Don't choose a charity for Haiti based on administration costs

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Comments

[Mary Wolfe]

The percentage of funds being transferred to Haiti should be of concern to all.
http://www.nodeductions4haiti.org/

[Saundra]

Adam,

I have made it a policy not to recommend specific charities, but instead to focus on helping donors understand the larger issues. However I've linked to the blogs from aid workers where they do recommend specific charities. Here's the post http://informationincontext.typepad.com/good_intentions_are_not_e/2010/01/suggestions-for-donors-in-choosing-ngos-to-donate-to-after-a-disaster.html

[Adam]

Do you have any charities working to help Haiti that you recommend supporting?

[Scott]

Thanks for this article! The obsession with administrative costs is insane. As a sometimes grant writing and fundraiser for non-aid nonprofits I was always amazed at the number of donors who were obsessed about this one chunk of the budget. As you point out it can be easily manipulated and it is basically meaningless. A really low number just means more accounting tricks, most of the time.

Dig into annual reports and really get to know an organizations budget if you are concerned about their efficiency.

Administration allows people to respond in a smart and coordinated way. It allows organizations to work efficiently and plan for the future. Chocking off administrative funding results in poor planning and budget tricks.

[Rahul]

Thanks Saundra. That link makes a lot of sense.

Here's another one:

http://www.cnn.com/2010/WORLD/americas/01/21/haiti.best.donations/index.html?eref=rss_topstories

This is totally ironical in the larger context (not for Haiti). More and more charities realize that cash might be the best way to give them. Yes, I perceive unwillingness to extend the same privilege to the people the charities help in turn.

"You donors don't know what's the best donation so give us charities hard cash; But we charities know better than the final recipients so we'll convert the money into something that we know they'd like better!"

Of course, that also raises an organization structure issue. Would Charities be willing to advocate a structure that would render a large fraction of their own machinery redundant?

[Saundra]

Rahul,

This post might interest you http://aidwatchers.com/2009/10/at-least-as-good-as-cash-from-a-helicopter-a-new-standard-for-aid-effectiveness/

[Rahul]

Shouldn't administration costs be very low if the charity directly handed out cash? Isn't that what economists do for Christmas gifts anyways? Isn't there implied paternalism in a charity doing something for people but not directly giving money? "If we gave them money they would use it for purposes we don't like" or "They wouldn't put the money to the best use"

Why do donors to a charity have such strong opinions about the exact purpose. Why should I want to help a African villager by just preventing malaria or digging a well. I could also give him the money and let him decide what to do best with it.

Of course, this doesn't work in the extreme cases like Haiti where all infrastructure has broken down. But in places like India with large poverty but reasonably good history of basic infrastructure, governance and markets wouldn't it be better if charities went around handing out money?

Or do we think that the charities money can get it more bang for the buck due to economies of scale or some kind of superior non-monetary skills?

[Ed]

right... just like we waste tons of money on welfare.... you are talking about 5% of cases... for the other 95%, administrative cost is a good indicator... i've worked in a charity and seen how money is wasted

[Nick]

It's good to watch out for needless administrative costs, however. Following the earthquake my employer sent out a message describing how to give to one of 30 aid organizations (e.g., Red Cross) through a donation clearinghouse. Donations made through this venue are docked a 3% administrative fee, which one can avoid by just donating directly to the implementing organization. Aside from nominal vetting, the clearinghouse doesn't seem to provide much benefit over direct donation. This seems like an avoidable administrative cost.

[jim lande]

Also note that a charity hires administrative staff for the long haul. Many charities contract for governments and contracts and payments may not be continuous or consistent. This can cause the percenage to jump even though there has been little change in the day-to-day administrative work

[Saundra]

recluse,

The salary of the CEO should be based in relation to the size of the organization. If an organization is extremely large with operations in multiple countries, then a six figure salary might be appropriate to attract competent managers who can ensure the organization is run well. If it's a small organization paying their CEO a six figure salary then you have to question the real reason the organization exists. I would classify that as an "extreme case."

[recluse]

If a non-profit's CEO is making six figures, it doesn't need my money.

[Saundra]

John,

I've heard that attempts to limit the amount that private insurance companies can spend on overheads will be futile because they can manipulate the numbers just like in the above examples.

[John Thacker]

Very interesting. Do some of these arguments mean that the claims about Medicare and Medicaid having lower administrative costs than private insurance are also less valid than one might think?