Professional Documents
Culture Documents
12631277, 2010
Crown Copyright 2010 Published by Elsevier Ltd. All rights reserved
0305-750X/$ - see front matter
www.elsevier.com/locate/worlddev
doi:10.1016/j.worlddev.2009.12.018
and
TRUDY OWENS *
University of Nottingham, United Kingdom
Summary. Amid calls for NGOs to become more accountable, this work examines discrepancies between what NGOs say and do.
Using a unique dataset of NGOs in Uganda it investigates the inaccuracies in reported nancial transparency and community participation. We nd that the threat of being caught reduces the likelihood of nancial misrepresentation, while a desire to maintain a good
reputation leads to misrepresentation of community consultation. Analysis provides indications that: NGOs with antagonistic relations
with government may be more likely to hide information; and that unrealistic donor demands may be an obstacle to transparency. Findings caution against an overly nave view of NGOs and a reliance on self-reported information.
Crown Copyright 2010 Published by Elsevier Ltd. All rights reserved.
Key words NGO, Africa, accountability, transparency, participation
1. INTRODUCTION
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The sampling frame for the rst survey module (NGO questionnaire) was constructed via a mini-census of the NGO population of 14 districts. The survey sample (298 observations)
was drawn from this sampling frame. With 255 questions,
the questionnaire is extensive and includes information on
funding, ownership, expenditure, assets, and governance.
The questionnaire was administered by Ugandan enumerators, usually to the manager at the oce of the NGO. The
most contentious data collected were that on their accounts.
To ease the burden, the account information asked for was
highly aggregated and should have been readily available from
an annual report. If the respondent was unable to answer the
questions either a colleague who could answer was called upon
or the relevant sheets of the questionnaire were left with the
understanding that the enumerator would return to collect
on a designated day that suited the NGO. The second survey
module comprised 268 community focus group interviews.
These interviews aimed at extracting information on how beneciaries perceived the NGOs surveyed in the rst module.
It was crucial to ensure that the focus group evaluating the
NGO was aware of their work. To do this, parishes to visit
were selected from a list of six communities which the NGO
reported to be working in. The communities were quite
smallthe 2002 Census reports that the average parish consisted of 4,625 individualsso it was plausible that the focus
group participants would know about an NGO working in
their community. A series of questions were developed to lter
out focus groups that did not know the NGO in question.
First, the focus group leader would ask them about their problems, then to describe the NGOs who helped them with these
problems. If they did not list the NGO in question during this
discussion, the focus group leader would prompt them. 8 In
each community visited, 610 focus group participants were
recruited via a community leader. This strategy was opted
for ensuring comparability and consistency of the community
perception variables across NGOsa relatively simple approach that was easily replicable.
The rst module of the survey (NGO questionnaire) can be
matched to 205 of the 268 observations from the second module (community focus groups). There were also cases where
some NGOs were linked to more than one community. To
avoid problems with error terms, 19 duplicates were eliminated randomly, reducing the sample to 186 observations. 9
Barr, Fafchamps, and Owens (2005), Barr and Fafchamps
(2006) and Barr, Fafchamps, and Owens (2003) provide more
information regarding the survey questionnaires and focus
group interviews.
4. HOW TRANSPARENT ARE UGANDAN NGOS?
There does not appear to be much momentum toward greater transparency in the sector (Christensen, 2004; Civicus Civil
Society Index Team, 2006). Zadek and Gatward (1996) contend that the reluctance to be transparent is clear from the lack
of resources devoted to such activities. According to Stiglitz
(1999), this reluctance is not unexpected, as there are many
incentives to conceal information. If organizations can choose
when to disclose and when to conceal information, they can
manage information to ensure that they are praised for their
accomplishments without being criticized for their failures,
mistakes, and shortcomings. Secrecy can also help to hide corruption and ineectiveness and enable employees to avoid the
burden of public scrutiny. Signicantly, Stiglitz points out that
it is not dicult for an organization to mimic compliance with
transparency requirements by using codes, creeds, and
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e gm; x:
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Ebrahim, 18 who indicates that grass roots organizations in India are skilled at devising strategies to subtly resist donor demands, while complying suciently to ensure that they
continue to receive funds.
The same donor pressures may also intensify the inherent
trade-o between using information to enhance transparency
or to build reputation (Michaelowa & Borrmann, 2006).
NGOs may feel under pressure to represent their activities in
a more positive light and to gloss over their shortcomings
and failures. It is thus not surprising that a survey on NGOs
annual reports found them overwhelmingly positive in tone,
with most of the text devoted to describing the organizations
achievements (Bolton, 2003). Chambers (1996) argues that
competitive pressure for grant funding may tempt NGOs to
misrepresent themselves. This resonates with the ndings in
the tax evasion literature: Rice (1992) 19 concludes that corporations under strain due to below-average prots appear to be
more likely to engage in such dishonest activities.
