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.

Continue reading

Guest Post: More on the Hazards of Public Beneficial Ownership Registries–What Stephenson and Others Miss

Today’s guest post, from Geoff Cook (the CEO of Jersey Finance), continues an ongoing debate an exchange we’ve been hosting here at GAB regarding the desirability of public (as opposed to confidential) registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. This exchange was prompted by a piece that Martin Kenney, a lawyer specializing in asset recovery in the British Virgin Islands, published on the FCPA Blog, which criticized the UK’s decision to mandate that the 14 British Overseas Territories create public UBO registries. Mr. Kenney’s post prompted reactions from Rick Messick and from me. Our critical reactions stimulated another round of elaboration on the critique of the UK’s decision, with a new post from Mr. Kenney and another from Mr. Cook. I subsequently replied, explaining why I did not find Mr. Kenney’s or Mr. Cook’s criticisms fully persuasive. Mr. Kenney responded to that post earlier this month, and in today’s post Mr. Cook contributes his critical reactions to my response: Continue reading

Guest Post: Corruption Among Development NGOs, Part 3–The Need for Collective Action by Funding Agencies

Roger Henke, Chairman of the Board of the Southeast Asia Development Program (SADP), a development grantmaker based in Cambodia, contributes the following guest post (the third in a three-part series):

Previous posts on development NGO corruption described a survey tool and its results in Cambodia and the conundrum of using the upward accountability relationship between local NGOs (LNGOs) and the grantmakers funding them for remedial action. The analysis of the report which underlies much of those contributions includes another foundational premise: Given the systemic functioning of Cambodia’s (and other countries’) LNGO sectors, anticorruption action to hold these LNGOs to account needs to be collective in order to be effective.

The characterization of the sector as “systemic” is meant to capture fact that nearly all LNGOs are funded by more than one, often five or more, grantmakers, while these grantmakers in turn, each fund many (sometimes more than 25) LNGO partners. To see why this matters for upward accountability, suppose for the moment that a given Grantmaker X takes seriously its responsibilities to diligently oversee LNGO Partner Y, and suppose further that Grantmaker X uncovers a problem. What happens next? The best case scenario is that the LNGO acknowledges the problem and fixes it, while the worst-case scenario is that both the LNGO and the grantmaker ignore the problem. Both of those happen sometimes. But the more common outcome is this: The LNGO fails to deal with the problem, and eventually Grantmaker X decides to stop funding it. But this affects LNGO Y only temporarily, because it has (or can find) other funders, many of which may not exercise the same degree of diligence as Grantmaker X. So nothing much changes. Even when Grantmaker X communicates with other co-funders about the problems, and more of them decide to question their support of LNGO Y, it takes a fair level of coordinated grantmaker disinvestment to put an LNGO out of business. That level of coordination is rare even in cases of obvious crisis, and absent during more mundane times.

What is needed, then, is more collective action. Many grantmaker staffs would agree with this in principle, but the dominant response is generally not action but resignation, dressed up as “realism”: “Why waste time on beating a dead horse? Even if local grantmaker offices were all willing to collaborate, aligning the diverse requirements regarding reporting, auditing, etc. of all the headquarters….forget it.” I reject this defeatism. One rarely knows that something won’t work until one tries, and my experience in Cambodia is that practical pilots are very rare. So, what would proper collective diligence regarding financial management imply in practice? Continue reading

Guest Post: Corruption Among Development NGOs, Part 2–The Hot Potato of Upward Accountability

Roger Henke, Chairman of the Board of the Southeast Asia Development Program (SADP), a development grantmaker based in Cambodia, contributes the following guest post (the second in a three-part series):

My previous post in this series described the results of a survey that estimated the incidence of fraud and associated problems within the Cambodian NGO sector. The survey utilized a relatively independent source, the grantmakers that fund local NGOs (LNGOs), and triangulated the results with information supplied by the firms that perform external audits for LNGOs. The basic idea was that grantmakers are likely to have an evidence-based opinion of the quality of their LNGO partners’ financial management, governance, and fraud risk (and fraud incidence). After all, grantmakers assess organizational soundness before awarding a first grant to a potential partner LNGO, periodically monitor the work being funded by that grant, and require extensive, often cumbersomely regular, results and financial reporting, as well as yearly or project-based external audits. To put it simply: Grantmakers conduct regular due diligence (in the broad sense of the term) on LNGOs.

