A Project of the American Enterprise Institute and the Federalist Society

Governance: Audit Culture Learns From Corporations

Financial Times

May 05, 2005

By Frances Williams

The world's 300 intergovernmental bodies and 40,000 international non-governmental organisations (NGOs) spend billions of dollars each year on behalf of governments and individuals. So it is not surprising that they are under increasing pressure to demonstrate the same - and sometimes higher - levels of accountability now being demanded of private corporations.

The United Nations oil for food scandal has shown only too clearly the devastating impact on trust that can result from poor governance and lack of transparency. But devising accountability mechanisms for organisations whose performance cannot be reduced to a financial bottom line is proving no easy task.

International public sector organisations need to be accountable to three sets of stakeholders: funders (normally governments and the public); staff and collaborators; and the clients the organisations aim to serve.

Accountability in turn requires suitable governance structures to define policy and monitor performance and transparency in objectives, decision making and activities.

Present governance arrangements are a hodge-podge. Even within the UN system there is no consistency. The 40-odd UN agencies and associated institutions such as the IMF and World Bank have governing boards that vary widely in composition and function. The main UN internal audit body, the Office of Internal Oversight Services (OIOS), set up only a decade ago, does not cover the self-governing specialised agencies, such as the International Labour Organisation and the World Health Organisation, which have their own internal audit systems.

The UN's Joint Inspection Unit, which carries out ad hoc investigations of efficiency and effectiveness of UN programmes, also has less than complete coverage. Meanwhile, some UN bodies have internal evaluation units; others do not.

Among international NGOs there is an infinite variety of governance arrangements. But the largest NGOs, such as Care International, WWF or Oxfam, which have budgets that match those of UN agencies, have independent governing boards and meet international standards for financial management and auditing.

As in private companies, the main danger for governing boards is "capture" by the organisation or by a minority of members. There is a tendency after a while for government representatives on agency boards to speak for the agency rather than criticise it, says Crispin Tickell, a former UK ambassador to the United Nations.

A Global Accountability Report published in 2003 by the One World Trust, which assessed member control of governance structures in 18 international organisations and multinationals, found that intergovernmental bodies were much worse than NGOs in allowing minorities to dominate decision-making. Indeed, some, such as the World Bank (and the IMF), institutionalise dominance in decision making by the US and Western Europe. Worst of all, the report said, was the Basel based Bank for International Settlements, which leaves the setting of financial standards to the so-called Group of 10 richest industrial nations.

Top of the scorecard in terms of member control were Amnesty International, Care, Oxfam, and the International Federation of Red Cross and Red Crescent Societies (IFRC).

By contrast, on transparency the report scored intergovernmental bodies more highly than most NGOs, with the exception of the IFRC. The UN refugee agency (UNHCR) topped the list, followed by IFRC, the World Trade Organisation and the World Bank. NGOs "often fail to provide information that is likely to be of significant use to stakeholders", the report said.

Interestingly, given the constant exhortation to the public sector to follow the private sector's lead, none of the multinationals selected for this study, including GlaxoSmithKline, Microsoft and Aventis, outranked their public sector counterparts. Still, many NGOs accept that governance and transparency have to be improved. Some NGOs are using private inspection companies such as SGS for benchmarking against best practices. In addition, non-profit groups have sprung up in several countries to provide information and analysis of NGO finances and activities (GuideStar in the US and UK), assess NGOs on governance and transparency (Spain's Fundacion Lealtad) or set basic standards with which NGOs should comply (the Credibility Alliance in India).

However, the public sector can sometimes face demands for accountability and transparency that go much further than those required of companies. For instance, the UN's Office for Co-ordination of Humanitarian Affairs (OCHA) already provides public information on contributions to its various appeals and where the money is spent. But in response to fears of corruption and mismanagement in the relief effort following December's tsunami, OCHA called in PwC to refine a donation internet tracking service.

Similarly, public sector organisations face much greater difficulties than private companies in measuring performance and ensuring accountability to "clients". Non-financial performance indicators tend to be crude and sometimes misleading. Recording the delivery of so many tonnes of aid does not take into account whether it was the right kind of aid, delivered speedily to those who needed it, and in a way that treated the beneficiaries with dignity.

Humanitarian agencies already have a code of conduct - adopted by more than 150 organisations - that requires them to put first and foremost the needs and interests of those they are helping. But assessing how well they do that is no easy task. As NGOs frequently point out, improving accountability has to be balanced against the risk that too many bureaucratic checks will divert precious time, energy and money from the very work they are being funded to do.

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