Government Donors Should Demand More Accountability and Integrity from International Aid Charities

Oxfam, the international aid organization with more than 10,000 staff worldwide and many hundreds of millions of dollars of income from donations alone, has been getting a lot of bad press recently. Many readers will likely be familiar with the Oxfam sex scandal, wherein Oxfam workers in Haiti had sex with victims of the 2010 earthquake, perhaps including child victims. In 2014, Oxfam’s former antifraud chief was arrested for embezzlement. And last February, the chairman of Oxfam International, Juan Alberto Fuentes, was arrested in Guatemala for his role in a corruption scandal that developed over his time as the finance minister of Guatemala. Although the arrest of Mr. Fuentes was for conduct that predated his work at Oxfam, the arrest sparked further questions about corruption and accountability in the organization, and called into question the reliability and credibility of Oxfam’s anticorruption advocacy work.

Of course, both sex scandals and corruption scandals happen in other organizations too, including governments and for-profit corporations. So far as I know, there’s no evidence that aid organizations are systematically more prone to such institutional failures than other entities. Yet these scandals feel particularly disturbing when they occur at an organization like Oxfam, perhaps because we implicitly hold do-gooder NGOs to a higher ethical standard. And in fact we should: both the legitimacy and effectiveness of the international work done by NGOs like Oxfam rests, at least to some degree, on some sense that these organizations have the moral authority to enter a country and change the way things are run. To retain that moral authority, aid organizations must take extra steps to ensure they remain above suspicion. The failure of the Oxfam board to conduct due diligence on Fuentes is a strike against Oxfam’s credibility, and this fundamentally hurts its mission.

The question is what Oxfam, or similar organizations, can do to increase the chances of meeting these high standards, and avoid similarly embarrassing scandals in the future. My answer: Oxfam should tie its own hands and mandate top-down, independent integrity oversight, supervised by donating governments.

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Reducing Corruption in the Use of Development Aid: The Payment by Results Model

Corrupt diversion of development aid in recipient countries affects both the efficacy of the intended development programs and the willingness to supply aid in donor countries. Mismanagement of development funds has spurred debate over the ability of our current aid models to achieve development goals (improved healthcare, poverty alleviation, etc.). Many possible solutions for reducing corruption’s effect on development have been tested over the years with varying degrees of success. Various approaches have been tried, including conditioning aid or loans on “good governance” policy reforms, allocating development aid to local governments or local NGOs rather than national institutions, improving oversight and tracking of aid money, and supplying loans exclusively to countries that already have relatively favorable corruption scores (called performance-based lending). Each of these models has its own limitations: Conditionality is often viewed as an affront to sovereignty and has not been terribly effective. The local approach does not address governance issues, and local actors have not always proved to be less corrupt. Oversight of funds is important but costly and imperfect. Performance-based lending seems to leave behind many poor countries that cannot jump the corruption “hurdle.”

In searching for alternative models for distributing aid in light of the aid-corruption paradox, some donors have turned to yet another approach: payments by results (PbR). PbR has been supported by the Center for Global Development (see here and here) and has gained significant traction in the past two years by bilateral donors, such as the UK and Norway, and multilateral donors, such as the World Bank. The basic premise of PbR is that payment to the recipient depends on achieved results. The donor and recipient first define the desired outcomes (e.g., increased TB vaccinations, construction of an infrastructure project, etc.) and determine the amount that the donor will give once the desired outcome is met. The donor may provide some money up front to implement the program, but the rest of the payment is contingent upon performance: The recipient carries out the project independently, the donor measures the results, and, if the results meet the agreed-upon objective, the donor releases the remaining funds. This approach stands in contrast to the traditional input model, in which a donor gives the recipient money for inputs and provides a detailed action plan along with significant oversight for achieving results. Continue reading