Application and reporting processes keep 3m children out of school

Avoidable waste from foundations’ reporting processes is ~£100m every year, enough to fund the whole of Barnardo’s or the British Red Cross. Another ~£150-250m is wasted in reporting to public sector funders, plus there’s plenty of avoidable waste in application processes. I’m pointing this out,  not because I hate foundations (I don’t) but because the obvious failure for beneficiaries means that it needs changing.

Charities address ‘problems that have resisted great intellects and often great money’ as Warren Buffett put it. Hence they need all the support they can get. Foundations and other funders should be using every penny to rapidly eradicating those problems. My new book is a guide for any donor to doing that: the figures above are from that, and, like all calculations used in the book, is public. The book opens with this quote from Clara Miller, Founder of the Nonprofit Finance Fund: ‘Deeply ingrained ‘best practices’ frequently add cost and reduce management flexibility in already difficult operating conditions. We end up hurting organizations we mean to help.’

Application processes

Let’s take a moment to understand the process most commonly used by major donors, because I want to dissuade anybody from copying it. It goes like this: define and publish some criteria for the types of charities you will support; design an application form;  invite applications; consider applications at infrequent, closed meetings at which a few charities are selected; give cash to those few; request periodic reports on paper.

Silent, solo, slow, reactive and unengaged, this process hardly looks like a recipe for achieving goals ‘which have resisted great intellects and often great money’.

Application forms are typically unique to each funder, yet generally request the same core data: name, charity number, list of trustees etc. So charities spend time (i.e., waste money) writing that information multiple times in multiple formats. How is that serving beneficiaries?

It isn’t. The various attempts by funders to create common application forms have failed. Yet it can’t be that hard: even eccentric and eclectic universities have had one for years. So I’ve unilaterally created one: it is here, and I suggest anybody uses it: it has the standard info at the front, followed by questions derived from the Standard Information Return (required of charities in England and Wales with income above £1m) and the ‘six questions which any which any charity should be able to answer’ from the book. If a funder wants to add questions, they can, but at least a charity can re-use the basic info without re-formatting it ad nauseaum.

In fact, many donors don’t need application processes at all. Many seek something which somebody else has already found, so should just use their recommendations. Independent analysts such as GiveWell make reliable recommendations, as do the randomised control trials merchants J-PAL or Innovations for Poverty Action. Other donors’ recommendations may suffice: when NatWest was looking for ‘community projects’ (dreadful term) for its CommunityForce programme, it could have just asked community foundations rather than creating its own (dreadful & wasteful) application process. Enlightened donors really do do this: Eurostar’s new award for sustainable transport uses the existing infrastructure in the Ashden Awards; a new donor I’m advising right now is giving their seven-figure sums to organisations which have already been selected by independent analysts and sound grant-makers; and of course community foundations route charities to donors to avoid multiple parallel selection processes.

Reporting

Companies report once a year. Their investors all see the same report, which is public, and share periodic conference calls.

By contrast, charities normally produce different reports for each ‘investor’ (funder), often each on different forms, which leads to masses of duplicated work. It’s excused because much funding is ‘restricted’ to a particular part of a charity’s activity, though in fact this practice is also fabulously damaging (it has no analogy in business). Furthermore, there is no ‘reporting season’ because normally reports are triggered by the managerially-irrelevant funding anniversary.

Charities’ costs of dealing with ‘investors’ are at least three times those for companies: 20-40% vs 7% for companies. Vanessa Kirsch, founder of New Profit Inc., a US venture philanthropy fund, laments that: ‘Non-profit CEOs spend huge amounts of time – sometimes as much as half their time – dealing with funders. What’s unfortunate here is that these leaders have incredible ideas about solving fundamentally important issues such as child literacy…but they can’t focus on their work because of the constant demands of funders’.

Funders often request reports for ‘accountability’: presumably as deterrent against fraud. It isn’t one: writing a form full of lies is not hard, and anyway, charities with significant revenue are audited to catch that.

Funders requesting bespoke reports is egregious and unnecessary: if you give on an unrestricted basis, the charity’s standard annual report for its entire operation will suffice and create zero marginal work.

The total cost of reporting by UK charities (to government and foundations) is estimated at around £1.4bn. Reporting to foundations – set up, and tax-payer subsidised to address ‘problems that have resisted great intellects and often great money’ – costs about £400m. On NPC’s conservative estimate, at least a quarter of that is avoidable, so foundations alone could save the sector £100m just on reporting – there’s masses to be gained by streamlining application processes too. [The calculation, like all those used in my book, is public, here.]

In developing countries, many children fail to get decent educations because they miss school because of having intestinal worms. Deworming (as it’s charmingly called) costs $40/child on an expensive estimate: often it’ll be as little as $4/child. The avoidable losses from reporting to charitable foundations would deworm and thereby keep in school – on a conservative estimate – 3m children.

What are we thinking of?

“Great advice for any donor”, James Caan, on this book about how donors best operate–>

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