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INTERNATIONAL ISLAMIC ECONOMIC SYSTEM CONFERENCE (I-iECONS 2021)
The Downward Vs Upward Accountability Practices: A Study of Malaysian-Palestine Non-Government Organizations (NGOs)
Mohd Shukor Harun
Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), Bandar Baru Nilai, 71800 Nilai, Negeri Sembilan Malaysia
Tel: 06-7986409 emel: [email protected]
Abstract
Non-government organizations (NGOs) have enjoyed an unprecedented amount of influence on national as well as international fronts for the past couple of decades. Recently an issue of accountability in Malaysian-Palestine NGO arises where stakeholders start to query an updated financial information and its availability to access. Stakeholders always desire information disclosure on fund management and allocation from non-governmental organizations (NGOs). However, the rights of stakeholder in respect of their demands sometimes ignored. This phenomenon has led to the withdrawal of stakeholder participation in NGO activities particularly where it has come to light that an NGO has misused funds. downward and upward accountability practices offer a way of providing information to stakeholders to meet their requirements. Downward accountability refers to processes by which the senior managers of companies are held accountable to the people at lower levels. It contrasts with upward accountability through which senior managers are held accountable to higher-level boards of directors representing the interests of corporate principals. Therefore, this paper aims to conceptually study the influence of downward and upward accountability practices of information disclosure among Malaysia-Palestine NGO. This study also seeks to provide a comprehensive literature of upward and downward accountability. The study revealed that accountability practices of that NGO affect both external and internal image of their NGO. The results provide a theoretical contribution to the study of nonprofit accountability and add value to the current research.
Keywords: Accountability;Palestine NGO;Downward;Upward
1. Introduction
Nonprofit organizations can be defined based on five key characteristics which are organized, private (i.e., institutionally separate from government), nonprofit distributing, self-governing, and voluntary . In Malaysia, since the recognition of social service before World War II, nonprofit organizations have continued to play their role in helping the government to escalate and deliver efficient and effective social work services. Despite the significant role of these organizations, there is dearth of research studies examining the important of downward and upward accountability on its effectiveness of nonprofit organizations. Downward accountability refers to processes by which the senior managers of companies are held accountable to the people at lower levels. It contrasts with upward accountability through which senior managers are held accountable to higher-level boards of directors representing the interests of corporate principals.
The term 'downward accountability' refers to aid organisations being accountable to their beneficiaries. Effective downward accountability measures, directed towards beneficiaries of development or humanitarian assistance, have the potential to reduce corruption risks and improve the efficiency and effectiveness of outcomes. Downward accountability, after all, is not only about being held responsible by others; it also involves taking responsibility for oneself and staying true to the needs of clients, as described by Sawandi and Thomson and Ebrahim. Yet many organisations, including non-governmental organisations (NGOs) and international NGOs, have struggled to fully implement successful downward accountability mechanisms. Empirical studies of selected charities in Europe reveal
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that selecting a reliable accountability measure, ensuring confidentiality, and obtaining resources to develop such a measure is a difficult undertaking. In effect, downward accountability (accountability to beneficiaries), may be given less attention compared to upward accountability (accountability to donors). This is because of the limited power of the downward stakeholders.
Whereas upward refers to the formal documents disclosed by NGOs to its donors, such as reports and informal upward accountability exists when NGOs choose to practice accountability towards its donors through interaction, such as forum (Ebrahim, 2003).Upward accountability to senior managers, trustees and donors is also very important, as these people provide funds and are responsible for making sure that money is used effectively.There is a lot of debate around the question of accountability in the NGO sector at the moment. In particular, they argue that 'upward accountability' has over-shadowed 'downward accountability', and that NGOs tend to have difficulty putting downward accountability into practice. In this study we will looks in both aspect of accountability practices among Malaysia-Palestine based NGO. Therefore,this paper aims to theoretically study the influence of downward and upward accountability practices of information disclosure among Malaysia-Palestine NGO. This study also seeks to provide a comprehensive literature of upward and downward accountability towards Malaysia-Palestine NGO.
2. The Demand for Downward and Upward Accountability in NGOs
Non-governmental organizations are not profit-driven organizations and so this type of organization always needs to raise funds from stakeholders to survive. Hence, to receive donations from stakeholders, transparency and accountability in NGOs are main subject which need to be clarified clearly. NGOs must be accountable towards their stakeholders in both ways which is downward and upward.
