Donors and recipients: charities, NGOs and aid

Non-profit organisations (NPOs) play an integral part in delivering public services and channelling development aid around the world. This thesis contains three papers on behaviour, motivations, and the accountability of these organisations. The first paper studies charitable spending and financial transparency of public charities in a developed NPO sector. Its accountability has attracted considerable scrutiny after high-profile scandals related to misuses of funding and donations. We use Benford's Law to evaluate the potential errors in public financial figures of approximately 10,000 UK charities. We estimate 25% of the sample misreport their financial information. We show unless spending on governing activities (commonly referred to as overhead cost) is sufficiently high, NPOs with higher spending on charitable activities (commonly referred to as programme ratio) will be more likely to misreport their financial information. We suggest that tighter monitoring might be ineffective to increase the sectoral transparency and accountability. Our analysis also challenges the common practice in the sector that programme ratios and overhead costs should be used as reliable indicators for non-profit accountability. The second paper focuses on performance evaluation in a development NGO context. Little has been done to understand the connection between the effectiveness of NGOs and their financial accountability. Using Benford’s Law and a representative survey of the Ugandan NGO sector, we also estimate 25% of the NGOs might provide misleading accounts. We observe NGOs with better ratings from their beneficiaries are more likely to submit credible financial data. The result contradicts the belief that upward accountability demands crowd out serving the client community. We find no evidence for a strong correlation between the decision to withhold requested financial information and the decision to report inaccurately, with the former potentially due to limited capacity and skills. The results suggest a more significant role for beneficiary assessments in monitoring the sector rather than increasing demand for financial reporting. The third paper studies behavioural motivators of development NGOs. We identify two motivations underlying NGO decision to diversify activities, namely to reduce idiosyncratic risk to funding and to derive personal gains. We exploit a historic flood in mid-2007 in Uganda and variations in contractual funding toward affected areas to show that NGOs diversify less in response to increased income from contractual funding. This result is consistent with a theoretical prediction that the decision is driven by the need to reduce risk rather than to capture private gains. Donors can help development NGOs focus on their primary mission by providing a commitment to funding