The cost of administration

Some of my Particles are, as I admit elsewhere, little more than random thoughts or vague recollections.  Here is one such.

I was at one of those events where you sit in a row and listen to people who are trying to think up something – hopefully interesting – to say to you.  This chap was talking intelligently and cogently about “administration”.  The gist of his address was that, far from wanting to minimise the cost of administration in a nonprofit,  he thought that money spent on good governance, on training board members, and on ensuring financial probity, and on sound planning and financial management, was to the benefit of the organisation, its mission and the sector overall.

If you go to Google and Google Scholar and type in “nonprofit administrative costs” you will find endless articles, some assuming a benefit to the ultimate beneficiary when a nonprofit minimises organisational spend and others correlating a higher (maybe not that much higher) spend on administration with greater overall effectiveness.  All this is very interesting.  However, my memory is long.  

I remember a time when no one talked much about nonprofits and their overheads and admin costs.  Then one day – I’d like to think it was in the mid 1990s – someone looked at the audited accounts of a major UK charity and found that it reported 80% of their income spent on administration.  And the accounts of other charities were looked at.  And there blew up an almighty storm of self-righteous outrage.  And I suspect that this is where and how the debate around administration as a percentage of turnover gathered pace.

All this time, I have had a nagging feeling that the wrong tree was being barked up.  In remembering that time when no one talked much about nonprofits and overheads, I also recall that no one paid much attention to audited accounts either.  The auditors came, they worked, and they produced a set of accounts in a language that only they understood.  Their financial statements were only ever properly read or challenged by the honorary Treasurer.  Final versions were approved, signed and consigned to the filing cabinet**.  At the time my view was that when auditors wrote things like “administration” what they really meant was the operation of the organisation as opposed to direct costs or marketing.  I didn’t for a moment think that auditors necessarily meant unnecessary bureaucracy or clerical bean-counting.  But it made for an easy news story. No one spoke up and indeed it would have been futile to do so: once the words were uttered, they touched a nerve that was waiting to be touched, and they could not be unspoken…

I have a second thought to add. Which is that it can suit some nonprofits to complain about “unnecessary admin” when asked to account for their use of public funds. Whether the reporting requirements of public bodies are reasonable or not, is an interesting but quite different question. My point is that I have certainly seen a very few vocal nonprofits – especially in Ireland – hide behind the “bureaucracy gone mad” trope rather than admit their own shortcomings. And this too plays to the gallery of public opinion.

So here we are, stuck with a supposed universal truth that nonprofits and charities are just waiting to spend your hard-earned donations on pointless admin.

**  I have yet to write my post “a set of audited accounts is like a good novel”

Danielle Byrne, © 2023