Financial transparency in international aid
A funding stream is only as transparent as the last organisation in the chain
By Annie Schedrin & Chris Grezo - AfID | CFO UK | Published 15:25, 27 February 13
Financial transparency in corporate and public international aid is currently a hot topic in both the media and politics: greater awareness of international development, along with economic austerity, has focused people’s attention on just how well international aid is being spent.
Ensuring aid is well spent relies on transparency and accountability in the international development sector, but there is an increasing concern that some of the monitoring and reporting measures in the sector are not fit for purpose.
This problem is illustrated by the example of Sister Mukisa* at Grace Children’s Home in rural Uganda. The orphanage receives restricted funds from a number of different international NGO donors. Each funding stream has its own separate reporting criteria and guidelines, and comes in a different currency along with specific restrictions on what the funds can and cannot be spent on. Without help, Sister Mukisa does not have the time or skillset to produce transparent and clear reports.
This type of example is repeated thousands of times over across the developing world at organisations such as health clinics, street child centres and schools which are the last organisations in the chain of funding.
The donating corporations (and the public) rightly want to know that their taxes and donations are being spent in an accountable way, and some people, frustrated by the lack of transparency in international aid, are demanding huge cuts to funding.
However, when you see the good work that Sister Mukisa is doing, and the many vulnerable children who need the shelter, education, and nurturing that Grace Children’s Home provides, it seems cruel to cut their funding. A better solution would be to ensure that local staff have the skills necessary to ensure clear and accurate reports.
The most effective way to build up the skills and improve the systems and processes at community based organisations is face-to-face coaching. However, obviously a street children’s centre in a Malawian slum or a women’s refuge in Cambodia cannot afford to pay for a financial consultant, so mentoring schemes rely on volunteer financial professionals.
Pro bono mentoring by accountants and finance professionals can have a huge effect on these small organisations. For example, Tasfa, a local agriculture organisation in rural Ethiopia, found itself close to losing its donor funding and even faced closing down due to a lack of transparent record keeping and poor reporting. Tasfa teaches smallholder farmers agricultural techniques to increase their food security and also protect their local environment.
The problem was not that the accountant or senior staff were defrauding the organisation or misspending donor funds, but that the finance officer did not have enough understanding as to how to set up appropriate accounting controls and processes, or how to follow a regular schedule of reporting.
A volunteer from Accounting for International Development spent four weeks training and mentoring the finance officer. The resulting strengthening of accounting systems increased the confidence of the NGO donor and Tasfa retained its funding.
Bo Women’s Justice Organisation (BWJO), a women’s empowerment organisation in Sierra Leone, was in an even worse situation. This charity rescues and rehabilitates victims of sex trafficking and protects vulnerable women who may be at risk of abuse. Despite such worth-while programmes, the organisation was marred by a previous incident of fraud.
A recent change in leadership and a high turnover of staff, combined with poor structures and documentation, meant that the executive director and finance director had little knowledge of past misdemeanours. In this context the directors had to strengthen organisational structures, while building and strengthening existing relationships – a huge challenge for anyone, let alone someone with no formal accounting qualification.
A volunteer accountant from Australia spent over a month helping the new Executive Director map out her vision for the organisation and implement sound accounting systems. Importantly, the volunteer engaged the donor NGOs, with the result that BWJO has made a complete turn-around and now has the full confidence of its various donors.
A funding stream is only as transparent as the last organisation in the chain, so international donor organisations increasingly prefer to partner with community based organisations that can demonstrate their capacity for clear and accurate reporting. The task of building the reporting capacity of the many charities in Africa, Asia and South America may be a daunting one, but is a potentially hugely rewarding project for finance professionals who want to give something back.
*Names have been changed to protect the anonymity of all parties concerned.
Annie Schedrin & Chris Grezo are executives working for the Accounting for International Development (AfID).
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