(b) Antagonistic government relationships
The paper also examines a second set of hypotheses pertaining to misrepresentation. In contrast with the hypotheses included in the main framework, these hypotheses have been
discussed only tentatively in the literature and lack robust
empirical evidence. Due to the speculative nature of these
hypotheses, they were not included in the framework, but
are tested separately.
(a) Donor demands and funding pressure
The rst of these pertains to donor demands and funding
pressure. Alexander (1998) highlights the complex and conicting demands NGOs often face trying to juggle their own
missions and commitments, the requirements of donors, the
needs of beneciaries, and the concerns of the wider community. One of the responses to complexity that Alexander has
observed in her case studies is deecting, where the NGO limits the amount of external complexity that enters the organization (1998, p. 277). Misrepresentation can be conceived as a
useful deection strategy in situations where NGOs may disagree with some of the demands of donors, because meeting
these demands may, for instance, put excessive strain on the
organization or conict with the NGOs core mission. In a
competitive funding environment, NGOs that want to resist
unreasonable or intrusive donor demands may choose to misrepresent their activities instead of openly defying the donors
requirements. This theory is in line with the observations of
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will require a dierent set of skills and capabilities than providing stakeholders with access to accurate nancial records.
However, since both nancial transparency and community
participation are strongly held norms in the sector it is likely
that the same considerations will motivate misrepresentation
about not complying with these norms.
Analytically, the exclusion restrictions are less problematic
than in traditional Heckman applications, because there is little reason to expect that the same set of factors would be
responsible for determining compliance and misrepresentation
of compliance. For instance, while there may be some overlap
in the correlates, the likelihood of making the organizations
nancial data available when asked to, is not expected to be
determined by the same factors that are associated with an
honest response about nancial transparency.
In the translation of this theoretical structure to an empirically estimable form, we need to make a number of additional
assumptions about the functional form of these relationships,
and also empirical approximations of these concepts. In terms
of the functional form, it is assumed that the impact of the
variables on the likelihood function is linear in its parameters.
(a) First-stage decision: why not comply with sector norms?
According to the framework, the rst-stage decision, namely
whether or not to adhere to sector norms, y, is determined by
the following function:
y f gm; x; a:
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hostile relationship with the government we include an indicator variable capturing whether or not the NGO considered its
relationship with government to be antagonistic. It is for instance plausible that an advocacy organization that has an
adversarial relationship with the government may need to
keep their funding information and their planned interventions hidden from the government to protect itself. Note that
this argument is distinct from the supplementary hypothesis
regarding the impact of antagonistic relationships with government on misrepresentation (see Section Antagonistic government relationships) that considers how such tensions
could inuence the misrepresentation of transparency and
accountability.
(b) Second-stage decision: why misrepresent lack of compliance?
The second-stage decision is expressed as: 22
d U a; hc; n; :
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Financial transparency
Coecient
P-value
Coecient
P-value
0.844*
0.089
0.150
0.139*
0.005*
0.240
0.286
0.038
0.698
0.456
0.046
0.029
0.755
0.873
0.061
0.030
0.022
0.046
0.001
1.259*
0.383
0.868
0.880
0.924
0.547
0.500
0.017
0.726
0.276
0.187*
0.0005*
0.015
2.003*
0.690
0.017
0.022
0.203
0.000
0.511
0.408
0.160
0.000
0.024*
0.309
0.099*
1.549*
0.767*
0.060
0.597*
1.364
0.214
0.902
0.073
0.311
0.056
0.000
0.029
0.827
0.032
0.017
Diagnostics
LR test of independent equations (rho = 0) prob. > chi2
0.02
0.892
0.16
0.688
Observations
Total number of observations
Censored observations
Uncensored observations
164
80
84
163
103
60
Note: Lack of compliance on community participation means that the NGO did not according to the community ask about their needs or ask for feedback
after the project. Misrepresentation of community participation occurs when the community did neither, but claimed that they did both. Lack of
compliance or nancial transparency indicates that the NGO did not compile and share nancial reports. Misrepresentation of nancial transparency
occurs when the NGO reported that they compiled nancial data and that it was available to the public upon request, but they did not provide it when
requested.
*
Coecient signicant at least at the 10% level of signicance.
NGOs that did not involve the community were more likely
to claim that they did so if they had existed for longer, which
the theoretical model interprets as evidence of having more of
a reputation to risk by admitting that they did not. Religious
aliation, the proxy for the organizations preference for honesty, is also signicant.
In terms of nancial transparency, the results imply that the
main factor that matters is the likelihood of being caught
NGOs that are monitored independently are less prone to
say that they are nancially transparent when in fact they
are not.
