Management control in NGO’s

Non-governmental organisations (NGO) are increasingly being held to account for their performance and uses of funding. Indeed, the funding they obtain is more likely to be based on having sufficient competencies to use the funds in the best possible way. Sounds like a business doesn’t it? But NGO’s are not businesses you might say, and they usually have a non-profit (and often very worthy) objective.

However, NGO’s are increasingly becoming like businesses. For example, the Charities Act (2009) in Ireland requires all charities to be formally registered and (in most cases) submit annual audited financial reports to a Registrar. From a management accounting view, NGO’s can of course adopt budgetary control and other performance measures as normally used in a business. A recent report from CIMA suggests “evidence shows that developing formal management controls can help NGOs to develop networks with government departments, funding agencies, other service providers and clients”. It goes on to say that management accounting can contribute in several ways to the success of an NGO:

Planning and control when formulating proposals for funding, often involving networks of partner agencies.
Clarifying within the NGO the importance of including economic efficiency as an organisational value alongside traditional welfare values.
Linking non-financial operational performance to financial concerns.

Making the link between such management accounting concepts and the underlying purpose of an NGO may not be that easy. While overall the CIMA research report suggests NGO’s can benefit from business like management control systems, it does mention that controls that are too formal or too financial may affect what the authors term “bonding capital”. This refers to the close interpersonal relationships of NGO members based on shared beliefs. If these shared beliefs are called into question by over formalised management controls, this could be to the detriment of the NGO.