Fraud happens. Funds are diverted. Scandals are unearthed – but how these issues are handled varies wildly across the aid sector.
Humanitarian groups must be more open about the reality of fraud and mismanagement, or risk worsening the fallout, aid leaders said during a recent panel discussion hosted by The New Humanitarian.
“An enormous amount of aid money goes missing and we don't report on it, and we're not transparent about it,” said Rory Stewart, until recently the president of the NGO GiveDirectly and a former cabinet minister in the UK government.
This year, GiveDirectly went public after discovering staff had stolen $900,000 in cash aid intended for people in the Democratic Republic of the Congo.
The NGO lost funding, Stewart said. But there’s a big difference in how international groups fare compared to locally led ones when fraud is revealed, said Degan Ali, who heads the Nairobi-based humanitarian and development NGO, Adeso.
“We have a higher standard that we have to adhere. I've known that. It's the same problem being Black in America – you always have to perform extra to get into a leadership role.”
She said donors blacklisted Adeso when it announced the discovery of a fraud case in 2011, while funding for her international counterparts shot up.
“We have a higher standard that we have to adhere. I've known that,” Ali said. “It's the same problem being Black in America – you always have to perform extra to get into a leadership role.”
Ali called for “real allyship” and for aid leaders to speak openly about fraud and mismanagement.
“Right now,” she said, “there is no real honest conversation because the reality is everybody's hiding their skeletons.”
Shrinking government budgets and fear of a public backlash in big donor countries has heightened scrutiny on fraud and mismanagement among aid groups and donors. Recent cases of aid diversion – including in emergency responses in Somalia and Ethiopia – continue to hit the headlines. Aid groups expect donor budgets to be significantly tightened due to domestic politics and economic trends in the coming months, raising the stakes at a time when programmes are being slashed.
Here are highlights from the 80-minute conversation, edited for length and clarity. The discussion started by exploring how locally led groups are coming up with their own funding workarounds for excessive donor bureaucracy:
The New Humanitarian: Rory, from your time in government: Is there an appetite to do the things that local aid groups are asking of them?
Rory Stewart, GiveDirectly: The first thing to bear in mind with a government is that you are very much conscious that you're spending money from taxpayers, and you are subject to a very hostile, increasingly populist, increasingly isolationist media environment. Things are worse now than they were 10 to 15 years ago. Aid budgets are being cut in Britain, they're being cut in Sweden, they're being cut in Europe, they're likely to be cut in the United States. We do not have populations that are keen to give money to other people.
Everybody in this room, I would hope, agrees very strongly that we should be localising aid much more. But the biggest challenge that we face is that inevitably, there are going to be scandals. An enormous amount of aid money goes missing and we don't report on it, and we're not transparent about it. But eventually, media find out about it, and there will be scandals of abuse, recipient safeguarding will not be upheld in many cases, money will be stolen…
The way to make this transition is to hold the local organisations to very, very high standards for their own sake. The argument for local organisations has to be that they know more, care more, can do more, so we need to be able to demonstrate through randomised control trials that more of the money given to the local organisation arrives on the ground with recipients than is the case for an international organisation.
We need to be very, very careful to make sure that they are protected against fraud, against sexual abuse, and I'm worried that trying to get rid of some of the bureaucracy may end up causing a problem which we don't want, which is: a rapid amount of money flowing into local organisations without the appropriate compliant mechanisms in place, if it then results in scandals, will put this whole movement back five or 10 years. So I would argue for absolutely demonstrating that local organisations are cleaner, better, more accountable, more effective than the international organisations, and making sure that they're judged on those metrics, not on the fact that they're local.
Degan Ali, Adeso: I’m going to give you an example of what happened. We reported a fraud scandal with a local NGO that was a sub[-grantee] to us in Somalia in 2011. We kind of whistle-blew on ourselves. This local NGO, every single INGO that we know including UNICEF, was partnering with them, so we assumed, “It's a famine; everybody has to move fast.” We had a gun held to our head by donors saying, “It's a famine, move the money, burn it, burn it, burn it.”
