy method of judging the worthiness of a charity (see this article from the LA Times last April: http://lat.ms/Je3HZ2).

    Having worked in the not for profit (social profit) world for the past 7 years I can attest to the frustration of explaining to funders why an investment in “infrastructure” will improve outcomes and why my salary shouldn’t be lumped into “administrative costs” when I am working every day in front line service delivery.

    We need to take the time to do our homework to find where to put our precious donations. There is no easy answer.

  5. There is a cost to running a charity and one should expect that. If you decide to donate dependant on the lowest overhead, then “mistakes” like those recently in Ottawa and Toronto can be expected. Administration does a job and that job is to manage the money or whatever the charity does and to make sure that the donation is given to those in need in a timely fashion and in an appropriate amount. Administrators do accounting and in house audits and the like. If you choose a charity with low overhead, then expect that these “frills” won’t be available. I personally don’t have extra money, so I prefer to donate personal hours to my charities of choice.

  6. The legitimacy of administrative costs is recognized to the point that grant applications nowadays often add a percentage (15% is what I’ve seen) to the amount requested for the ‘program’ element, for administration. Some grantors (I believe the Trillium Foundation in Ontario, for example) insist that this be done, because it’s no use pretending that one does not have to administer the funds and the program – or as Sharon says, and the Blumberg article, the administration will not be done well and the funds may be wasted, or worse.

    Saskatchewan and Alberta regulate charitable fundraising, but I do not believe that they have any rules about administrative costs. Those more familiar than I with those rules may chime in to correct me.

  7. Thanks all, that is helpful; however, it is abundantly clear why I’ve never received a clear answer previously!

  8. Well, you can delegate. If you are dealing with a US-based charity, there is this site or this one. They consider the ‘efficiency’ of a charity, being a measure of how much of the resources of the charity are spent on charitable purposes.

    In 2009, Forbes magazine ran an article on America’s most efficient charities.

    For Canadian social charities, you could delegate to the United Way, either by giving directly to it or by looking at its list and giving to the individual charity with the confidence that both the usefulness of its work and its efficiency in doing it have passed the UW’s very credible tests.

  9. This is something that I really struggle with. I agree that a fixed figure is not an appropriate method of assessment as different charities will encounter different administration costs depending on their focus. However, as a member of the public I find it very difficult to assess what is and is not a good charity to donate to and I simply don’t have the time to research the operations of every charity. I have preferred to contribute not through money but through other methods (such as donating blood). An organisation I am involved with has recently made quilts for a women’s shelter and donated and bundled up comfort packs for the women. While this is no doubt not the most cost efficient way (we all buy the products at retail prices not in bulk) and provides no tax deductions (that would apply to a cash donation) at least I feel that what we are donating is going where we want it to and doing what we expect allowing us to retain some control over what we are contributing to.

    I agree that people providing front line services as part of the charitable effort should not be lumped into ‘administrative costs’ – the services are the reason people are donating. A person being paid to collect donations on the street however would be an administrative expense.