The reason for the demand for downward and upward accountability being practices by NGOs because all their work give a direct influence towards stakeholder. Besides, there is rapid growth in the number of NGOs advocating human rights and the need to attract more funds from stakeholders (Bieske, 2012) such as individual stakeholders and corporate stakeholders as well as government. Non-governmental organizations are also involved in developing a high- visibility profile based on their performance (Dixon et al., 2006), where accountability and resource control are two critical attributes that NGOs need to demonstrate (Vakil, 1997).
Therefore, for NGOs to get funds, they need to convince stakeholders of their trustworthiness, and this can be achieved through demonstrating accountability. However, NGOs may practice more than one type of accountability, which means that this concept is never the same in any two cases because of its multidimensional nature (Ebrahim, 2003b) and it is therefore complex to define (Vu & Deffains, 2013).
Also, it is often the case that the media has an ongoing interest in the work of NGOs, which indirectly puts pressure on NGOs to be more transparent in their activities. Conversely, this situation engaged to the informal accountability, which means that NGOs must be transparent in communicating with the wider community (Vu &
Deffains, 2013). Non-governmental organizations interact with communities and individuals through the sharing of information on their values, their understanding of a particular issue and knowledge, and this tends to be done informally, whereas formal systems of reporting normally are used when approaching corporates rather than to all people the NGOs interact (Gray et al., 2006).
Thus, formal, and informal accountability coexist (Roberts, 1991) and both are a crucial means whereby NGOs can discharge their obligations in terms of accountability to external parties. Accountability happens when
“individuals and organizations report to a recognized authority and are held responsible for their actions” (Edwards
& Hulme, 1996) and also involves “taking responsibility for oneself” (Cornwall et al., 2000, p. 3). Accountability to external parties can be shown through disclosure of activities in annual reports (Connolly & Hyndman, 2013;
Ebrahim, 2005).
When managing fundraising, NGOs must practice downward and upward accountability to their stakeholders to account for the ways in which they spend stakeholders’ money (Ebrahim, 2003). The issue of accountability in NGOs has been of interest for the past two decades (Ebrahim, 2003) and more recently this issue has received serious attention because nowadays stakeholders require more transparent documentation from NGOs to ensure that the funds, they have given will reach the correct beneficiaries (Dhanani & Connolly, 2012)
Non-governmental organizations practice formal and informal accountability to demonstrate downward and upward accountability to stakeholders. These two types of accountabilities complement each other in delivering information to external parties. Formal accountability comprises the writing of formal reports (Connolly &
Hyndman, 2013), which are presented to stakeholders, whereas informal accountability consists of communication between NGOs and stakeholders through face-to-face interaction and various forums (Bovens, 2010).
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Normally, formal accountability is strongly demanded by stakeholders, but informal accountability can also be used to build trust (Unerman & O’Dwyer, 2006) The actions of people in NGOs lead to the performance of upward and downward accountability to their stakeholders and the selection of the accountability type represents the character of the organization (Dixon, 2006). Non-governmental organizations must practice both formal and informal accountability because they are known as charitable organizations (O’Dwyer, 2007) and this interaction with stakeholders can happen in a variety of circumstances. Therefore, formal, and informal accountability coexist in NGOs so that they can deliver information effectively.
The way NGOs demonstrate accountability to internal and external parties is not limited to the disclosure of a project report during a forum or meeting only; they may also discharge accountability through the Internet (Connolly & Dhanani, 2013), for example, through publication of information on a social networking site, which enables stakeholders to access information at a time that suits them. Besides, some NGOs also disclose details about their projects and achievements on their own website. However, these various methods of practicing accountability still need improvement because the issue of accountability in NGOs is very broad (Dixon et al., 2006). Recently, an issue has arisen pertaining to the money spent by NGOs. It has been argued that NGOs should maintain a break- even financial position in fulfilling their social agenda (Connolly & Kelly, 2011) rather than misuse funds given by stakeholders for other business with the intention of gaining profit or personal gain or misconduct in an NGO.
