TrueValueMetrics ... Impact Accounting for the 21st Century

It has been said that all politics is local ... but even more so, all life is local. More than anything else, this is the central concept of Community Accountancy.

MULTIPLE PROBLEMS

The value dynamics in the relief and development industry are all wrong. This has been a chronic problem for a long time with the institutional leadership having little understanding or interest in the issues.

Fund flow accountability
Value destruction
Negative multiplier
Where do benefits emerge?
Big projects with high risk and low return
Planning performance disconnect
Waste

Fund flow accountability

There are end to end problems with fund flow accountability ... some of the fund flows are severely compromised, while others are managed excellently. However, because of systemic weakness in the systems of metrics it is not easy to know which ones are excellent and which are not. Weak financial control has been endemic and as a result all sorts of resources have gone missing ... stolen money ... stolen inventory ... over invoicing ... under delivering. Embezzlement of all sorts ... petty corruption and grand corruption.

Part of the problem is that all of the participants have a very narrow interpretation of their responsibilities for transparency and accountability ... essentially every organization thinking of itself in a bilateral relationship with the donor or source of funding ... and the public having no stake in anything. In this arrangement it is relatively easy for a bilateral relationship to provide fertile ground for weak performance and worse. Little has been done over very many years to end this comfortable arrangement, and all the incentives in place encourage its continuation.

Phantom Aid
The amount of money being raised for international relief and development assistance is huge. Fund raising in the aftermath of natural disaster is especially impressive, and shows how supportive many people are of development initiatives. But sadly the relief and development industry is less than candid about how the resources are used and what is being accomplished.

In 2003 a well know UK based NGO called this Phantom Aid. Some years before the phenomenon had been described as “Black Hole Development” implying that no matter how much fund flow there was, the results would still be the same!


Sovereignty ... protecting abuse The idea of sovereignty that enables the independence of a people from a foreign country is good ... but it is not good when sovereignty is used to protect a country's leadership from the abuse of power ... when it is used to to protect a regime where “anything goes” is the mantra to maintain wealth and power. People in many places around the world have been treated abominably by governments with elite leaderships ... and fully justiried interventions by external actors are constrained by the idea of sovereignty. At what point does doing right become the dominant driver of meaningful action? Value destruction The amount of money that gets spent and the amount of good that gets done seems to get more and more unrelated. There has been upwards of five decades teaching MBA students how to maximize profit without teaching them very much about society. This has created a very large community of experts in profit maximization, but hardly anyone that has a deep understanding of the social costs and value destruction associated with this economic paradigm. The problem, however, is worse, because the relief and development industry has many highly trained experts in disciplines other than economics ... and the situation relative to accountancy is even worse. Cost, price and value are critical metrics of socio-economic activity. In market based economic thinking cost and price are the dominant metrics because they determine profit. Profits, in turn, determine market valuation. For society to progress there also needs to be attention paid to the relationship between cost and value. This is approx ... not the correct image Cost is a determinant of productivity ... or is it productivity that determines cost. This is more than semantics and goes to the heart of the management of society and the effective use of science and technology for the benefit of society rather than only being used for proprietary wealth gain. A strategy that optimizes the former may well be different from one that maximizes the latter. Negative multiplier The multiplier should be positive. The Keynesian multiplier is the economic mechanism whereby money spent by one person becomes money earned by another ... cost for one is income for another. The multiplier effect is perhaps the most important mechanism in economic theory ... yet it is rarely talked about by development experts. But the multiplier effect makes it easier to understand the failure of community progress in the face of all the local and external economic activities. The multiplier is one of the tools for economic optimization that has been sidelined by the experts of the international development assistance community. Community Accountancy takes into consideration the impact of the Keynesian multiplier in relating costs to value for the community. The multiplier effect changes the development dynamic and makes compounding community progress possible. The multiplier effect helps to explain how many of the big initiatives over the past 40 years have had limited benefit. Big projects with foreign contractors and experts get only $1 of value for each $1 disbursed ... at best ... while small community activities get a dollars worth of value over and over again ... multiple times ... one loses count! Much better! The big projects should have had great impact, but often did very little. I learned about the multiplier is a college class ... I have observed it working all over the world. However, rarely where development experts were involved. This is not a theoretical construct. In my experience modest fund flows into a community produce all sorts of favorable impact. Lesson ... get a community started and it will never stop! Another lesson ... there is as much multiplier power as things get small are when things get bigger. Where do benefits emerge? Where is the funding coming from? Where are the beneficiaries? Over the past decades a very large proportion of the international official development assistance has been disbursed in the north, with the idea that it was going to beneficiaries in the south. But mostly this did not happen Most funds have been disbursed in the north where there is benefit for the contracting organizations and rather little left that is of benefit for the south. A much better way is to disburse more directly in the south where there are direct benefits and associated multiplier effects. When funds are disbursed in the south, the impact of international official development assistance is very good. Local disbursement in beneficiary communities not only has a direct benefit, but delivers other economic improvement through the multiplier effect.
Typical Development	Better Development

