Posts Tagged ‘overheads’

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!


Accountable to Accountants?

There has been quite a discussion of NGO accountability recently in the blogosphere kicked off by Till Bruckner’s guest post on Aid Watch about NGO budgets in Georgia. Aid Watch subsequently posted a series of replies from the NGOs involved, and Scott Gilmore jumped in with his two cents. Caveman Tom summarised the whole to and fro here and then subsequently added his analysis.

Update: Aid Info also put the case for budget transparency very succinctly here.

I kinda agree with both sides, but ultimately think Scott Gilmore is closer to the truth. Budgets (and actual expenditure) are pretty fundamental to evaluating any project. They indicate the allocation of resources and give a clue to value-for-money. I get frustrated any time I am presented with project information without the finances. It suggests people have something to hide. So notwithstanding the fact that it was USAID who appear to have redacted the project budgets, I sympathise with Till Bruckner.

That said, I get even more frustrated with donors who like to impose budgetary restrictions. Different projects need different approaches; most rules of thumb are pretty useless when evaluating budgets. I’ve heard donors say things like they weren’t happy because the recipient government spent all the money on per diems and cars. Except that we also spend most of our money on salaries, per diems and car journeys. What the donor really meant is that they were disappointed with the lack of impact that came from all that expenditure. This is Scott Gilmore’s point.

Apparently one of the bones of contention in the Georgia case was NGOs’ reluctance to divulge their jealously guarded overhead rate they have negotiated with USAID. This is one area where I boggle to understand what the real problem is. Who actually cares what the overhead rate was? What we ought to care about is the quality of the work done. We all instinctively understand this any time we hire a builder; paying a bit more ‘overhead’ (supervisor salary) might lead to much better results. Hiring the cheapest contractor is often not the best option. Conversely if an NGO is really good at what they do then I think it is appropriate to pay their staff a bit more – they deserve it!

In the private sector when someone buys a service from someone else they rarely ask the service provider to break down the exact costs; they just compare reports of the quality of service (perhaps including from their own experience) between different providers with the range of costs and make a decision. Service providers who do not offer value for money are quickly pushed out of the market.

The trouble is that in the development sector the customer is two completely different actors: the donor and the beneficiary. Donors find it very hard to evaluate projects they’ve funded, and for all the talk of putting beneficiaries at the heart of development aid, and getting them to make the decisions, in reality this happens very little. The result is plenty of BINGOs getting away with mediocre quality work. Assuming the entire structure of aid is not going to change very much in the near future donors need to put more effort into actually assessing impact.

Transparency over budgets and expenditure will assist in determining value for money but they are far from being the whole cigar.  Obsession with budgets and expenditure leads to the tyranny of the accountant. Till Bruckner and other jumped up accountability experts (see J’s excellent critique) should take note. Accountability is a lot more than just doing the accounting.

(In my next post I shall discuss to whom I think I am accountable …)

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