Cosantoir Group

Corruption Risk Management: A Call to Action for Donors and their Non-Governmental Organization Recipients

by Ellen Peralta:

Non-Governmental Organizations (NGOs) are often at the forefront of international aid delivery, acting as both manager and distributor of aid funds. NGOs, through funding by donor organizations, work to improve the quality of life for their target beneficiaries rather than for profit, often in dangerous and volatile parts of the world. Despite their altruistic efforts, it is crucial that donor organizations recognize that even NGOs are not immune to fraud and corruption.

According to the U4 Antic-Corruption Resource Centre, among the broad spectrum of threats to developmental aid, from natural disasters to unstable governments, corruption is one of the greatest obstructions standing between aid and a target beneficiary. It is also, however, one of the most controllable; corruption is almost often a solvable internal problem within the NGO. By working together, NGOs and donor organizations can take steps to reduce internal corruption and better serve overall program objectives.

To maximize corruption reduction efforts, it is necessary that NGOs implement corruption risk management systems (Trivunovic et al., 2011).  As with all risk intervention efforts, corruption intervention can be separated into two general categories: prevention and sanctions. Prevention efforts aim at:

  • Identifying risks for corruption, including but not limited to:
    • NGO Specificities, such as their internal rules and procedures regarding accountability
    • NGO Capacity—does the NGO have the manpower, resources to properly address potential problems?
    • NGO participation with in-country partner organizations
    • Type of organization
    • Operating environment of the NGO
    • Detecting and reducing corruption by:
      • Implementing monitoring, such as:
        • On-site monitoring and inspections
        • Written reports of activity and/or financial reports
        • Evaluations and audits
  • Implementing mechanisms for reporting, such as:
    • Confidential, whistle-blowing programs
    • General incident reporting system (tracks a wider range of incidents that do not necessarily require employee protection or confidentiality)

Prevention is an integral part of a corruption risk management system. Its presence alone, however, is not a guaranteed safeguard against corruption. It is necessary to have sanctions in place to properly address incidents of corruption. Such sanctions and responses include:

  • Corruption investigations performed either internally by the NGO or donor agency, or by a third-party
  • Implementation of clearly stated, consistent and fair sanctioning systems for incidents of wrongdoing
  • Clear communication of the importance of fighting corruption through:
    • Distribution and availability of corruption-related materials (such as an employee code of conduct, whistle-blowing procedures, instructions for filing complaints, etc.)
    • Regular employee training on corruption issues
    • Encouraging discussion of corruption challenges amongst employees, in-country partners, between NGO and donor organization, etc.

Effective corruption risk management systems oftentimes require upgrading an NGO’s operational or financial management practices, costing an NGO or donor agency not only money but time, as well. Such administrative costs, however, are often regarded as mundane, unnecessary impediments standing between aid and recipient. With the need for humanitarian aid around the world constantly increasing, NGOs and donors face pressure to reduce all unnecessary spending. Operating at minimal administrative costs, however, can place great strain on the internal structure of an NGO. Pressured to maintain a low budget for administrative needs, many NGOs paradoxically obtain the means for the necessary administrative funds by diverting program funds (Trivunovic, 2011). By shifting the conversation so that administrative costs are not regarded as unnecessary expenditures but rather as necessary appropriations that support internal organizational structure, both NGOs and donors can give corruption risk management the appropriate amount of attention it deserves.

An effective corruption risk management system is not free, but implemented properly can prevent and control future waste and misappropriations of funds. Managing and reducing corruption ultimately ensures that aid sent from donor agencies achieves its maximum impact amongst beneficiaries.

Additional resources may be found at U4’s website (www.u4.no), and through the following articles:

http://www.u4.no/publications/countering-ngo-corruption-rethinking-the-conventional-approaches/ (“Countering NGO Corruption: Rethinking Conventional Approaches”)

http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan047872.pdf (“Developing an NGO Corruption Risk Management System”)