Hi Marc! This is an interesting topic that I hadn’t thought much about, so thanks for posting! I have a few quick comments:
I have lived in a developing country for 6 years, I have reason to believe that embezzling could cut from 10% to 50% of donations received by charitable organizations in humanitarian and development settings. I can’t back the statement because the data is really not there, but I am extremely confident about it.
Data on corruption numbers/scale of problem: Through A quick google search (<5 minutes) I found some interesting numbers on this by the Centre for Global Development which sugests the % is much closer to 10% than 50%. One thing that’s interesting is they suggest using ‘the percentage of aid that delivers the impact it was designed to’ to provide an upper-end figure for corruption (of course, not all impact is lost due to corruption). But looking at something like this might reveal bigger issues in aid—for example, a charity choosing interventions that are not very effective.
Additionally, it seems that the topic of corruption in NGOs is a pretty common concern (~5 million results), and there seem to be a number of proposed solutions. It may be useful to first evaluate existing interventions/organisations, and consider the benefits of supporting existing organisations or starting a new one in this space, and the value of focusing on this issues vs others.
I also had browsed the same result before writing the post, and although I agree on it not being near 70%, I think the study quoted is not representative and deep enough, that is why I went for my 10-50% estimate (which, with a 40% gap, is not really an estimate ;D).
My observation is that small organisations and smaller donors with less strict financial reporting mechanisms apply systematic cuts from any budget line (creating “blind” budgets, or in Spanish we would say “Budget B”), anything can be gotten cheaper. It would probably be more like 10%-50%, with most cuts going from 20 to 35%. Funnily enough, they then solve many problems out of the project budget with those resources, problems that efficient budget management techniques and transparency can address. But with a starting point that accepts proper compensation of workers. I think (and this is somehow a different idea) that advocating for as much as 25% overhead or more, and then extremely strict financial management standards for the remaining 75%, looking for the maximum efficiency and cheapest prices, while controlling for quality, would be a huge improvement. Maybe donors could offer something like “if you save X from spending in the grant, and you get the same results, we give you half, or one quarter of X as unrestricted funding by the end of the grant”. In this spin-off of idea what I am proposing is advocating to donors a change in their approach to grantmaking, one that can help good but corrupt NGOs into good and well structured NGOs that can account for funds and have better future perspectives because of that.
As organisations get bigger, and more professional, it gets more dangerous. Then they would look only at some budget lines (generally, procurement and salaries), and the bite will be smaller. The World Bank is a great organisation and their partners would fall into the second category, so I think the data used in that article is not representative enough.
Second article
My problem with existing solutions is that they ask of the NGOs to behave better without really showing how and why. Small NGOs should have great audit departments but it is not very realistic: My point is first they think they need to be corrupt to survive, and they can’t afford good audits on their projects because their donors don’t pay for it! Bigger NGOs should control their partners better, but every time there is such a scandal it is a huge embarrassment and somebody’s fault, and they know that everyone is doing it anyway so they are rather afraid of truly looking too closely, and even they don’t have the resources to audit everything properly. For example, UNICEF and most big donors would use a spot-check method to determine fraud (getting a selection of expenditures, not at random, but based on risk, and make findings from there). This is because it is costly to audit a full budget. What if this organisation I am pondering was to partner with them and offer third-party verification for all expenses of a project for free?
It is a very ugly business, and most people shy away from it. Most of the article reads like a compliance issue, that everyone should try to follow. I think there should be a different approach, one that can get people excited about it, such as this idea that citizens in developing countries have the right to audit aid assistance just like they have the right to ask questions about government spending.
Hi Marc! This is an interesting topic that I hadn’t thought much about, so thanks for posting! I have a few quick comments:
Data on corruption numbers/scale of problem: Through A quick google search (<5 minutes) I found some interesting numbers on this by the Centre for Global Development which sugests the % is much closer to 10% than 50%. One thing that’s interesting is they suggest using ‘the percentage of aid that delivers the impact it was designed to’ to provide an upper-end figure for corruption (of course, not all impact is lost due to corruption). But looking at something like this might reveal bigger issues in aid—for example, a charity choosing interventions that are not very effective.
Additionally, it seems that the topic of corruption in NGOs is a pretty common concern (~5 million results), and there seem to be a number of proposed solutions. It may be useful to first evaluate existing interventions/organisations, and consider the benefits of supporting existing organisations or starting a new one in this space, and the value of focusing on this issues vs others.
Thank you so much for your comment.
I also had browsed the same result before writing the post, and although I agree on it not being near 70%, I think the study quoted is not representative and deep enough, that is why I went for my 10-50% estimate (which, with a 40% gap, is not really an estimate ;D).
My observation is that small organisations and smaller donors with less strict financial reporting mechanisms apply systematic cuts from any budget line (creating “blind” budgets, or in Spanish we would say “Budget B”), anything can be gotten cheaper. It would probably be more like 10%-50%, with most cuts going from 20 to 35%. Funnily enough, they then solve many problems out of the project budget with those resources, problems that efficient budget management techniques and transparency can address. But with a starting point that accepts proper compensation of workers. I think (and this is somehow a different idea) that advocating for as much as 25% overhead or more, and then extremely strict financial management standards for the remaining 75%, looking for the maximum efficiency and cheapest prices, while controlling for quality, would be a huge improvement. Maybe donors could offer something like “if you save X from spending in the grant, and you get the same results, we give you half, or one quarter of X as unrestricted funding by the end of the grant”. In this spin-off of idea what I am proposing is advocating to donors a change in their approach to grantmaking, one that can help good but corrupt NGOs into good and well structured NGOs that can account for funds and have better future perspectives because of that.
As organisations get bigger, and more professional, it gets more dangerous. Then they would look only at some budget lines (generally, procurement and salaries), and the bite will be smaller. The World Bank is a great organisation and their partners would fall into the second category, so I think the data used in that article is not representative enough.
Second article
My problem with existing solutions is that they ask of the NGOs to behave better without really showing how and why. Small NGOs should have great audit departments but it is not very realistic: My point is first they think they need to be corrupt to survive, and they can’t afford good audits on their projects because their donors don’t pay for it! Bigger NGOs should control their partners better, but every time there is such a scandal it is a huge embarrassment and somebody’s fault, and they know that everyone is doing it anyway so they are rather afraid of truly looking too closely, and even they don’t have the resources to audit everything properly. For example, UNICEF and most big donors would use a spot-check method to determine fraud (getting a selection of expenditures, not at random, but based on risk, and make findings from there). This is because it is costly to audit a full budget. What if this organisation I am pondering was to partner with them and offer third-party verification for all expenses of a project for free?
It is a very ugly business, and most people shy away from it. Most of the article reads like a compliance issue, that everyone should try to follow. I think there should be a different approach, one that can get people excited about it, such as this idea that citizens in developing countries have the right to audit aid assistance just like they have the right to ask questions about government spending.