Date: 2025-05-02 Page is: DBtxt003.php L0913-TVM-MMW-000031
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TrueValueMetrics ... Peter Burgess Manuscript
Making Management Work for Relief and Development |
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Chapter 31
Money |
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Importance of Money
A critical resource Performance in the relief and development sector and progress in socioeconomic development is not going to be solved by money alone. But without money, the potential for progress is whole lot smaller. Money may be identified as the root of all evil, but money can also be the catalyst for all sorts of good thinks to be accomplished. I see this as one of the roles of accounting and accountancy, though not very much in evidence in the today's relief and development sector. Keeping control of the money Accounting is the best tool for keeping control of the money, and making sure that the money does not get misappropriated and misapplied. Techniques for keeping control of the money are many, but hardly ever applied in the relief and development sector ... and not surprisingly money seems to go missing all the time. The first line of defense is decent accounting, and basic timely reports. A second line of defense is performance accounting which gets answers to the basic question about performance ... this amount of money was spent ... this amount of activity was done ... and this amount of value was derived from these activities. Of course, when money goes missing, there is little or no activity and little of no value derived. It really is quite simple, but it is very powerful. This contrasts to the World Bank's preferred strategy which is to focus on more and more procedural control of contracts ... in my view almost irrelevant in the control of money going missing ... instead of always asking to know the relationship between money paid out and value realized. Knowing what is done with the money The accounting role of making sure that money is not misappropriated is only part of the job. In addition there needs to be a good understanding and accounting for what is done with the money, and what is accomplished. There needs to be an end to the waste of money in the relief and development sector because what is proposed as a great solution just does not work. Good accounting and an effective management information environment can stop poor performance very quickly ... and it will go on for ever if the accounting and management information is missing. Mobilizing money The business of mobilizing money has become very specialized, and many not for profit organizations that depend on grants and philanthropic donations have recruited fund raising experts into very high profile positions. The results have been impressive ... but of course, only possible because there is a huge pool of discretionary wealth available in the “north” available to be mobilized for worthwhile organizations and causes. Raising money from official sources Funding raising is a critical component of the modern relief and development sector, but it really needs reform. Developing countries have a huge need for capital investment for development, but they have no access to capital markets, other than through the ineffective official sources such as the World Bank, IDA and regional development banks. Increasingly the European Union is also a source of funding. Bilateral funding (from USAID, DFID, CIDA, SIDA etc.) is mainly grant form which is good, but in only rather modest amounts totally insufficient for what needs to be done. All the official sources fund the “south” according to their respective priorities and almost totally without regard to local needs and priorities. Capital markets The relief and development sector has not been able to access the capital markets in ways that have been universally beneficial. The capital markets have an ability to fund anything, but they limit their funding to activities that give a large return to the investors. This is a good way to optimize performance for investors, but not a good way to achieve the best possible global result for socio-economic progress. Better accounting and value chain analysis of how profits are generated for investors and a routine public accounting of the socio-economic impact of investment will make some difference ... but probably not very much in the short term. Europe and North America have a global advantage in the strength and versatility of their capital markets, but it is being eroded by the wealth creation and financial reserves now held in the big emerging markets ... Russia, China, Japan and India as well as South Korea, Taiwan and Singapore in East Asia / Pacific and oil exporting countries around the world. The agenda of the relief and development sector for the “south” at some point is not going to be controlled any more by Europe and North America but by others. Philanthropic sources of money There is more philanthropic funding available than at any time in the past, and a great potential for it to be used very effectively. But it will only be used well if there are management information available that shows costs and results. While every philanthropic organization will talk the talk about performance and accountability, it is less likely that there will be really effective management information along the whole of the fund flow from the original disbursement to the eventual use of funds for benefit to beneficiaries. Monetizing assistance in kind There are circumstances where assistance in kind can be available, but not money. In many cases money can be many times more useful that the “in kind” resource. The legal constraints on using donations of, for example, food products in the best possible way in the beneficiary country are sad, and difficult to address. The US PL480 program is large, but its impact