3. Literature Review
Downward vs Upward Accountability 3.1 Downward Accountability
A body of research has claimed that lacks of attention on downward accountability can deterrent the organization performance. In this study, downward accountability is defined based on three main areas; information disclosure, participation mechanism, and complaints procedures.
Disclose of information is vital as to ensure organizations have implemented the activities and programs in acceptable standard. Previous empirical studies have discovered the association of information disclosure with the efficiency ratios and the amount of funding. This is because information can be used by stakeholders to evaluate the performance of the organization.
In contrast, participation is quite distinct from information disclosure because it merely more on a process, rather than function as a tool. Participation occurs when there is a direct and shared relationship between an organization and beneficiaries. Through participation mechanism, organizations will be closely allied with the beneficiaries and as the result; it enhances the understanding on these group. It also helps to increase the credibility and influence of the organizations towards their external environment. Finally, the organizations can protect and sustained themselves from any allegation as result of the misbehavior conduct.
Next, having the complaints procedures that work proved how seriously the organizations in embracing accountability. Burall and Neligan (2005) claim the absence of effective complaints procedures diminish other mechanisms. Referring to the open systems model, organizations need to gain feedback from their external environment in order to improve the input of process and activities . Therefore, complaints procedures are one tactic on how organizations can react to their external environment.
All three components of downward accountability as mentioned above are important factor that contribute towards achieving the effectiveness. Thus, the management needs to pay full devotion in these areas.
3.2 Upward accountability
Non-government organizations are not profit-driven organizations and so this type of organization always needs to raise funds from donors to survive. Hence, to receive donations from donors, transparency and accountability in NGOs are essential subject need to be clarified recently (Dixon, Ritchie, & Siwale, 2006). NGOs are involved in discharging multiple accountabilities or “360 degrees of accountability” (Murtaza, 2012) compared to the private and public sectors (Najam, 1996). Some of these accountabilities are upward accountability, downward accountability, inward accountability, and holistic accountability (Murtaza, 2012).
There is a demand for upward accountability of NGOs whose work influences society (Willets, 2002) through the giving of time and energy as well as expertise to assist people. Furthermore, there is rapid growth in the number
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of NGOs advocating human rights and the need to attract more funds from donors (Bieske, 2012) such as individual donors and corporate donors as well as government. Non-governmental organizations are also involved in developing a high- visibility profile based on their performance (Dixon et al., 2006), where accountability and resource control are two critical attributes that NGOs need to demonstrate (Vakil, 1997).
Therefore, in order for NGOs to get funds, they need to convince donors of their trustworthiness, and this can be achieved through demonstrating accountability. However, NGOs may practice more than one type of accountability, which means that this concept is never the same in any two cases because of its multidimensional nature (Ebrahim, 2003) and it is therefore complex to define (Vu & Deffains, 2013)
3.2 Theoretical Discussion Stakeholder Theory
Stakeholder theory proclaims that organizations need to be responsible for the interests of all constituents affected by their actions. Operating in complex nature, nonprofit organizations need to deal with multiple stakeholders such as shareholders, government, investors, donors, beneficiaries, communities, and others. Clarkson (1995) further differentiates stakeholder based on two categories: primary and secondary stakeholders . Primary stakeholders refer to those who actively involve or directly being influence by or affect the organization activities whereas secondary stakeholders are influence or affect by, but they are not involve in relations with the organization . However, both categories are important for nonprofit organizations as it can affect their long-term sustainability.
Based on theoretical foundation of stakeholder theory, downward and upward accountability is important because it helps nonprofit organizations to manage it relationships with various stakeholders especially beneficiaries; those who received the services. As Hyndman and McDonnell (2009) argued that the beneficiaries’ involvement provides the management with important understanding of beneficiaries’ need and demand.
Social Capital Theory
Social capital theory was used in a study by Awio et al. (2011), which involved a case study of the Ugandan Community-Led HIV/AIDS Initiative (CHAI), a small grassroots organization (GRO) of an NGO that focuses on bottom-up accountability. Following Awio et al. (2011). Social capital theory are relevant to study the bahavior of upward and downward accountability practice towards NGOs to donors. According to Goddard and Assad (2006), GROs are members of NGOs who play the role of mediator in order to assist the community by receiving funding from donors, which in this case are the NGOs themselves.
