Remote working: Tackling timesheet fraud

With potentially the entire workforce logging on from home, many organisations will worry about timesheet fraud and consider electronic monitoring solutions. But this could be an own goal. More holistic, behavioural approaches may be a better way to both prevent fraud, and support staff.

man sitting down and using his laptop

I remember when ‘working from home’ was seen as a bit of a jolly, and greeted with wry smiles from colleagues. Now in the wake of COVID-19 it looks set to become the norm, at least for a while. Employers may worry about employees misrepresenting their time, and wonder whether they need to heighten monitoring through computers and smartphones.

There is a place for these kinds of technologies. Certain types of electronic monitoring can be prudent for certain types of work. But for many organisations – especially those new to remote working at scale – this could turn out to be a mistake. There are better ways for organisations to protect productivity and support their teams during crises like this.

Humans, not machines

MotivationThe fraud triangle, based on the work of Donald Cressey, is so robust we’re still using it 70 years after it first appeared. In this model of dishonest behaviour, a key component of fraud is rationalisation – the way that we make ourselves comfortable with what we want to do.

When I open my casebook of internal fraud investigations, a rationalisation that crops up repeatedly is the perpetrator’s sense that the organisation has wronged them – that the fraud would be retribution, justice, rebalancing the scales.

This is important. If an organisation adopts intrusive methods that leave employees feeling devalued and untrusted, then this can open up the possibility of that rationalisation. Combine that with financial or logistical pressure generated by the COVID-19 crisis (motivation) and the clear opportunity, and the fraud triangle is complete.

Instead, we need to think more broadly about the impact of home-working on fraud, and more carefully about human factors, before we jump to thinking about controls.

Start with a new fraud risk assessment

man and woman in a meeting

Sending the workforce home is a major change of circumstances – one big enough to affect your organisation’s internal fraud risk profile. Risks beyond timesheet fraud will be affected. For example:

  • What could be the effect on expenses fraud?
  • Will the rise in e-mail and online communication heighten vulnerability to cyber, data security, and privacy threats?
  • If a health and safety assessment hasn’t been carried out on a person’s home workstation, is there a risk of false claims for which organisations may be unable to defend themselves in some jurisdictions?

It’s time for a new fraud and corruption risk assessment.

Taking a human-centric approach

16404-a-woman-in-a-business-meeting-pvWith the risk assessment providing a clear picture of what could go wrong, there may be places in which technology can help. But there are others in which we need to think about humans.

In a time where our people feel frightened and stretched, it is nurturing, caring leadership that will both support them and help to prevent and detect fraud. It’s not only possible to do both, but vital. Managers are the key controls. In retail, smiling as a customer enters can make them feel welcome – and deter shoplifters by showing they’ve been noticed. The principle is the same here. Good day-to-day remote management of employees leaves them feeling empowered and enabled, but also helps to deter, prevent and detect internal fraud.

For example:

  • Train and develop managers in the potentially new task of supportive remote leadership;
  • Create nurturing, mutually-problem solving relationships within teams, reducing the likelihood that people will feel the need to hide things (which can help to generate the right conditions for fraud);
  • Consider online collaboration platforms. Some have amazing functionality to improve connections between remote workers, which also helps to preserve accountability;
  • Provide managers with clear guidance on fraud red flags.

drawing feedback logos critique

At the corporate level, review HR policies from an anti-fraud perspective. For example, flexible working is also about time, not just location. Business closures means that employees may now have to balance caring for children and the elderly, and seizing sudden opportunities to buy essentials, with their work-day. A flexi-time policy is a great way to prevent employees misrepresenting their work hours. Have an anti-fraud specialist examine your policies.

Meanwhile, with your employees now physically disconnected from the social norms, cues and wider internal culture that helps to regulate their behaviour, re–assess how you will manage internal culture. How will you shape how employees think, feel and act in line with an anti-fraud culture when they’re not in your building? Now might be the time to step up behaviour-shaping online materials, and anti-fraud communication and awareness initiatives.

volkswagen-569315_1920There are a surprising number of organisations that already embrace remote working, especially in the humanitarian and global development sector. Reach out for advice. How are they managing the risks? What has worked and what hasn’t for them?

Finally, manage your own cognitive errors, biases and heuristics. Fraud and corruption love availability bias, for example, the phenomenon in which we focus on the most visibly present issues and risks. Because fraud hides and masquerades, that bias allows it to shuffle off into the darkness. Don’t let that happen. Fraud is agile and will already be adapting to this new world, you need to think about how your organisational efforts to deter, prevent, detect and respond to it will too.

Towards organisational health

Some employee monitoring solutions – especially those at the leading edge – are exciting, minimally intrusive and potentially very useful. But organisations should take care not to panic-buy. Just as with COVID-19, fighting the virus that is fraud starts with careful, risk-based preparation.

Did you find this article useful? Why not check out Oliver May’s books on tackling fraud and corruption?

Content at Second Marshmallow does not necessarily reflect the views of the author’s employer, clients or others. Check out our Disclaimer for more information.

Mean Distribution: Fraud in beneficiary distribution lists

in this guest post, Najwa Whistler offers some insights into preventing and detecting fraud in beneficiary distribution lists. Experiences have been anonymised. Images are used for illustration only, and there is no suggestion that the events shown involved any of the issues discussed in Najwa’s article.

