Our View: Don’t judge a book
Discussions about the administrative costs associated with running a nonprofit organization often lead to controversy.
For nonprofits, it’s a no-win situation.
Either their costs are too high and people cry “corruption,” or the costs seem too low and people suspect malfeasance.
Those perceptions are affecting all service organizations.
According to a 2004 Brookings Institution study, only 11 percent of Americans think nonprofits do a good job of spending their money wisely. The study found that confidence in charity is 10 percent to 15 percent lower today than it was in the summer before Sept. 11.
“Charity finance can be confusing, and the reporting rules and laws governing it leave a lot to be desired,” said Laurie Styron, an analyst with the American Institute of Philanthropy.
The Institute, a charity watchdog, keeps a critical eye on administrative costs and grades organizations accordingly.
An organization that spends less than 60 percent of its budget on programs, with the remainder going to administrative and fundraising costs, earns a grade of C. An A-rated organization spends 75 percent or more of its annual budget on programs.
But the institute doesn’t just look at the bottom line. It scrutinizes a charity’s budget to ensure that funds are reported in the correct categories.
Some charities even over-report administrative costs, Styron said. The salary of a staff member who provides a direct service isn’t considered an administrative cost. The institute considers administrative costs to be only salaries for anyone whose work is related directly to the organization.
Others under-report by lumping donated goods with their program costs, making their program expenses seem higher.
“Many people outside of the nonprofit sector assume that salaries are all administrative costs. This is not at all the case,” Styron said. “Salaries are an expense that is normally allocated based on how each employee is spending their time.”
With organizations such as the American Institute of Philanthropy delving deep into nonprofit records and reporting their findings, there’s no reason that anyone should decide not to contribute to a charity based on rumor or innuendo.
Hard facts are there.
And if that’s not enough, the administrators at local nonprofit organizations generally are more than willing to show their budgets to anyone who asks. If they don’t, that should be cause for concern.
But the bottom line is that administrative costs are a part of doing business. Without administrative costs, many humanitarian efforts wouldn’t move further than a living room discussion. People make programs happen. People make sure reports are filed, bills are paid and budgets are maintained.
An informed contributor should know whether an organization is spending its money prudently.
That includes program and administrative costs.
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