The Great Admin Rate Debate

Written by
Ashley Chapman
Published on
August 28, 2023 at 6:17:00 PM PDT August 28, 2023 at 6:17:00 PM PDTth, August 28, 2023 at 6:17:00 PM PDT
A group of FH Guatemala staff outside of the Nebaj office.

Are there hidden costs to low-cost programming?

Quick! What are your top three considerations when choosing a charity?

If you’re like most Canadians, the admin rate (i.e. the percentage of donations spent on administration and overhead) comes out somewhere on top. In some ways this is fabulous, and in some ways–perhaps surprisingly–it is not.

The Goods

On the positive side, this shows that Canadians prioritize good stewardship of their money. It shows that they value financial accountability and desire to see their money reach those in need instead of landing in executives’ pockets.

These are very, very good things. But there are other considerations–widely known in the not-for-profit world but seldom communicated to donors–that complicate matters.

FH Burundi staff pose for a group photo in Kabarore.

Lemons Instead of Aid

Charity watchdogs are quick to point out that the pressure to keep administrative costs low encourages charities to run programs that are ultimately ineffective. After all, the admin rate tells donors nothing about the actual impact of their money.

“Picking a charity based on the lowest overhead ratio is like buying the cheapest car that money can buy,” says Tim Ogden, editor-in-chief of Philanthropy Action. “You might spend less in the short run but it’s inevitably going to let you down.”

Another analyst compares donors’ admin rate obsession with a family who builds a house without a kitchen, because kitchens are expensive and drive-through meals are cheap. This is where good stewardship goes wrong.

Admin Rates Need New PR

Sure, a not-for-profit president with a seven-figure salary is a red flag; as is a fledgling organization in a mortgaged multi-million-dollar office. But usually the “admin” percentage of your donation is what actually makes your money effective. Let me explain.

A healthy organization must be a reliable partner to the international programs they support. At FH Canada, we partner with communities for about 10 years. Hand-outs are easy, fast, and can provide instant gratification, but lasting change (that survives beyond our time in the community) is often slow, tedious, and not very flashy. But the long-term results are substantial.

Being able to commit long-term requires the fiscal responsibility of not spreading resources or staff members too thin simply to cut costs. Trimming expenses this way is often tempting, but it only leads to low-quality work and a high employee turnover rate (which, consequently, costs the organization more money).

A FH Guatemala staff member teaches a group of mothers about early childhood development.

The Nitty Gritty Numbers Game

Almost surprisingly, there’s no prescribed standard for separating administrative costs from more “direct” programming costs. Different organizations slice the pie differently.

Is office space for child development field staff a program cost or an administrative one? What about the logistics to coordinate emergency relief with other non-profits so emergency provisions aren’t duplicated in some areas, leaving others in the lurch. Does that fall under programming or administration?

What becomes clear is that it doesn’t matter. If an organization is healthy, all their costs will contribute to positive change in their partner communities. It’s money that must be spent to be effective.

It’s also clear that the percentage spent on administration will fluctuate, even if the actual amount spent on admin doesn’t change. It’s the magic of math—and natural disasters.

For instance, Canadians’ generosity after a deadly earthquake or destructive hurricane means that organizations like FH with an emergency response unit may have a lower administrative percentage some years, simply because overall donations are so much higher.

Power to the People

The fun part in all this is that Canadians have the power to demand responsible and effective development work. Your dollars and your voice tell Canadian charities where your priorities lie.

Many people come on board with FH Canada because of the reasonable admin rate, but we hope you continue supporting our work because you see results. 

Since 1994, 70 communities have celebrated reaching sustainability–an accomplishment that would not have been possible without committed staff walking alongside community and church leaders, helping with training to empower people to make their own changes.

One of our core values is “Spend wisely, focusing on results.” This helps ensure we’re not wasting money while still preventing us from doing things “on the cheap” just to keep our admin rate down. To steward the trust that Canadians put in FH Canada, we also aim to keep our fiscal choices as transparent as possible, and we welcome comments, feedback, and dialogue at all times. We also make it a priority to maintain the Canadian Centre of Christian Charities’ Seal of Accountability year after year.

Because it’s not about blindly trusting a charity. Asking tough questions is important. But in order to be the most informed and effective donors, Canadians may need to start asking new questions: moving beyond ideas like “How much?” or “How little?” and into that all-important realm of “How well?”

FH Guatemala staff, José, with Diego and Maria, active members of the Xonca community.

About the Author:Ashley Chapman is a writer and editor who works with non-profit organizations in Canada and Europe. This article was originally published in a special "Good Stewardship" edition of FH Canada’s Hope Notes magazine.

These are not the authors, this is here for placement only. This recipe comes to you from two of our favourite Guatemalan staff, Ligia and Paola! Their families enjoy this delectable drink each yuletide, and are happy to share it. Feliz Navidad!

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The Great Admin Rate Debate

If you’re like most Canadians, the admin rate (i.e. the percentage of donations spent on administration and overhead) comes out somewhere on top. In some ways this is fabulous, and in some ways–perhaps surprisingly–it is not.

Read More