Administrative expenses are all expenses that cannot be directly attributed to another activity. Another “descriptive” term for this is “operating expenses.” These are all the costs incurred in connection with the operation of an organization that are not directly related to “Fundraising,” “Purpose,” or “Acquisition of Other Funds.”

Some people view administrative costs as a form of “waste,” since these are costs that cannot be directly linked to a specific purpose or activity. However, this expense category serves some absolutely essential functions that are absolutely necessary for running a successful nonprofit organization.

Examples of administrative costs include:
– General management.
– Planning and evaluation of program-specific work.
– Planning and evaluation of fundraising activities.
– Accounting, auditing, and other controls.
– Human resources (HR) activities, including payroll.
– Financial expenses that cannot be directly attributed to a specific activity.

It is impossible to estimate what the administrative percentage should be in an organization, since the need for administrative work can vary greatly, depending, among other things, on the differences in the activities carried out.
Comparing administrative percentages across organizations is not an appropriate measure of efficiency without taking into account differences in the specific activities carried out by those organizations.

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Glossary – Activity-Based Costing