(b) Additional hypotheses
The next three tables test the additional hypotheses outlined
in Sections 6 and 7, starting with exposure to unreasonable donor demands and funding competition. Four variables are
introduced separately to approximate these inuences:
namely, having a grant, the proportion of revenue from the
grant, the number of reports the NGO is required to submit
annually, and the number of annual accounts it is required
to submit. Having a grant does not necessarily imply exposure
to unreasonable donor demands, but it is used to capture these
eects because it is a precondition for the inuence of these adverse pressures. In line with expectations, NGOs that are reliant on grants (with a substantial proportion of revenue from
grant income) are signicantly more likely to misrepresent
their nancial transparency. Similar to the eect of reputation,
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Table 2. Examining inuence of exposure to unreasonable donor demands and funding competition
Community participation
Financial transparency
Religious aliation
0.764* (0.052) 0.874* (0.025) 0.826* (0.022) 0.717* (0.045) 0.156 (0.667)
Selshness
0.043 (0.769) 0.121 (0.359) 0.123 (0.348) 0.148 (0.272) 0.032 (0.856)
Competence
0.140 (0.545)
0.129 (0.527)
0.172 (0.357)
0.137 (0.497)
0.100 (0.643)
Years of existence
0.276* (0.002)
0.214* (0.004)
0.134* (0.037)
0.103 (0.106)
0.052 (0.313)
Years of existence squared
0.010* (0.004) 0.008* (0.004) 0.005* (0.017) 0.005* (0.033) 0.001 (0.336)
Third-party monitoring
0.662 (0.476)
0.612 (0.450)
0.344 (0.591)
0.301 (0.615) 1.170* (0.037)
Does the NGO currently have a grant?
1.578* (0.000)
0.903 (0.122)
Proportion of revenue from grant
1.209* (0.005)
Number of annual reports required to be submitted
0.045 (0.447)
Number of annual accounts required to be submitted
0.277* (0.043)
Constant
0.530 (0.656)
0.619 (0.546)
0.424 (0.656)
0.608 (0.557)
0.552 (0.598)
Observations
89
89
89
89
66
Prob [Wald] > chi0.009
0.013
0.035
0.004
0.076
Pseudo R2
0.281
0.206
0.142
0.181
0.126
*
0.715
66
0.261
0.105
0.117 (0.201)
1.108 (0.285)
66
0.035
0.140
WORLD DEVELOPMENT
0.830* (0.020)
0.098 (0.447)
0.175 (0.444)
0.123* (0.043)
0.005* (0.020)
0.377 (0.543)
0.045 (0.835)
0.771* (0.027)
0.074 (0.613)
0.137 (0.494)
0.121* (0.047)
0.005* (0.022)
0.325 (0.595)
0.728* (0.039)
0.176 (0.178)
0.299 (0.150)
0.130* (0.033)
0.005* (0.017)
0.353 (0.574)
Financial transparency
0.778* (0.022)
0.121 (0.348)
0.202 (0.268)
0.126* (0.042)
0.005* (0.020)
0.368 (0.565)
0.120 (0.742)
0.063 (0.718)
0.011 (0.967)
0.077 (0.175)
0.002 (0.256)
1.276* (0.022)
0.129 (0.536)
0.152 (0.251)
0.232 (0.538)
0.006 (0.970)
0.207 (0.316)
0.100* (0.079)
0.003 (0.121)
1.129* (0.044)
0.863 (0.424)
89
0.042
0.155
0.244 (0.509)
0.029 (0.869)
0.251 (0.302)
0.121* (0.057)
0.003* (0.073)
1.100* (0.083)
0.198 (0.112)
0.223 (0.251)
0.199 (0.826)
89
0.043
0.138
0.130 (0.720)
0.019 (0.906)
0.132 (0.630)
0.077 (0.173)
0.002 (0.260)
1.222* (0.031)
0.82
89
0.034
0.155
0.077 (0.791)
0.164 (0.740)
0.357 (0.712)
87
0.058
0.133
0.908 (0.406)
66
0.195
0.109
1.633 (0.138)
66
0.067
0.136
0.484
66
0.261
0.106
0.856 (0.149)
0.860 (0.441)
63
0.291
0.136
Community participation
Religious aliation
Selshness
Competence
Years of existence
Years of existence squared
Third-party monitoring
Does NGO engage in advocacy activities?
Does NGO describe government as a hindrance?
Does NGO feel that government sta is resentful
toward it?
Does NGO cite government dictates as one of
main constraints?
