04.Clever accounting
Unlike in the US, charities, with the exception of some overseas aid organisations, don’t have to calculate and report their fundraising cost ratios in a consistent way. This makes 'apples with apples' comparisons impossible for donors.
The fundraising cost ratio is the amount spent on fundraising, as a percentage of the amount of money raised. In fact, many charities can put their own definitions on things like administration and fundraising costs, and juggle these expenses around in the accounts, achieving apparently low cost ratios — but they may be artificially low.
"There are numerous ways that charities can make themselves appear better than they really are, or better than their competitors, to donors," says
Our Community, a group that operates the Australian Giving Centre, a portal for finding and donating to smaller and less well known charities. "Without a much-needed standard and transparent form of accounting, the existing system is used and abused."
Charities Aid Foundation (CAF), an international not-for-profit and lobby group that aims to increase charitable donations, says that unless you're a qualified accountant, you won’t be able to compare charities.
"The problem is it's often impossible for donors to assess where their money is going and how much of the donation gets to the coal-face projects," CAF says. "We know of one not-for-profit that states 10% goes on overheads, but when we examined the figures it seemed more like 30%. The difference is explained by what's identifiable as fundraising costs, management costs and project costs. There's no standard measurement."