The success of relief and development depends more than anything else on whether it is economic value adding or economic value destruction that is dominant. In economic value adding the value increment exceeds the cost. In economic value destruction the value increment is lower than the cost. In the corporate environment the price of goods and services and the market serves to control cost and ensure that the clients get value for their money. No similar mechanism exists in the relief and development sector. Decisions are made based on a process that has no independent (market) checks and balances and it is easy to commit to make expenditures without the activities and outputs have much meaningful tangible value. External funding ... external benefit While the international relief and development industry and international investors talk about the benefits of external funding, it might not be as beneficial when everything is taken into consideration. The following shows something of how external funding impacts net local benefit.
The simple graphic presented above is only a bit of the sad story. The damage that external funding does to the local economy and to the local communities is obscene ... not that it needs to be ... but is because the rules and the contract terms are very much in favor of the lenders and unfavorable to the borrowers. While this is common knowledge ... it has been not negotiable for the past 30 years or more ... while forcing failure on “beneficiaries”. When will the World Bank address this issue? Nigeria borrows $100 million from the World Bank with an official $/Naira exchange rate of $1.50 for each Naira so gets the equivalent of Naira 67 million. Decades later Nigeria is repaying the loan and the exchange rate is now more than Naira 100 to $1.00 ... and must therefore must repay the equivalent of Naira 10,000 million ... that is Naira 10 billion. Please explain how this is a good way to fund development ... when the borrower gets Naira 67 million of value at the outset and then has to repay Naira 10 billion. Is it any wonder that development does not work! Big projects with high risk and low return The timeline of a typical “development” project shows changes in value starting with value consumption as the project is prepared and starts implementation, followed by value benefits as the project continues. For big World Bank type projects the length of time is significant and the scale substantial ... with the costs of value consumption certain and the benefits much less certain. When the benefits do not materialize, the project creates massive value destruction ... and for many if not most World Bank projects this is the sad reality. This is alternate Community Accountancy looks at any and all economic activities from the perspective of value creation and value consumption. The problem with the WB project cycle is that there is substantial value consumption that is sure, and long term benefit that is uncertain. The following graphic is a simple depiction of the costs incurred over a long time before a project is funded and implemented. When a World Bank project does not generate benefits there is a long term loan repayment cash flow that keeps the project in a value consuming mode for many years. While this is obviously terribly bad for the community and the economy that serves the citizenry, this is less bad for those that have enriched themselves at various stages of the project ... no matter that the project is an economic disaster over the long term. Goals and Plans Insufficient for Success In the introduction it was stated that it is very easy to know what to measure if the goals or objectives are known. A lot of times the goals and objectives are stated ... and from this there is immediately a lot to learn. What Alma-Ata, the MDGs and the SDGs have in common Bluntly put, it is a waste of time and energy working on goals for a distant future while ignoring the many big things that are causing problems today ... but that is what world leadership loves to do. The 1978 Alma Ata International Conference on Primary Health Care in the Soviet Union produced a declaration that set forth some key targets to be accomplished by the year 2000 ... some 20 years into the future. And in 2000 the UN worked up another set of goals ... the Millennium Development Goals (MDGs) to be accomplished by 2015 ... some 15 years into the future. In 2015 the UN expanded the number of goals and gave them a new name. The 17 Sustainable Development Goals (SDGs) are for the 15 years from 2015 to 2030 If the international relief and development industry has its way ... there will be more and more long term goals and objectives that cover anything and everything and go off into the future while there will be the minimum of attention paid to why it is that there has been such poor past performance and what has to be fixed now. Focus on disbursement ... on activity Metrics ought to serve the needs of society ... but the easy metric that has been important in the Bretton Woods institutions and their development clones has been disbursement. While there are cases where disbursement is a useful proxy for results, this is not so when it is used to the exclusion of almost anything else. Disbursement serves as a fairly good proxy for activity ... but neither can stand in for result other than in a very controlled and stable environment. Development, when it is successful, is not stable, but progressing ... and the only metric worth having is a measure of the results. Little data ... a lot of statistics The measurement methodology that now dominates the global economy is based on statistical mathematics on top of very little data. There is a place for this ... but it needs to be balanced by a 0solid foundation of accounting data and the related data organization and reports. Statistics have no capacity to provide control and accounting of resources ... something that is essential for an effective society ... and yet statistics has been used to replace strong data almost everywhere in the relief and development industry for the past several decades.

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