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Suitcase full of money
Estimates of the scale of loss to fraud routinely fall between 2 and 5% of an organisation’s income. Photograph: Steve Allen/Getty Images/Brand X
Estimates of the scale of loss to fraud routinely fall between 2 and 5% of an organisation’s income. Photograph: Steve Allen/Getty Images/Brand X

It's time to talk about fraud in aid agencies

This article is more than 7 years old

Too many NGOs avoid investing in counter-fraud programmes for fear of increased administrative costs and upsetting the public

Some years ago, researchers from a British university contacted the member agencies of the Disasters Emergency Committee (DEC) to ask them how they measured fraud. The responses were not encouraging: “we are too busy to help”, “we are unable to respond to your exact request” and “we do not measure fraud”.

Fortunately, much has changed. Several large international NGOs now have counter-fraud units, institutional donors make stringent fraud-prevention demands, and the risk of fraud and corruption is more widely understood in the sector.

That risk is high. Cultures of trust, challenging environments where staff are overstretched, and high-risk delivery models (such as humanitarian emergencies and remote programme management) all raise it. Our moral missions may encourage us to take poorly managed risks. Estimates of the scale of loss to fraud are between 2% and 5% of an organisation’s income – and many global development workers find that range readily believable. Of the £5.8bn identified as having been channelled through NGOs in humanitarian emergencies in 2013, for example, that range could mean that up to £276m may have been lost to fraud.

And yet, despite increasing public scrutiny, many international NGOs still struggle to acknowledge the problem and invest in coherent, holistic frameworks to reduce it. That means developing deterrence, prevention, detection and response workstreams and a programme of internal cultural development, underpinned by counter-fraud training. We understand the need for structure and method in programming, so why don’t we take the same approach to reducing fraud and corruption?

It’s not hard to answer. Counter-fraud work carries the odour of “administration costs”, while successfully detecting fraud upsets the public, provokes institutional donors and can give ammunition to our critics. Preventative work is not much more attractive; badly-designed procedures and systems can create bureaucracy that slows delivery. Myths and misconceptions underpin much of this, and when we do dust off the fraud portfolio, our efforts are often underfunded. We’ve all sat through the impenetrable, life-sapping slides of a “fraud workshop” facilitated by whichever finance officer drew the short straw this time.

If executed properly, however, with real backing from an organisation’s leaders and proper investment, there are good reasons why a holistic counter-fraud and corruption framework is a great investment for an international NGO.

The first is that a managed framework gives us the flexibility we so desperately need. Humanitarian emergencies, for example, rightly require lighter preventative procedures. Lengthy tender processes are hardly appropriate when lives are on the line. But if we take such risks in the context of diligent risk management, with the benefit of proper contingency planning, prior training and later reflective learning, we can do so responsibly and minimise fraud.

A second benefit is that it can be a powerful trust-building tool. One of the first things an NGO manager considers when an incident takes place is reputational risk. But it’s a mistake to think about reputation only after a fraud has happened. Proactive counter-fraud frameworks offer a more sustainable way to build and maintain public trust because they not only reduce the likelihood of fraud, but show measurable efforts that our supporters and institutional donors want to see see. We can be open about the risks we face – institutional donors and the public recognise that we work in difficult and dangerous places – and move the conversation on to what we do about it.

Investing in counter-fraud best practice can generate other programme benefits too. Due diligence, timely auditing, and local implementing partners all help prevent fraud, but they also improve programme quality and reduce waste. Even that most alarming of events – the fraud investigation – can be a business improvement tool, helping us to become stronger.

Perhaps the most obvious benefit, though, is in the prevention of loss – but seeing the cost-saving value of a counter-fraud framework requires a degree of organisational maturity. Fraud and corruption hide, and so do their costs. Programmes can appear successful for a long time without seeing how much is being lost. A wise organisation recognises that the value of counter-fraud work, like the lock on a safe, might sometimes be realised only in its absence.

In the end, the only argument against investing in reducing the risk of fraud and corruption is that there isn’t any to reduce – and it’s hard to find an experienced and competent aid worker who believes that. The way to handle fraud that is most consistent with our values and most respectful of our beneficiaries and donors, is not in pretending it isn’t a problem, but in the energy and effort that goes into our vigilance. Counter-fraud is one “administration cost” well worth the investment.

Oliver May was the head of counter-fraud for Oxfam GB. His book, Fighting Fraud and Corruption in the Humanitarian and Global Development Sector, is out now.

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