A Project of the American Enterprise Institute and the Federalist Society

Where Good Intentions Are Not Enough

Financial Times

September 14, 2005

By Hugh Williamson

Pressure has been growing in recent years on non-governmental organisations in Europe and North America to be more transparent about how they operate and to be more accountable to their members and stakeholders.

In a pattern that mirrors pressure on companies to improve their ethical standards, high-profile and influential groups such as Amnesty International, Greenpeace and Oxfam have felt the need to draw up and publish policies on how exactly they are implementing their mission statements, along with more detailed declarations on finances and fundraising.

If an initiative in the Philippines is any measure, this trend is now also taking hold in developing countries. Since its founding in 1998, the task of the Philippine Council for NGO Certification (PCNC) has been - according to its mandate - to certify that NGOs "meet established minimum criteria for financial management and accountability in their services to underprivileged Filipinos".

The organisation is this year set to expand its operations as part of plans by one of the Philippines' largest sources of charitable funds, the government-run lottery, to certify via the PCNC the charities that regularly receive lottery funds.

"This is an important development and shows that the idea of ensuring NGO credibility is catching on," says Roberto Calingo, a senior executive with Mirant, a leading energy company in the Philippines and an adviser to the PCNC.

Operating from cramped offices in downtown Manila, the PCNC has so far certified more than 630 NGOs and other non-profit organisations such as universities and medical institutes, says Fely Soledad, the executive director.

"NGOs have traditionally played a very important role in the Philippines," she says, noting that civil society groups played a big part in helping former president Corazon Aquino come to power in 1986, when a "people power" uprising overthrew dictator Ferdinand Marcos.

Since then, NGOs have been influential at the grassroots level in welfare provision, political education and development, and the Philippines is well known in Asia as having one of the most dynamic networks of civil society groups.

Ms Soledad says that, in the mid-1990s the Philippine government became concerned that some NGOs were abusing their status and receiving funds from international donors without delivering the services promised. The government threatened to withdraw tax breaks associated with NGO donations unless the groups could prove certain management and accountability standards.

"There was a need to protect the gains by civil society against fly-by-night organisations," says Mr Calingo, who runs the League of Corporation Foundations, a network set up by some of the Philippines' largest companies and one of the founders of the PCNC. Companies that donate to NGOs with PCNC certification can reduce their taxable income and claim exemption from certain taxes.

The operations of NGOs that apply for certification are examined on criteria that includes their mission statements, governance structures, human resource management and monitoring and evaluation procedures.

However "financial management is the biggest hurdle," Ms Soledad says, and the main reason why about one in 10 applicants fails the certification process.The PCNC works with the Philippines' association of auditors, and dispatches a small team of auditors to "look at the NGO's internal financial systems, bank books, accounts, and signatory systems. We are very thorough," she adds.

The PCNC's role is also in part to check that companies are not abusing the tax system by setting up fake NGOs in order to reduce their tax bills.

The reactions of NGOs themselves have been mixed. Initially, many of the country's more politically radical grassroots organisations criticised the PCNC as being a government-installed watchdog. The PCNC is independent but has a government representative on its management board.

More recently, many NGOs have recognised the need for greater transparency, especially as international sources of funds have become more scarce and local business donors have taken on a more important role. Code-NGO, one of the largest networks of NGOs in the Philippines, is involved in the PCNC's management.

Mr Calingo, who also promotes corporate social responsibility among companies, says NGOs need to play their role "in practising good governance. These days, good intentions are not enough".

Ms Soledad says that PCNC's work needs to be "further adapted to business and development needs", but points to international interest in the organisation as evidence that there are lessons from the Philippines' experience. Agencies in Indonesia, Pakistan and India, all countries with vibrant NGO networks, have sought the advice of the PCNC. "This shows at least that we are on the right path," she concludes.

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