Roger Henke, Chairman of the Board of the Southeast Asia Development Program (SADP), a development grantmaker based in Cambodia, contributes the following guest post (the second in a three-part series):

My previous post in this series described the results of a survey that estimated the incidence of fraud and associated problems within the Cambodian NGO sector. The survey utilized a relatively independent source, the grantmakers that fund local NGOs (LNGOs), and triangulated the results with information supplied by the firms that perform external audits for LNGOs. The basic idea was that grantmakers are likely to have an evidence-based opinion of the quality of their LNGO partners’ financial management, governance, and fraud risk (and fraud incidence). After all, grantmakers assess organizational soundness before awarding a first grant to a potential partner LNGO, periodically monitor the work being funded by that grant, and require extensive, often cumbersomely regular, results and financial reporting, as well as yearly or project-based external audits. To put it simply: Grantmakers conduct regular due diligence (in the broad sense of the term) on LNGOs.

It seems strange that such an obvious source of objective data on NGO corruption and some of its correlates had, to my knowledge, never been considered before. Why not? My guess would be that the strained and ambivalent relationship that the aid community has with concept of so-called upward accountability is to blame. The engagement is strained in at least the following two aspects:

• First, in development ideology LNGOs are “grassroots-driven,” implying that they should be in charge of their programmatic agenda. The reality is somewhat different, because funding agency interests, expressed by where they put their money, strongly influence LNGO agendas. However, to justify continued funding to the LNGO sector, both the LNGOs and those funding them cherish the sector’s portrayal as one of “voluntary associations of altruistic citizens, responsive to their beneficiaries, accountable to their constituencies, and advocates for the poor.” That makes LNGO upward accountability to those funding them problematic. Grantmakers do not want to be seen as “principals” in a contractual relationship, but as “partners” in development. At the same time, most funders are aware of the intrinsic and near-unavoidable incentives their money represents, and its negative consequences are a major and explicit topic of academic and sector-internal analyses (for some examples, see here and here). As I wrote in a report recommending some anticorruption strategies for the Cambodian NGO sector “while the most prominent problems are not about financial accountability per se, programmatic donor-centrism without financial dependency is difficult to envision.” Therefore, there is a tendency to think about the two as a package, and grantmakers are loath to publicly highlight the importance of upward accountability.
• Second, upward accountability is a relationship supposed to ensure “proper” behavior of the party being held accountable. The accountability frame intrinsically focuses attention on the party being held to account; this phenomenon is reinforced by the power differential between the grantmakers and the LNGOs. Thus, if there are problems, the reaction of the grantmakers is typically to ask what the LNGO should do differently, or how the grantmaker can help the LMGO to improve. However, in any relationship it takes two to tango, and problems are thus much better conceptualized as co-creations of both partners. That lens has enabled Caroline Hughes to convincingly describe how the relationship between Big Aid and Cambodia’s elite has co-created the current neo-patrimonial state. But the principle is equally valid for the realities resulting from the relationship between LNGOs and the grantmakers funding them. That those realities are time and again framed in terms of LNGO capacity building and similar one-sided interventions (e.g. LNGO good practice certification schemes) reveals the blind spot: accountability only works if the grantmakers also live up to the requirements of their role.

As corruption, financial management, and governance have been recognized as intractable problems of the aid sector since its beginnings, it makes sense to take a serious look at that blind spot. Remedies haven’t worked; we need alternatives. Upward accountability certainly has in-built problematic aspects but equally holds in-built remedial potential. In a paradoxical way, its problematic side is indicative of its potential: however unintended and unwanted the effect of the funding purse may be on LNGO agenda-setting, it is also convincing proof of its incentive effectiveness. The current situation seems the worst of all possible worlds: upward accountability “works” where it is not wanted (LNGO programmatic agendas) and seems ineffective where we need it (LNGO financial propriety).

The survey mentioned earlier showed clear evidence of grantmakers’ deficient due diligence during all stages of the relationship with LNGOs, and of the unreliability of external audits as a guarantee of sufficient fiduciary oversight. However, better due diligence by individual grantmakers in itself is not going to change the status quo of the LNGO sector. Its problems require collectively improved grantmaker behavior. Explaining what is needed would require more space than remains here, and will therefore be covered in a future contribution.