So we partnered with this organisation, not doing proper due diligence because of speed, assuming all these INGOs and UN agencies had done due diligence. We partnered with them, found out there was fraud. I, being very naive, went to the international community and said, “Yeah, that was fraud.” We investigated it. We admitted it. We thought we would be applauded for being honest. Do you know what happened to Adeso? We were blacklisted.
“We were all guilty by association by the mere fact that we're all local and Somalis. We couldn't be trusted. So funding for local NGOs in Somalia went down significantly because of that one incident.”
Simultaneously, an INGO had a massive fraud scandal, much larger in scale than us. You know what happened to them? The donors worked really hard backstage to hide their fraud and not let it become public and not get into The Guardian and The New York Times. And their funding actually quadrupled in Somalia. Quadrupled.
So, let's just be honest here, there's a couple of issues. One: the proportion of risk is different when you are giving 99% or more of your funding to UN agencies and INGOs; the risk factor is much higher with international agencies. We get a little bit; we get like a drop. So even if we steal all of it, the proportion of the risk is much higher with [international organisations]. That's the reality.
The second reality is that the international donors are in cahoots with the UN and the INGOs to ensure that there are no repercussions for these entities. And what happened in Somalia, not only did it affect Adeso being blacklisted, all local ngos, we were all guilty by association by the mere fact that we're all local and Somalis. We couldn't be trusted. So funding for local NGOs in Somalia went down significantly because of that one incident.
Rory Stewart: The reality is that the UN agencies, the international NGOs, are responsible for far more of the fraud and the waste than any local NGO ever. But we are in an environment which is extremely hostile to international development, and so it is extremely important, for the sake of protecting the brand, that we don't take shortcuts, and this is where I'm slightly pushing back… One of the reasons why I think that we have to do quite complex compliance mechanisms for local NGOs, as well as international, is just to protect people from the political fallout.
Christina Bennett, CEO of the Start Network: We have to take a measure of proportionality here. As Degan was saying, we have to look at the risk that we're looking at and react in proportionate ways. We cannot put undue burdens on [local] organisations, hold them to a higher standard. Why should we hold them to a higher standard? Why shouldn't we hold everybody to the same standard or to a standard that is proportionate to the risk that they pose.
This is not to say that good financial management is not important, that fraud is not a red line. It's just: Look at what you're asking people to do, and isn't their time and their money and their effort and their creativity and ingenuity better spent working on behalf of people in crisis and not working in back offices to service the British public.
Marcia Wong, deputy assistant administrator in USAID’s Bureau for Humanitarian Assistance: In the United States, there is a bipartisan effort to alleviate suffering, to save lives – that has been the common shared goal. But when you put it in some of these contexts, boy does it become highly political. From the humanitarian point of view, at least principled humanitarian response, you've got to protect the local actors, too, from that scrutiny. So it maybe does translate into [asking local organisations]: Help me make your best arguments. What can I hear from you? What can you show me in terms of metrics? To know that we can invest in you. That may be seen as onerous and burdensome, but it's part of building the defensive structure.
Christina Bennett: Then pay for it. Then help them pay for it.
Marcia Wong: But that's what I'm saying. Whatever we give you in terms of funding has to be accompanied with the ability to manage, the ability to account for it. We can do all the overheads and this and that, but it is irresponsible for us to be giving anybody resources and then walk away. If there's an audit, and you don't pass? It's on me too. That's why I'm saying: it's shared responsibility – successes and risks. Let's talk about that.
The one thing that I did want to say, because also [the conversation] is a little bit like, “All those big agencies get to take a walk" – not so much now. We have seen obviously with the unfortunate cases of diversion in the Horn of Africa, there are some really tough and raw conversations taking place with those UN agencies now – with their systems, their processes; our systems, our processes. So there is a little bit of an internal review, so please be assured there is a scrub going on.
