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Charity costs and deductions

This table comes from the annual report of a big UK NGO (not SOS).
This table comes from the annual report of a big UK NGO (not SOS).

Charity costs and deductions: an editorial discussed the need for the "no deductions for Haiti" campaign

This is an editorial by SOS Children UK CEO Andrew Cates. The table contains data from another charity for comparison. Figures for SOS 2009 in the text are unaudited latest estimates which will be replaced by audited figures as soon as available.

The recently launched Haiti petition to make "no deductions for Haiti" (Update: see our article looking at the response to the petition) begs the obvious question, does this matter, how big might such deductions be? We have suggested before that donors would have much greater clarity if overseas aid charities included in their accounts the "percentage of donations spent in the UK". For example, in 2009 SOS Children UK raised just over £5.6m in the UK ,and spent £928k here (including programme costs). This gives us a figure of 16% spent in the UK and 84% of income raised in the UK heading abroad. During that year our number of sponsorships grew by 23% and part of our 2009 UK expenditure had been made for future income. Of course we want to send more than 84% abroad and this year (with £1.3m and 600 sponsorships already received for Haiti alone in January) we expect to beat 84% by a considerable margin. We have agreed to make no deductions from donations and sponsorships for Haiti this year (we don't make deductions from sponsorships anyway). We are lucky, as an internet savvy charity, to have low UK costs.

For some other charities however the picture on UK spend is less clear. Some charities present themselves as mixtures of overseas aid and UK projects. For others the broad definitions of charitable expenditure do not solve the question of deductions in the UK because many charitable "programmes" such as "building relationships" "education" "advocacy" can include activity in the UK which (whilst not being nominally fundraising) promote the cause of the charity. To illustrate this, look at this table is taken from the annual report of a large DEC member. We are not saying which charity this is because it would be unfair to single out one case, particularly as we chose them because they were clearest, not worst. Even so we cannot exclude the possibility that as much of half of their income is spent in the donor country. Looking at the table, first of all to be fair to the charity we think we should ignore the exchange rate loss because they may have carried a currency position against a legitimate operational risk. Of the rest, here was our best guess breakdown:

What percentage of these donations were spent in the developing world?

  • Presumably spent in donor country (23.6%) trading expenditure, operating costs, development education and fundraising costs
  • Probably mainly in donor country (29.3%) :
    • "building relationships" which includes, according to a footnote, the "logistical costs of child sponsorship"
    • "programme support"
    • "technical support"
  • Presumably spent overseas (44.7%) Health, learning, livelihood, field administration and habitat
  • Probably mainly overseas (0.9%)
    • advocacy

We can see in total anything from about 35 to 56% might be spent in the donor country for what is essentially money raised for overseas aid. We do not of course condemn this, but it does reduce the amount available to spend abroad considerably.

As far as we can tell many of the traditional mailing house charities are in a similar position and each uses different ways of presenting figures. For some UK spend is in "advocacy" or "education" or in a trading company excluded from the main accounts, in others the total income is inflated by government contracts which do not require fundraising. In addition, last year DEC itself spent around 5% of the funds it raised on fundraising and governance (most of its fundraising was "a gift in kind" from major media outlets and not included) before passing the funds on to its members to include net in their income figures. So as far as we can reasonably tell if you put £1 in a bucket for the DEC (and the person shaking the bucket did not make their own "deduction") 95p of your £1 might get as far as a charity spending 35 to 56% of its overseas aid income in the donor country. Perhaps DEC contributions get special treatment by its members, but if they do, the position for other donations just gets worse.

So have we convinced you that UK deductions is a real issue? If so, sign the petition.