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How much money goes on running costs?

This is one of seven fact sheets in a series about reporting on charity issues. It provides context for accurate reporting and details of where to get more information.

Other topics in the series are:

  1. How can I tell how effective a charity is?
  2. Why do charities have paid staff?
  3. Why do charities fundraise?
  4. Why do charities deliver public services?
  5. Why do charities campaign?
  6. Are there too many charities?

Download this fact sheet as a PDF (50KB)

Context

Charities are sometimes criticised for not spending every penny directly on their cause. A small proportion of their budget is often used to pay for admin support or activities to ensure the charity is run legally. Or, it’s invested in fundraising activities to maximise available cash for the cause.

Here’s a quick re-cap on where exactly this small proportion of their budget goes and why it all helps ‘the cause’ in the end.

Governance costs

Charities are required to show how much they spend on governance in their annual accounts. This is money used to ensure the charity is run legally.

For example, the cost of internal and external audits, legal advice for trustees, costs of holding trustee meetings and preparing statutory accounts. It also
includes some employee costs where staff are providing administrative support to trustees. These costs are relatively fixed and charities are required to spend this money in order to fulfil their legal duties. Across the sector, £0.9bn is spent on governance, that’s just 2.1% of the sector’s total budget.

Administrative or support costs

Some essentials – such as an office, desk space, computers, transport, insurance and proper accounting – are necessary to run any effective organisation, and charities spend as prudently as possible here so they can focus their income on furthering their issue or cause.

It can be a false economy to skimp on some of the ‘back office’ or infrastructure that charities need to get the job done properly. No charity wants to spend
more than it has to on computers, for example, but if its IT systems aren’t up to the job, it could lead to inefficiencies and lost time.

Administrative costs also include spending on salaries for staff that aren’t deemed ‘legally’ necessary but play a crucial role in delivering the charity’s
services, such as as care workers, debt advisors, animal protection officers or medical researchers.

These essential costs are usually included proportionally in the charity’s accounts across all four spending areas (charitable activities, grants, generating funds and governance).

While charities are required to be transparent in their accounting of costs, there isn’t a standard way for charities to define administrative and support costs so it can be difficult to compare across organisations.

All charities aim to keep governance and administrative costs as low as possible. But it’s inevitable they will spend some money in these areas if they want to function effectively and legally.

Useful press contacts

National Council for Voluntary Organisations (NCVO)

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  • Telephone 020 7520 2413
  • Out of hours 07714 243 942
  • @NCVO

Charity Finance Group

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  • Telephone 020 7871 5477
  • Out of hours 07889 129 971
  • @CFGtweets
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