New report encourages charities to merge and share core functions

Funders should encourage charities to merge or collaborate where appropriate, sharing back-office and core cost functions, according to a report from the think tank Charity Futures.

In the report – called “Behavioural Science and the Sustainable Funding of Charities” –  the think tank says that behavioural science can help charities understand why funders have aversions to core costs and how they can overcome them.

One of the issues the report highlights is charities’ reluctance to merge when it might be economical because they have a “home bias” or a preference for their charity over other, similar ones.

Funders should therefore encourage mergers or collaboration where appropriate, or get charities to share back-office and core-cost functions, the report says.

Collaboration could also help prevent a “race to the bottom” in which charities feel they have to cut core costs to receive funding, the report says.

It adds that the charity sector should reframe core costs as a long-term investment “that facilitates innovation and development”.

This could help prevent funders seeing core costs as money that is lost to service delivery and instead see it as a vital part of running a programme, according to the report.

It says charities should also communicate the average cost of service delivery to funders, rather than the marginal cost.

Identifying integral back-office staff could also help improve funders’ opinions on core costs, the report suggests.

The report says that charities should emphasise their impact per pound invested, including their core costs in the figures.

It adds that large funders and rich donors should be prepared to cover core costs to allow smaller donors to directly cover service delivery.

Sir Stephen Bubb, director of Charity Futures, said: “Recent safeguarding scandals might have been avoided had charities’ infrastructure been adequately supported in the first instance. Now charities will struggle even more to pay their core costs.

Charities must emphasise to the public the paramount importance of back-office support to their operations, because the message is not getting through. This is not an issue that will simply die down.