diminished because of the way in which the resources must be used. The World Food Program (WFP) also uses its food resources in ways that are often a lot less effective than they could be and should be. Efforts to help relief and development using various forms of “used” goods from the “north” have delivered mixed results. While used clothing may have helped some, the competition has also put some local tailors out of business. Used computers shipped to the “south” may have benefited repair shops more than computer users ... though some users may well have benefited a lot. There are many stories, but effectively no accounting. Remittances Remittances from the “north” to the “south” have taken on a great importance over the past 20 years. While many local poor “south” economies have deteriorated, remittances have increased and helped enormously. The funds have gone directly from senders to the recipients with a minimum of intermediary leakage ... except for the scandalously high fees of the dominant remittance agency Western Union. Various initiatives are in play for these remittances to be controlled ... and likely taxed by the authorities in the “south”. While this is attractive for the authorities is is not good news for the current participants in the remittance arena either as senders or receivers. It essentially would serve to move fund flows from poor families and communities into the central urban system and its powerful elite. Rather than taxing remittance, a better initiative would be to arrange to leverage the remittances so that a modest flow of remittances each month could be used to support bigger investments needed by families and communities in the “south”. The legal constructs for this would not be too difficult to create, if good professional experience was brought to bear on the challenge. Using the Internet A growing number of initiatives to use the Internet to raise funds are emerging. They have a lot of potential, but they have not yet “taken off” to anything like their full potential in support of the relief and development sector. While the technology to have success in web based fund raising exists, the information to support such an initiative does not and there is very low “trust” that relief and development sector fund flows will be used correctly. People, quite reasonably have considerable concerns that funds donated using the Internet are going to be used for little results ... so why bother. Clearly this book suggests that management information covering the relief and development sector can be instrumental in changing this particular concern ... and provide the accountability that any contributor deserves. Investment clubs Investment clubs were the origin of the investment movement that eventually expanded and morphed into the Unit Trust and Mutual Fund industry. Now is probably the time for a new era of investment clubs that this time focus on global social value investing and socio-economic performance rather than only corporate stock prices and profits. I was introduced to investment clubs in the early 1960s in the UK. They were an interesting idea imported from the USA and a way for ordinary people to learn about the stock market. I ran a small investment club, and also did the accounting for one of the largest investment clubs in the country. This subsequently became one of the first Unit Trusts in the UK, a financial vehicle somewhat similar to a Mutual Fund in the USA. The Unit Trust and the Mutual Fund industry has had its fair share of scandals and inappropriate behavior over the years and has become quite highly regulated. But the underlying idea of the institutional structure is interesting and valuable. The same sort of idea is emerging around the USA today, where people are having small group meetings to choose ways to do “philanthropy” and to make a real difference. New mechanisms to access capital markets The financing of socio-economic progress in the “south” should be as broad and diverse as the capital markets and the securities industry. When this is accomplished the money constraint on relief and development performance will be largely solved. The availability of capital in the world's capital markets, and in various philanthropic funds is at record levels. But these funds are not yet accessible for relief and development investment where it is most needed. New classes of intermediary organizations are needed that will make it possible for low cost funds to be mobilized at low risk for the lending institution and be available for investment in community projects at a higher risk and at a higher price. The intellect of the banking and financial securities industry can easily do this ... if they want to. The selection of community projects should be done not using “north” type MBA analysis based on number crunching spreadsheets, but using analysis that links the investment to community needs and the value to the community of making the investment. This is the same value logic to be found in an MBA type spreadsheet except that the entity is the community and its people, rather than a simple legally constituted corporate organization. Private sector fundable programs There are a lot of things that need to be done in the “social” sectors of the “south”. Most social sector funding should come from the local economy, but this is not practical at the present time. Accordingly there needs to be programs to address social needs that can access available funds. One such program is being developed to address the malaria crisis in the “south”, mainly in Africa. This program will make it possible to provide all the support needed to implement an integrated mosquito and malaria control (IMMC) program in Africa. The program is being organized by The IMMC Consortium which brings together world class experienced malariologists. |
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