I have reviewed the HPG working paper on UK humanitarian aid in the age of counter-terrorism: perceptions and reality by the Oversees Development Institute (ODI). The paper sets out the views of different stakeholders and makes some general recommendations. The paper lays bare some very important issues often ignored and hidden by the donating public and politicians, impacting and hurting beneficiaries on the ground. My views on the report are as follows:
I have no doubt and agree with Banks and the Charity Commission on the money laundering risk around Muslim NGOs due to the high risk areas they operate within to reach those that are effected.
Banks are private businesses that need convincing that INGOs behave responsibly and are able to “demonstrate” good control through good governance and internal control framework – often the lack of it and the inability to demonstrate it, raises the risk for the banks, resulting in transfers or accounts being blocked.
The Charity Commission regulation and inspection is lacking – the compliance standard bar is very low. This has an effect on charity behaviour of just complying with the minimum, always risking non-compliance. One great example is year-end accounts that need to be filed within 10 months after the year-end – The INGOs take 9 to 10 months to finalise these, meaning it is only after this period (9-10 months) the charity can determine its true and fair year-end income, spend and reserve position. The quality of accounts is another matter.
The ODI report has an omission – the external auditors of INGOs were not engaged for their views. These are the only independent checks the INGOs really have on their accounts. These audits take account of money laundering risks and the control environment and transfers to field offices. I am surprised the ODI report missed this – hence may present an incomplete picture.
With my audit experience of the Muslim INGO sector, in my view the issue is not of new guidance but complying with the existing. In my view and experience there appears to be an issue of complacency among INGOs trustees, inability of the Executive, poor capacity of organisations and a culture of taking risks.
I came across a lack of appetite to improve governance and control from the Trustee level beyond talk. The issue of control at Trustee level is often confusingly restricted to banking controls and appointment of officers. Accountability, Delegation, Internal Audit framework, Evaluations and Risk Management with the Muslim INGO sector is poor when compared to mainstream charities and standard practice, especially in the context of operating within high risk areas. This partly because of the inability and inexperience of management in understanding these controls and not being able to implement them.
The other issue is of capacity that is wrongly driven by donor behaviour – the issue of overhead creates an environment where INGOs start competing on low overheads, exposing themselves to risk and non-compliance as management and systems are starved – 100% donation policy within INGOs is wrong and must be discouraged.
For an INGO to operate responsibly with donor money as per “regulation” in the current climate, up to 15% – 20% support costs can be justified depending on INGO business model and life cycle. Donors should be focused on governance and how the money is spent – this is where quality of year accounts and trustee reports are vital and often ignored.
The issue of culture of taking risks among Muslim NGOs must also be addressed. The ability and confidence of saying “No” or pulling out when the it is clear that the “minimum” cannot be achieved in implementing controls in high risk areas. The culture of over-riding controls to reach beneficiaries compromises the true essence of risk management. Muslim INGOs operate in a very difficult environment, often delivering where governments with all their resources fail. The plight of those affected cannot hold back those that are inspired by faith – the current climate requires that in such circumstances a responsible risk management approach is adopted – Muslim INGOs need to learn to work with each other on the ground – meaning if you cant deliver as per regulation then give to the INGO that can – this is a bitter pill to swallow but a pill that may be required.
Lastly, the recommendations made by the ODI report are general and are of common sense nature. I would have expected them to go further. In my view an environment needs to be created where driven by donors and the Charity Commission, INGOs compete each other on improving governance with a star style system like that in the US. This needs to be introduced in consultation with the banking sector so that the banks can ignore noise and rely on something credible and tangible.
Despite the issues identified in the report and my observations, I have great admiration of those that work in this sector, often on low or no salaries, inspired by faith, at times risking their lives and comfort. They are the best of humanity and must be supported by all.
By Nasir Rafiq BA ACA – Governance Expert