At the end of the day, it's not the local organisation that's 100% culpable or vulnerable. There are others that play in this ecosystem, and they have to hold themselves to these high standards, too. The tough conversations are at all levels now, for better or worse.
Farouq Habib, deputy general manager of The White Helmets: No matter how much diligence, mistakes will happen. But donors should share responsibility when that mistake is because of their short-term planning, lack of capacity-building, lack of core support for sustainability… Because all these resources, which are traditionally allocated to cover these gaps, go to the international partner while the local organisations are left alone, but they take the blame. So when mistakes happen, donors also [need to] share the responsibility.
The New Humanitarian: Rory, you spoke about this need to shield local NGOs. At GiveDirectly, you've also weathered storms in terms of aid diversion recently. Is there something that an organisation like GiveDirectly, or someone in your position, can do to share that risk with local organisations?
Rory Stewart: We've just been through a scandal in DRC. And this relates to a bigger problem in the industry. This is a very bad conflict-affected area of eastern DRC, and we decided on security grounds that recipients would not have to register their own mobile telephones. Instead, staff would do it for them. Over the course of 14 months, our staff proceeded to steal the money that was supposed to be going to recipients. They effectively helped themselves to the SIM cards that were meant to be in the hands of recipients, and they paid themselves instead of paying the recipients.
“The truth of the matter is, it is deeply, devastatingly damaging to an organisation to lose money.”
What have we learned through this process: Well, the first thing, and this is why, maybe, I'm sharing this: the damage to our organisation is intense. We can provide any number of explanations for why we made a particular exception and why things went wrong. The truth of the matter is, it is deeply, devastatingly damaging to an organisation to lose money.
It's also true, that as Degan says, as soon as we found out the fraud we published it on the blog, we went out to journalists, we gave an immediate exclusive to The New Humanitarian, we did nothing to hide it, and of course, we feel a little bit bitter about sitting at [meetings] with international NGOs, where they look around the table and say what's your fraud and diversion rate, and we say 0.6% and all the most famous NGOs in the world say zero percent, all the way around the table.
So it's a very, very weird ecosystem, but all I can say is that my lesson from this is: If you're doing something radical, as we are with direct cash transfer, or as the localisation agenda is doing, doing something that is challenging the system, you have to be that much more careful because people are gunning for you. They're going to jump on the first possible opportunity to say, “Oh well, that's why we should return to the old system.”
The danger of this conversation is we're talking about the intermediary organisations. In the end, the only question that matters, really, is what is in the best interest of recipients. And I believe strongly that local organisations are much more likely to deliver good, efficient outcomes for recipients. But that's the way in which they should be judged.
Degan Ali: As a result of that experience in DRC, did your funding decrease?
Rory Stewart: Yes, yeah.
Degan Ali: Like what percentage?
Rory Stewart: Difficult to assess, but definitely there are donors who were about to sign contracts who did not sign contracts. There will be other people that it's difficult to assess – philanthropists who may have decided not to give us money. Many of the conversations I've had in the last six months have been around, “Didn't you lose money in DRC?” It's not good for an organisation to lose money, and the fact that we believe that we're losing much less money than most other international NGOs and we're much more transparent about it – boy, it doesn't feel like that.
Degan Ali: The reason I ask is that if a local NGO had had that experience, they would have been blacklisted and had to shut down – that's just the reality, I’m sorry to say – and all local organisations in DRC would have seen their funding plummet. So, I know exactly what you mean. We have a higher standard that we have to adhere. I've known that. It's the same problem being Black in America – you always have to perform extra to get into a leadership role.
We know this; we know the scrutiny is on us. But the issue is not the scrutiny; the issue is the response when something happens and the perceptions. The problem is on that side: of white power-holders who have the resources who make these judgement calls and excuse and let it pass when it's a white-led organisation – and never give that level of flexibility to Black and Brown-led organisations. Let's just call it what it is: It's pure racism.
Edited by Eric Reidy