Foundations “have no incentive” to take charities’ cost of capital into account, according to new research.
A study conducted by the charity consultancy Giving Evidence shows few foundations monitored the financial burden their application processes placed on charities.
Understanding and Reducing the System Costs of Foundations’ Application Processes, published yesterday, also estimates that UK charities spend at least £900m every year applying to charitable foundations, a figure published in a paper by the think tank Pro Bono Economics earlier this year.
Based on in-depth interviews with 14 UK charities, the Giving Evidence report estimates that on average the cost of raising money is 5.6 per cent of the amount raised, with the figure rising to 17.5 per cent for small charities.
The study found that none of the foundations interviewed routinely tracked the costs that their grantmaking processes created for charities.
The reason for this, the report says, is that foundations “do not have to compete for their resources because they are endowed” and “do not need to think of applicants and grantees as customers for whom they need to compete”.
It also says that foundations are most likely to review their processes when there has been change in leadership or when they review their overall strategies.
But the report also highlights that charities do not recognise the cost of capital as a problem.
Some charities told researchers that they were more concerned about building relationships with funders than they were about improving the efficiency of the application process.
The study makes a series of recommendations, including greater transparency from foundations with regards to eligibility criteria and funding priorities.
It concludes that “more broadly [foundations should] adopt a service mindset, meaning working with charities to routinely review and improve application (and funding) processes to ensure that they meet charities’ needs and not just those of the foundation and its board”.