Awio et al. (2011) declare that NGOs have difficulty with the elements of trust and voluntarism which are essential in representing accountability. Besides, they also suggest four key elements in their bottom-up accountability framework, which are “simple, transparent, underpinned by social capital, and enacted at the community level” (Awio et al., 2011). They found that formal accountability can be achieved by combining the attributes of social capital and grassroots NGOs. Meanwhile, the present study focuses on upward accountability by looking at donors as an external party and NGOs as a social organization in order to examine the accountability discharged by NGOs to donors.
Furthermore, social capital theory conveys a unique interpretation by combining the element of norms and values in a group of people. This theory is able to explain the behaviour of people in social interactions, which is ultimately a collective resource that can be used to achieve certain aims (Lin, 2001, p. 29). Therefore, there ia a need discussion to unveil the theoritical interactions between an NGO and its donors, which are part of a multifaceted relationship, by investigating the attitudes and interactions between both parties (Gray et al., 2006, p. 335).
4. Methodology and data
This study employed a literature discussion of upward and downward discussion towards Malaysia-Palestine NGO, the literature from prior study are gather using library research techniques.
5. Results and discussion
The results of this study revealed that there is a need for information disclosure procedures to be implement towards Malaysia-Palestine NGOs to enhance their external and internal effectiveness of managing nonprofit
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organizations towards upward and down accountability practice.The information disclosure are merely standardized throughout various categories of organizations.As for managerial implications, the management needs to ensure they fully enforce the upward and downward accountability in efficient and effective manner. Rhetorically, accountability towards their stakeholder is not a major concern among management as donor-oriented still continues dominating the current practice of accountability. As evidence, Nahan’s (2003) revealed that majority of Malaysian nonprofit organizations are poor in implementing accountability. The are poor information disclosures and politically biased in their activity implementation. Strong accountability environment requires the transformation of organizational elements including the leadership, culture, system, structure, and employees.
The literature concludes that organization needs to encourage staffs to develop effective and respectful relationship with their stakeholders.There are several ways on how the management can improve their current accountability practice. For example, in order to improve information disclosure practice, Malaysia-Palestine NGO have to produced a newsletter in Malay and English describing its activities along the year either hardcopy or softcopy thorught their websites. The newsletter was easy to understand as it designs in simplicity for the stakeholders. Next, they have to invited community representatives to be involved in their interview sessions,so throught that interview process,we can get a clear information either that particular NGO also serve the local community or not. This approach not only benefited the beneficiaries but also their staffs when those who employed later realize that the approach help them to understood the beneficiaries properly especially local community. The enforcement of upward and downward accountability requires creativity and transformation of all organizational elements in ensure their effectiveness towards managing funding.
6. Conclusion
This study aims to theoretically discuss the practices of upward and downward accountability on the effectiveness of nonprofit organizations. upward and downward accountability is crucial as it can help organizations to enhance their reputation in the eyes of stakeholders. This study also seeks to provide a comprehensive literature of upward and downward accountability. The study revealed that accountability practices of that NGO affect both external and internal image of their NGO. The results provide a theoretical contribution to the study of nonprofit accountability and add value to the current research. As the results, it will be able to retain the client and attract the potential donors. In addition, this study also offers nonprofit researcher to analyze the upward and downward accountability towards Malaysia-Palestine NGO. The author has theoretically discussed in detail regarding to the issues of accountability in enhance NGO effectiveness.
There are many NGOs that exist to provide humanitarian assistance to mitigate the destructive effects of wars and natural disasters. For NGOs to achieve this mission, they need a huge amount of funds from donors. From the donors’ perspective, they need to ensure that the funds given to the NGOs are used effectively to alleviate suffering.
Hence, upward, and downward accountability is needed to ensure that funds are allocated accordingly. Therefore, future study can adapt, modified, and developed measurement to evaluate upward and downward accountability practices in Malaysia-Palestine NGO such Aman Palestine, Aqsa Syarif and so on. Thus, this also study provides a reliable and a workable literature discussion for assessing the level of upward and downward accountability. Further investigation can use mixed method study, multimethod, multilevel study or longitudinal research would address these issues and extent the discussions. Finally, future research also may focus on other critical areas such as code of ethics, social accounting, performance assessment, and comparison among Eastern and Western accountability practices.
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