Myth busting on charity admin costs

The ACNC has published new guidance to help the public and donors understand charity administration costs.

The set of frequently asked questions (FAQs) under the rubric Charities and administration costs, highlights issues raised by the public and sets out the ACNC’s view.

Charities and administration costs helps the public and donors understand what administration costs are, why they are an important part of running a charity, and why administration-cost ratios can be an unreliable way to compare charities.

The new guidance also endeavours to correct common misconceptions. ACNC commissioner Susan Pascoe has encouraged donors to read the guidance.

Each month, the commission receives about 60 to 70 queries about charities, a third of which originate from the public.  Many are about charities’ expenses, which are commonly referred to as administration costs.

There are no laws or regulations that specifically set out the amount charities can spend on what might be considered administration.  There are also no clear definitions as to what should be considered ‘administration costs’ for accounting purposes.

The bulletin aims to help the public and donors to understand what administration costs are, why they are necessary, and when they may be unreasonable and therefore warrant ACNC scrutiny.

Simply having low administration costs does not necessarily indicate an effective, well-run charity. Similarly, having higher administration costs does not necessarily indicate that a charity is ineffective and poorly run.

A more important consideration is the effectiveness of the charity.  Is it doing important work for the community and making a positive impact?  It’s the question donors should ask.

Administration-cost ratios as a measure of charity effectiveness are particularly flawed due to NFPs’ inconsistency in accounting practices.

‘The ACNC believes that there should be a dedicated accounting standard that applies to the not-for-profit sector with clear guidelines that set out how charities report different income and expenses,’ Ms Pascoe said.

‘Other commonwealth jurisdictions already have accounting standards specifically for not-for-profit organisations, and we will continue to advocate for their introduction here in Australia.’

Charities and administration costs can be accessed at acnc.gov.au/admincosts.

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