There is a cost for doing business — even nonprofit business. It’s called overhead.

Some level of administrative costs is necessary for charities to deliver their services to the needy, but costs are rising in the unlikeliest of places: online.

With an increased demand for technology that allows donors to give online, the Combined Fund Drive (CFD), Washington state’s primary workplace giving program, has battled unforeseen increases in administrative costs for the past three years.

“We were willing to try [going online] because that’s what our donors wanted,” said Randy Ryan, the CFD’s program manager. “It was a good tool for private sector organizations, … [but] it didn’t deal with the ramifications of a public campaign.”

The CFD differs from other nonprofits in that it does not seek donations from the private sector to fund its own charity. It acts as an intermediary between employees of state institutions such as the UW and more than 2,600 different charities approved by the office of the secretary of state.

“Payroll deduction makes it easy for staff and faculty to support the causes for which they are most passionate,” said Kerri Everly, the UW’s CFD development services officer. “Charities rely heavily on UW’s participation in the drive, as it reduces their fundraising expenses while making a tremendous impact on programs in our community.”

It is costly for a charity to process multiple checks from various donors, Ryan said. The CFD reduces this cost by giving one annual check to each charity.

All CFD donations sit in a state treasury fund until the end of the year, when the money is distributed to the participating charities. This system prevents donors from knowing in advance the percentage of their donation that will be deducted to cover administrative costs, Ryan said.

“We are accountable to employees to be good stewards with their money,” Ryan said. “[This includes] more understanding of administrative costs.”

CFD donations at the UW have increased from about $1.5 million to $1.8 million since 2004. However, CFD fundraising levels did not increase statewide with the implementation of the GivingStation, an online giving tool.

Designed by CreateHope, the GivingStation is one of several products marketed to private businesses and nonprofits to more efficiently and securely process monetary transactions online. However, administrative costs associated with the GivingStation are substantially higher than other services.

“Up until 2005, we were below 10 percent in administrative costs,” Ryan said. “By 2005 we were up to 14.5 percent. … This extra 4 to 5 percent was a real hit for us.”

By contrast, Earth Share of Washington, a workplace giving program that uses Network for Good’s DonateNow online giving tool, has only 3.1 percent administrative costs.

Ryan said the reason for this difference is that CreateHope requires an identifier for each employee who logs onto the GivingStation. In 2004, the state government did not have employee IDs, so it used social security numbers instead. But because social security numbers are private information, one account could not be created for all CFD donors. Rather, donors had to create their own accounts, making it less efficient than expected to give online.

The lack of online donations contributed to the sharp increase in administrative overhead.

“Fortunately, now we’ve got technology within state government,” Ryan said. “Social security numbers are not used anymore. Over the next three years we are trying to implement new ways to lower administrative costs.”

The contract with CreateHope ended in December, and CFD administrative costs have already decreased from 15 to 10 percent with a new online giving tool developed by the CFD and Department of Personnel.

However, it’s unclear whether any online giving service is really more cost effective.

Earth Share has found that the online technology available isn’t ideal for workplace giving programs. It has not seen a dramatic shift from paper donations to the online method, said Lynn Jordan, Earth Share’s campaign manager.

“Some food banks have higher administrative costs, but it doesn’t reflect their efficiency,” Jordan said.

Everly, who oversees the CFD campaign at the UW, said payroll deduction was possible before the setup of the GivingStation; this was not a new benefit from going online. Her concern with the online giving tool is that as much money as possible should go directly to charity.

“I think there is always room for improvement in communication [between CFD and donors],” she said.