INGO claims 'unjustifiable' overhead, while local partners get nothing

An international aid organization levied a sky-high overhead rate of 34% while its project’s local partners received nothing, according to a study arguing the arrangement goes to “the heart” of the failure to localize aid delivery. The analysis, of part of an $80 million multidonor scheme in a Middle East country, calculated a potential saving for “unmet humanitarian needs” of $545,000 — or 13.6% of the funding — if it was structured more fairly. The finding exposes the “unfair playing field” faced by many local aid players, a power imbalance that also prevents them from growing their organizations, according to the Share Trust social enterprise behind the study. “This issue goes to the heart of the localization agenda,” said Courtenay Cabot Venton, founder and chief executive of the organization that works to boost the “small fraction” of aid funding passed to local groups. The study follows the Share Trust’s 2022 ‘Passing the Buck’ report, which strongly criticized the money wasted because of donors’ lack of progress on localization. It found local intermediaries could deliver aid in a way 32% more cost-effective — potentially generating annual savings of $4.3 billion if they were devolved one-quarter of the $54 billion of aid flowing through the United Nations and INGOs. The new analysis found the INGO concerned applied support costs on its entire $4 million share of the project, even though 81% of that funding was allocated to local partners — amounting to an effective rate of 34.3% on its 19% share of the budget. “This is an unjustifiably high overhead rate,” said Cabot Venton, arguing that “overhead costs can be a lifeline for many local organizations who need to fund their backend.” She added: “The INGO retained these overheads even though they were primarily coordinating local actors who are responsible for most of the project’s implementation.” The Share Trust used World Bank data comparing the cost of living in different countries to work out the savings if support and operating costs had been passed to downstream partners — calculating that to be $298,000. The remaining $247,000 could have been saved if local staff had been employed because INGO salaries are between 1.2 and 2.1 times higher than those of the downstream partners. The INGO was found to be spending a striking 46% of its share of the project’s budget on salaries, compared with 10-20% for the local partners involved. “Overall, this adds up $545,000 in savings, with a local actor delivering the same program at a 13.6% cost efficiency,” the study concluded. It was commissioned by the United Kingdom’s Foreign, Commonwealth & Development Office based on anonymity for both the INGO concerned and the country in which the project was delivered. FCDO is one of its funders. Cabot Venton said the cost of failing to act went far beyond the wasted funds that could have gone into the project’s delivery to the longer-term loss from a missed opportunity to strengthen and prepare local organizations for securing future contracts. “The primary reason cited for not funding local actors is the perceived risk. However, if local actors receive only program costs and no overhead support, they cannot develop and sustain essential financial management systems, implement safeguarding policies, or conduct necessary training,” she explained. “If local actors are expected to manage risks effectively, it is essential to invest in their capacity to do so. Without this support, they face an unequal playing field and are then deemed too risky to fund.” Cabot Venton suggested much of the failure to localize flowed from good intentions running into the obstacle of a perceived threat to an international organization’s future growth and success. “The total amount of power in a system is finite,” she argued. “If you give power to somebody, it means another person has to give up power. This shift is really challenging.”