Posted by Brian Pratt on 19 March 2012
Looking at some of the financial accounts of NGOs and charities recently it struck me how the ratio of fundraising costs to income received has often deteriorated. I recall many years ago working to a 1:15 ratio, in other words for every pound spent we expected to get 15 back in donations. I gather, and would love to be corrected, that a good ratio now would be in the region of 1:6. However, piecing together some international accounts that I looked at, some agencies are spending one pound (euros/ dollars) to get at best two back. In some forms of fundraising I can see that you may have to try an idea out first, so the fundraising itself may well cost more than the income. I would assume that if this continues then the fundraising would be dropped. Looking at agencies where loss-making fundraising is normal, I have to question whether this is ethically acceptable. If we are spending so much on fundraising for such little return would it not be better to stop fundraising altogether and hope that donors place their funds somewhere they may have greater impact?
I am also aware of a practice which parallels transfer pricing in multinational companies. To show better fundraising results agency A gives money to agency B, possibly in another European country for example, then agency B gives money to agency A. Each agency can then claim that they are raising their own money when in fact they are circulating it between them (which is useful for them as they can then tell official donors they are increasing their own independent income).
INGOs who were once known for supporting local NGOs with small grants are now spending proportionally more money on themselves and their own programmes than they provide as grants to their partners. How is this possible at a time when there are so many good local groups around the world, that we are spending more on the institutional capacity of INGOs than on local civil society? One way to judge this is to look at the proportion of net income given over to the total global salary bill of INGOs, some of which are spending as much as a third of their total income on their own salaries, with far less being passed to local partners (with some honourable exceptions).
Finally, it is increasingly clear from some of the accounts I have looked at that many INGOs are far more dependent on official funds, and therefore vulnerable to changes in the policies of these donors, than they would admit. In the past we took government money to supplement our own fundraising and we argued that we were able to use our fundraising to lever more funds from government (or the EU etc). Now I have the impression that our own fundraising is going to support programmes and policies of our official donors; the government donors have turned the tide and are levering our unrestricted income to support their programmes. Ian Smillie gave a case of this several years ago his Alms Bazaar book and rather than learn the lesson from the problems he described, the practice has become more widespread.