How much does my aid agency spend on administration? Why this question tells you nothing helpful.

I heard a story that a wealthy businessman approached the CEO of an Australian aid and development agency with the offer of a $1 million donation. He wanted it to go to Africa and he didn’t want any of it to be spent on administration.

‘Certainly we can do that’ replied the CEO. He opened up his computer, pulled up a phone directory from an African nation and invited the businessman to select a name. They could then phone the number, explain they wanted to give $1 million to alleviate poverty and send the money to the person on the other end of the line to distribute.

The businessman was aghast. ‘But I want my money to go to a good project, to one where there is accountability for its use, where I know it will do good.’

‘Ah’ replied the CEO. ‘Now you’re talking about admin costs.’

The businessman is not alone. One of the most common questions asked of aid agencies is “how much do you spend on administration?” I appreciate the concern. People want to be sure their money is actually getting to poor communities. But I think asking about overheads is the wrong question. If you want to know whether or not your donation is helping the poor admin ratios won’t tell you anything. There are four questions that will.

1. Is my agency investing enough to maintain good projects?

Not all development projects are equal. They fall along a continuum stretching from very helpful at one end to very harmful at the other. At the helpful end are projects that see communities cope with and lift out of poverty. At the harmful end are projects that are well-intentioned but actually diminish the capacity of communities to cope with and lift out of poverty. You’d be surprised how many of these there are. In the middle of the continuum are projects that achieve little. They don’t do any harm; they don’t do any good; they just make the donor feel good.

Anyone can find and fund projects, but not everyone can find, fund and maintain good projects. That takes expertise and time.

First, a partnership needs to be formed with a capable, well managed community development organisation in the poorer country. Then once a partnership has been formed, the Australian aid agency needs to maintain a relationship in which it evaluates annual project proposals, approves funding year to year, monitors the project to ensure funds are being spent as intended and agreed outcomes are being achieved, and works with project staff to build their capacity to deliver the program. Taking shortcuts here, such as employing too few programs staff, inevitably leads to donor funds being spent on ineffective projects or being misspent.

2. Is my agency investing enough in advocacy and education programs?

One of the biggest lessons we have learned about aid and development is that poverty needs to be attacked at multiple levels. Community development projects address the grassroots, but we also need to address the economic and political systems that can either help or hinder communities as they build their future.

One of the most powerful ways to do this is through advocacy. For example, in the last ten years there has been a tremendous shift in the quality and quantity of aid the Australian government provides to poorer countries. A large part of the reason for this shift was the Make Poverty History and Micah Challenge advocacy campaigns, run and funded by Australian aid agencies. These campaigns mobilised tens of thousands of Australians to speak up for a better aid program. The end result is billions more is being given in aid and the money is being far more effectively spent.

Similarly many aid agencies have mobilised their supporters to lobby chocolate companies to source their cocoa ethically. Child labour and, to a much lesser but still significant extent, forced labour, are rife throughout west Africa, the source of about 70% of the world’s cocoa. As a result of this campaign, Cadbury has started using Fairtrade certified cocoa in its dairy milk chocolate, Mars will switch its supply over to Rainforest Alliance certification by 2020 and Nestle plan to have all their Australian cocoa products UTZ certified by the end of 2012. This has a huge impact. Cadbury’s decision to buy Fairtrade means 50,000 households in Ghana will now earn higher income, have access to finance and will eliminate child labour.

Every dollar spent on advocacy and education shows up as an overhead cost, yet each of those dollars yields hundreds and even thousands of dollars benefit to poor communities.

3. Is my agency investing enough in raising and maintaining support?

No one likes to see their donations spent on fundraising, but the reality is aid agencies need to raise funds to do their work. And that means producing brochures and DVDs, maintaining websites, reporting to supporters on how programs are going, having systems for processing and accounting for thousands of donations, and having staff available to answer queries.

I support agencies whose work I am committed to, and I want them to be able to continue and even grow their work. I don’t want to see my money spent unwisely, but I’d rather they spend on effective ways of maintaining and growing their support base than skimp to the point that their income and therefore their work starts to decline.

4. Does my agency  have wise and accountable leadership?

Everyone I know who works in the aid sector is there because they are passionate about alleviating poverty. They are probably more committed than you are to seeing every dollar spent as effectively as possible. This doesn’t mean they will spend as effectively as possible. To move towards this they need wise and accountable leadership to drive both effectiveness and efficiency
I’d rather support an agency that spends 35 cents in very dollar making sure it has invested adequately in project management, advocacy and raising support than the agency that spends only 10 cents in every dollar, and because their overheads are so low can’t invest adequately in these things. In this instance my 65 cents spent on good programs will achieve vastly more than my 90 cents spent on poor programs.

Finally, it’s worth pointing out that admin ratios are difficult to compare between agencies. For example some agencies which have an international headquarters elsewhere in the world send their money to HQ which then takes out its admin costs before passing the income along to projects in poor communities.

So next time you’re thinking about donating to an aid agency don’t make your first ask “how much do you spend on admin?” Rather ask “how effective are you?”

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