Constant
Observations
Prob [Wald] > chi2
Pseudo R2
*
0.666* (0.059)
0.194 (0.166)
0.209 (0.351)
0.075 (0.229)
0.004* (0.077)
0.051 (0.934)
1.051* (0.004)
0.885* (0.017)
0.102 (0.469)
0.144 (0.464)
0.123* (0.041)
0.004* (0.041)
0.432 (0.482)
0.821* (0.024)
0.118 (0.365)
0.193 (0.313)
0.124* (0.035)
0.005* (0.018)
0.367 (0.562)
Financial transparency
0.603* (0.098)
0.057 (0.684)
0.149 (0.473)
0.114* (0.168)
0.004* (0.217)
0.391 (0.546)
0.001 (0.999)
0.025 (0.875)
0.082 (0.708)
0.060 (0.269)
0.001 (0.348)
1.359* (0.021)
0.398 (0.265)
0.077 (0.839)
0.007 (0.965)
0.140 (0.579)
0.073 (0.145)
0.002 (0.180)
1.337* (0.030)
0.108 (0.769)
0.034 (0.841)
0.071 (0.745)
0.077 (0.172)
0.002 (0.247)
1.337* (0.019)
0.455 (0.202)
0.398 (0.259)
0.022 (0.952)
0.293 (0.369)
0.668* (0.085)
0.062 (0.861)
0.348 (0.755)
89
0.002
0.209
0.235 (0.828)
84
0.075
0.142
0.363 (0.356)
0.021 (0.902)
0.102 (0.678)
0.063 (0.296)
0.001 (0.447)
1.535* (0.018)
0.334 (0.737)
89
0.044
0.138
0.318 (0.773)
78
0.479
0.068
0.716 (0.496)
66
0.171
0.118
0.578 (0.638)
61
0.252
0.147
0.472 (0.396)
66
0.208
0.113
0.804 (0.504)
59
0.181
0.134
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NOTES
1. Quoted in The Economist (Living with the enemy), 7th August 2003.
2. Veron et al. (2006) nd that 20% of beneciaries interviewed in their
investigations of corruption did not view the corruption in a negative light.
They have accepted that bribes were necessary for securing service delivery.
Platteau and Gaspart (2005) report that community members did not view
the siphoning o of funds by a community leader as corrupt or illegitimate,
as they argued that they have beneted from the leaders eorts, and without
his intervention their situation would not have improved.
1275
8. If they did not know the NGO, the group would evaluate another
NGO.
9. In an appendix, available on request, bias introduced by the loss of
observations due to the matching is investigated. Based on a number of
key observables, there is little evidence of such bias. This does not,
however, exclude the possibility that there may be bias based on
unobservable factors.
10. The matched sample refers to the sample resulting from merging the
NGO questionnaire sample with the community focus group interview
sample.
11. It is important to note that the authors do not think that the entire
discrepancy is attributable to misrepresentation. There are also other
explanations for these discrepancies. For instance, it may be because of
geographical variation: the NGOs answers may outline standard or
typical practices across the locations where the organizations work,
whereas the community focus group answers were based on the impressions of a number of representatives from a specic parish. Some of the
dierences may also be due to misunderstanding the questions. However,
these two explanations cannot account for the size and asymmetry of this
dierence.
13. Tanzi and Shome (1993) lists lost time, stress, payments to tax
accountants and lawyers and visits to the tax oce as part of the cost of
compliance.
14. The evidence he cites includes the positive relationship between the
rate of compliance and enforcement mechanisms (e.g., information reports
and employer withholding), the correspondence of noncompliance rates to
proxies for the traceability, deniability and ambiguity of items (Klepper &
Nagin, 1989) and the higher deciency rates in private companies
(Hanlon, Mills, & Slemrod, 2007).
12. There are four such cases for community needs assessments, and
three for feedback.
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WORLD DEVELOPMENT
it is assumed that the only inuence that is problematic to capture with the
available data is q and the candidate proxy for this variable is #. There are
two conditions a suitable proxy must meet. Firstly, the variable needs do
be redundant in the structural or true model. In formal notation, this
can be represented as
Edjm; q; l Edjm; q; l; #:
If a candidate proxy variable did not meet this criteria and it was signicant when added to the true model, it would mean that the variable has
an impact and interpretation over and above that of a proxy for the omitted variable, which implies that it is not an appropriate proxy. A second
condition, which is imposed frequently, but not always, requires that after
the inclusion of the proxy variable, the other regressors should not be partially correlated with the unobservable variable for which it intends to
serve as a proxy. The coecients will not be consistent without the second
condition. However, even if the second condition does not hold, there may
still be an argument for using the proxy variable if its inclusion may reduce
the bias of the estimates. According to Wooldridge, This can usually be
argued if [the proxy variable] is a reasonable proxy (2002, p. 64). Also see
Wickens (1972) in this regard.
25. This is in line with the work of Yankelovich, Skelly and White, Inc.
(1984) cited in Spicer (1986), which reports that tax evasion was associated
with a exible denition of honesty.
26. Where values were missing for this variable, we replaced such values
with subgroup averages, with two identied subgroups: NGOs with, and
without grants.
27. Financial variables are avoided due to the potential high correlation
between data availability, and corruption and ineectiveness.
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