John Baker: Preventing fraud in humanitarian aid

12 Dec 2017 Expert insight

John Baker from Moore Stephens looks at the problems that international aid solutions face in terms of fraud, and at some of the solutions they can use to minimise the risk.

With an estimated 152 million people in desperate need of assistance, humanitarian aid is certainly much needed. Unfortunately, the countries in which aid is distributed are often fragile, riddled with corruption and/or war-torn, leading to challenging environments for donors, governments, Non-Government Organisations (NGOs) and beneficiaries. Attempting to deliver aid in such dangerous and chaotic conditions will always increase the risk of fraud, corruption and theft.  

Humanitarianism is complex with distant, lengthy and urgent supply chains. With banking systems on their knees (or non-existent), cash transfer programming (CTP) has proven to be successful in supporting war-zone refugees, as it is easy and provides people with some choice in deciding how to prioritise their needs. However, this flexibility is offset by reduced audit trails and lack of visibility in using al-hawāla banking (where cash is delivered to people via an informal network or ‘value transfer’ system – known as ‘IVTS’), plus the increased risk of theft/extortion by military and extremists. 

The speed and urgency in which aid goods are required is an important consideration from a fraud risk perspective. Due to the short notice of intervention, there is often a rapid deployment and turnover of staff, and a reduction or total withdrawal of controls and checks, combined with employing individuals who may have short contracts with an agency, which can create a lack of solidarity between groups involved, widening the gap for fraud and corruption to creep in.

Another all too common occurrence when issuing humanitarian aid is the discrepancy between the actual need and the amount of donations received. If individuals are overwhelmed by donations, it can encourage corrupt practice. For example, when supplying aid such as food, the food may be sold for an inflated price for profit. Alternatively, the food may be diverted and records altered to mask this activity, indicating that the beneficiaries received the full amount when in fact this was much reduced.

There has been much discussion as to whether or not higher pay for officials can potentially reduce bribery and the leakages of donated funds. Some camps argue that paying the official a wage above their opportunity wage will ensure they behave honestly under certain conditions.  Conversely, some argue that higher wages may strengthen bargaining power, which could lead to higher bribes. 

Given the attitude to bribery in some of the countries in question, plus the heavy use of cash and terrorist activity in the localities, there is also the continuing struggle of being able to operate lawfully within the parameters of the UK Bribery Act (and its approach to ‘Bribing a Foreign Public Official) and Anti-Money Laundering regulations. This is a huge challenge and risk and, despite doing the right thing through humanitarian eyes, this does not lift the heavy penalties and requirements placed upon organisations by relevant legislation.

Fortunately, much is being done to make the processes more transparent and fraud-proofed.  Some agencies have invested significantly into new technology (such as biometrics and SMS text-messaging reporting platforms) which make reporting quicker and more transparent, helping track healthcare (such as medicines and malaria nets) and plan availability for where they are needed most. 

Solutions

There are a number of solutions. As an example, supplies (as part of the Sierra Leone’s government’s Free Health Care initiative, given out free of charge to children under five and to pregnant and breast-feeding mothers) procured by Unicef with funding from the European Union, the UK Department for International Development (DfID) and United States Agency for International Development (USAID) were successfully tracked in 2016 by mobile ‘phones, thanks to Unicef’s open source RapidPro system being deployed. Similarly, Moore Stephens has developed ‘Hermes’, which can be not only be used for cash-based transfers but also to confirm attendance at conferences and training events.

The importance of whistleblowing and a clear complaints procedure cannot be underestimated and organisations should ensure they have clear and trusted lines to encourage the reporting of concerns. However, it has to be borne in mind that, in some instances, there may be a disincentive for the benefitting community to report corruption. For example it could expose those involved in corruption, damaging the amount of aid received in the future. Consequently, a problem which the donor agencies face is that the amount of complaints in relation to the timeframe to which aid is expected. This can cause the aid agencies to fall short of recipients expectations, without having the mechanisms in place to deal with complaints in such a short timeframe. Much work has been done in this arena, with many charities and donors investing heavily into their whistleblowing policies and processes. Yet, despite this, there is still a culture of mistrust and fear – understandably, given the high stakes and criminals operating in the arena.

In conclusion, when dispensing humanitarian aid it is evident that there are a variety of causal factors that facilitate fraud and corruption, such as the need to move valuable resources quickly, undertaking large scale logistical projects, and dealing with huge amounts of displaced people and warring factions. Going forward, these factors will remain unchanged due to the nature of this aid. However, this does not deter the combined humanitarian aid players from constantly improving their policies and controls, pushing for clearer assurances and accountability to ensure the aid is reaching the right people at the right time. Whilst some might argue that preventing fraud is costly and inhibits a swift and agile response, it is clear that proactive counter-fraud frameworks offer a sustainable method with which to build and maintain public trust and drive down losses to fraud.  With governments and the institutional donors demanding more and more assurance (to protect both their finances and reputations), most major international NGOs now have counter-fraud units or employ third-party firms to undertake both proactive and reactive assignments. With the old adage of ‘prevention being better than cure’ for medicine, the same is also true for fraud and corruption.

John Baker is a director within Moore Stephens’ dedicated Governance, Risk & Assurance department, specialising in countering fraud and corruption.

Civil Society Media would like to thank Moore Stephens for their support with this article. 

 

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