Australian Charities and Not-for-profits Commission (ACNC) published a new guide to help the public and donors understand charity administration costs.

The guide, Charities and administration costs, highlights the common issues raised by the public and sets out the ACNC’s view.

The guide helps the public and donors understand what administration costs are, why they are an important part of running a charity, and why administration cost ratios can be an unreliable way to compare charities.

The new guidance also aims to correct common misconceptions.

ACNC Commissioner, Susan Pascoe, encouraged donors to read the new guidance to shape their understanding of how charities operate.

“Each month the ACNC receives around 60-70 concerns about charities, one-third of which originate from the public,” Pascoe said.

“Many of the concerns raised by the public relate to the expenses of the charity, which are commonly referred to as administration costs.

“There are no laws or regulations that specifically set out the amount charities can spend on the expenses that would be considered administration. There are also no clear definitions as to what should be considered administration costs for accounting purposes.”

Pascoe highlighted the biggest misconception she has encountered in regards to administration costs. “In my experience, the biggest myth when it comes to charities out there in the community is that a charity that can say ‘100 per cent of your donor dollar goes to the charitable cause’ is the best charity to donate to,” she says.

“All charities need to be using their resources to further their charitable purposes, and carefully managing finances is an important part of that.

“However, simply having low administration costs alone does not necessarily indicate an effective, well-run charity. Similarly, having higher administration costs does not necessarily indicate that a charity is ineffective and poorly run.”

Pascoe said the most important consideration is the effectiveness of the charity.

“Administration cost ratios as a measure of charity effectiveness are particularly flawed due to the inconsistency in accounting practices used by not-for-profit organisations,” she said.

“The ACNC believes that there should be a dedicated accounting standard that applies to the not-for-profit sector with clear guidelines that set out how charities report different income and expenses.

“Other Commonwealth jurisdictions already have accounting standards specifically for not-for-profit organisations, and we will continue to advocate for their introduction here in Australia.”