It seems strange that such an obvious source of objective data on NGO corruption and some of its correlates had, to my knowledge, never been considered before. Why not? My guess would be that the strained and ambivalent relationship that the aid community has with concept of so-called upward accountability is to blame. The engagement is strained in at least the following two aspects: Continue reading

Guest Post: Corruption Among Development NGOs, Part 1–Getting the Facts

Roger Henke, Chairman of the Board of the Southeast Asia Development Program (SADP), a development grantmaker based in Cambodia, contributes the following guest post (the first in a three-part series):

Compared with media attention to corruption among public officials and corporate interests, corruption in the non-profit sector is virtually ignored (though a recent GAB post on NGO corruption in India is a notable exception). This lack of interest is matched by the absence of sustained substantive debates about the sources of NGO sector corruption and the effectiveness of remedial interventions. My own experience with these issues derives from my involvement with the NGO sector in Cambodia. Corruption within our own house is a regular topic of informal conversation, and also makes it into our periodic sectoral assessments (though often through oblique references to concerns like “weak financial systems” and the “lack of checks and balances”). However, there are no efforts at all to go beyond these anecdotes and self-reported “weaknesses” to gather systematic, externally validated evidence about levels of corruption, let alone about issues like costs of corruption or the way it correlates with characteristics of the NGO sector that would offer entry points for positive change.

Given the comparative importance of development aid channeled through the NGO sector in countries like Cambodia, this lack of attention to NGO corruption is unfortunate. Admittedly, gathering information on local NGO (LNGO) corruption is challenging. Yet there are potentially useful sources of information that have not been exploited. For example, LNGOs are funded by grantmakers, and these grantmakers (often criticized by LNGOs for their cumbersome administrative requirements and time-consuming monitoring visits) are a possible source of data about LNGO fraud and its correlates. Additionally, the audit firms with an LNGO client base are another possible source of information.

In 2014, to test the willingness of grantmakers and audit firms to share information on their LNGO partners and NGO client base, we at SADP piloted a grantmaker and audit firm survey. The results were promising enough to repeat and expand the exercise in 2015. In this second grantmaker survey, 18 out of 26 grantmakers approached agreed to participate, and 13 of those 18 shared LNGO partner-level information (for a sample of 93 LNGOs). The grantmaker survey queried incidence and seriousness of (1) financial management problems, (2) governance problems, and (3) fraud. (In order to maximize participation, the survey prioritized brevity and simplicity over depth of information.) The audit firm survey (in which four of the five firms approached agreed to participate) asked only for some aggregate data (total number of LNGO audited, number of audits that identified fraud, number of audits that flagged serious financial system issues, etc.). Admittedly, neither the sample of grantmakers nor the sample of LNGOs is statistically representative of Cambodia’s NGO sector, but the surveys provide more valid information about corruption in development NGOs in Cambodia than has previously been available. And the quantitative picture emerging from the combination of these two data-sources about the organizational quality of Cambodian LNGOs is both revealing and disheartening. Interested readers should check out the full report; the most important findings are as follows: Continue reading

Community-Level Aid and Corruption in the Democratic Republic of the Congo

As Rick has discussed in a previous post, one common strategy adopted by donors seeking to engage in development and humanitarian work in countries with corrupt governments is to try to bypass national institutions. Instead, they direct their efforts towards the local level, engaging with communities, local leaders, and smaller-scale NGOs. Theoretically, this approach means the money passes through fewer hands, and there are therefore fewer opportunities for some of it to be skimmed off. Furthermore, donors may believe that local institutions are less corrupt or more easily subjected to (or more responsive to) monitoring by donors or other overseers. Donors may also opt for a local-oriented approach for reasons not related to corruption, like supporting projects that are more responsive to people’s actual needs, furthering community empowerment, and building institutions.

However, recent evidence from the Democratic Republic of the Congo (DRC) indicates that a local-oriented approach has its corruption-related drawbacks. Resources channeled through national political figures may have the potential to be stolen or misdirected for personal gain, but community-driven development programs are also vulnerable to elite capture. In fact, broader research has indicated that members of community development organizations—the very people with whom donors are partnering in hopes of side-stepping corruption—are more likely to pay bribes than non-members.  Furthermore, even when donor programs succeed in creating infrastructure, they tend to fail to improve local governance, accountability, or capacity.

Still, given the pervasive corruption in national governments (in the DRC and elsewhere), and the way those in power benefit from avoiding any meaningful action against corruption, the impulse towards local-side aid is understandable. What, then, are donors to do? Though it’s impossible to guarantee positive results, there are some steps that foreign governments and NGOs can take to mitigate the risk of the money targeted locally from being illicitly diverted:

Continue reading