Accountability and Overheads

Mike Jennings isn’t the only one concerned (and blogging) about accountability. Chris Blattman is peeved about excessive administration costs in humanitarian aid:

17% is an unfortunate expense but a rather common rate for administration, and even low by many standards.

It’s a requirement driven not so much by the multilateral donors, but a consequence of the fact that the giving public and governments have close to zero tolerance for misuse of funds.

This drives a Byzantine and expensive accounting system which partly reduces risk of misuse, and partly gives the multilaterals cover (“we did the best we could”).

This discomfit with misuse gets amplified by the press who tend to tend to report on graft and mismanagement more than success.

So the root cause is the failure of the public and donors to think about the high cost of extreme accountability.

I agree with much of what he says, and have experienced this directly. Having won a biggish grant from a bilateral donor to pilot an innovative new community conservation project, we were surprised to find them apparently more interested in the upgrades to our accounting system that we had promised. At one point I posed them the question: “Did you set out to fund a CBNRM project, or an NGO capacity building project?” Their response was that they considered the accounting system a bottom line requirement for a grant of this size.

I can sympathise with them. The least whiff of a scandal has the minister for international development phoning them up to find out what is going on, demanding answers as of yesterday.

However, as Chris Blattman points out, cost-effectiveness just goes out the window. For a particularly excruciating example of this, see this bizarre episode we experienced last year. Unfortunately, in my experience, the byzantine accounting systems are at best only a partial protection against fraud. (I’ve heard of a couple of examples of money gone missing in bigger NGOs of late.) And I would be prepared to bet that well run small NGOs (you can spot them amongst their briefcase counterparts because they deliver real impact), are probably the least susceptible to such failings due to the strong ethos and commitment that will permeate the entire organisation. (Greedy people tend to work elsewhere where the salaries are higher.)

To me this demonstrates the shortcomings of the bilateral donors in particular. We find the large trusts and private funds much more flexible and understanding of the challenges faced by a small but growing NGO.

Dave Algoso acutely observed last year that “increasing accountability will increase your overhead, every single time”. It seems this trade-off is here with us to stay. But maybe not. Owen Barder recently wrote about the need to move to a ‘post-bureaucratic’ aid system. Aid that is conditioned on results not management of inputs, i.e. contracted like a business, could do away with a significant chunk of this accountability versus overheads tension. (I think it would be naively over-optimistic to expect it to do away with it all.) In a business relationship, you do not worry if, for example, there is a case of corruption in your electricity supplier; you just pay for the electricity you get, and it is the power company’s job to sort out its accounting failures, and ultimately the shareholders loss.

If donors saw themselves more as commissioning agents, doling out money based on results achieved (Cash on Delivery) then the issues such as corruption and the appropriate level of overheads become just something for the service provider to manage.

We’ve got a long way to go, but here’s hoping!

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