800px-Red_Cross_aid_distribution_in_Port-au-Prince_2010-01-25_2
NFI distribution in Port-au-Prince, Haiti (Red Cross, 2010)

A common form of evidence that a distribution of food or Non-Food Items (NFIs, such as hygiene kits), a training event, or any other service actually took place is a list of named recipients. This might be either pre-printed or handwritten, and featuring the signature or fingerprint of the recipients. In principle this should work – but does it work in practice?

From the experience of my colleagues and I in different NGOs, in both emergency and non-emergency contexts, here are some real-life examples.

One organisation was distributing NFIs in a very insecure location to the most vulnerable population. The organisation relied on its local staff for the distribution, beneficiaries were asked for a fingerprint as the unique identifier of receipt, and the senior managers were satisfied upon receipt of all the distribution lists. But when an audit was conducted by the donor, the auditors became concerned about the lists and sent them to a forensic laboratory. The results came back that all the prints belonging to just five individuals, and not all were finger prints. I couldn’t remove the image from my head of someone dipping their toes in ink!

800px-Patiently_waiting_for_food_aid_in_Bamako,_Mali_(8509960593)
Food distribution in Bamako, Mali (WFP/DFID, 2013)

While the organisation went the extra mile to reach the unreachable and ensure no beneficiary was left behind, five people were going the extra mile to spend hours faking records to steal from them.

Another example is when these records come back crisp, clean and as good as new. You can be almost sure that the papers have never left the desk of the supervisor. Other things to watch out for closely are signatures that are easily recognised as being signed by the same person, signatures with repetitive recipient names, or family names that alternate with first names.

Of course, these red flags do not necessarily mean fraud has taken place. Sometimes, for example, one person signs on behalf of other beneficiaries because they couldn’t all travel to the point of distribution. Or maybe the supervisor signs on behalf of the beneficiaries because it is not practical to collect a signature or fingerprint during the distribution. These situations are different to the creation of phantom beneficiaries, or falsely confirming that a service or item has been delivered.

What can we do about it?

In acute emergencies, the efforts should be focused on reaching people, eliminating their suffering, and treating them with dignity and respect. Collecting recipients’ confirmation can be impractical at times.

drone-1142182_1920In these situations, organisations can rely on alternative evidence of the delivery, such as the evidence of the supplies’ transport to, and arrival at, the point of distribution. Distributions can also be recorded with modern technologies such as biometrics, body cameras on the distributors, or even mini-drones which can be deployed to record at a set altitude above a person wearing a transmitter.

Organisations can also consider:

  • Conducting individual interviews with the staff involved in the distribution. Don’t exclude drivers and guards. They can be good witnesses, giving their experience of the distribution to enable organisations to compare stories for any inconsistencies or reasons for suspicion;
  • Keeping photographs and videos from cell phones if no other technology is available;
  • Ensuring that the delivery team is from different departments in the organisation, where possible;
  • Ensuring that emergency response personnel are trained on the counter-fraud, anti-corruption and whistleblowing policies that the organisation has in place.

pexels-photo-210647In non-emergency activities such as training, incorporating fraud detection into post-event monitoring and evaluation is key. Organisations can randomly select a sample of recipients, contact them for feedback, and verify receipt of the items or service.

Monitoring questions of a training delivery might be:

  • Your name?
  • Did you receive any training in the last 6 months?
  • Who was the provider?
  • Where was the training?
  • What was the subject of the training?
  • What session did you find most useful?
  • How did the training that you’ve received helped you improve in your daily work?
  • Who else attended the training?
  • How do you rate the trainer’s skills?
  • Give one recommendation to improve future trainings, what can be done differently?
  • What is your feedback on the venue? Was lunch provided? Did you receive a per-diem or transport cost? How much did you receive?
  • Any comments/other feedback?

In summary, these days technology has made monitoring and evaluation much easier and more efficient. But even so, we must be careful not to exchange one set of risks for another. The key to successful prevention and detection of fraud in beneficiary lists is to think creatively, both about how we apply controls in difficult circumstances – and how we catch those who collude to overcome them.

passport photoNajwa Whistler is a finance director with 18 years of experience working for several international NGOs around the world. Growing up in a small village in Lebanon in poverty during the civil war built her resilience and determination to work in international development. She enjoys cooking and dancing. You can reach her via naj.whistler@gmail.com

Cover photo: During the crisis in Yemen, ECHO funded a second phase of a cash distribution programme to help 4,000 families meet their basic needs during the pre-harvest lean season between July and December 2012. Close monitoring ensured that money was spent on essential items (ECHO/T. Bertouille, 2012).

 

The Enemy Within: Can whistleblowers rely on you?

Not so long ago, I was remotely managing an investigation into corruption allegations in a country pretty far down TI’s Corruption Perceptions Index.* The allegations had come from a whistleblower, and were serious and complex.

pexels-photo-587063The lead investigator had just returned, fresh off the plane and into our update meeting with the rest of the team. We sat down in a comfortable meeting room, thousands of miles away from the dusty, hectic and often frightening city in which the allegations had arisen. The city was one of those places that was sort-of a conflict zone, sort-of a disaster zone, sort-of a global city and sort-of none of these things. Development specialists and humanitarians worked shoulder-to-shoulder, and projects evolved quickly in response to an endlessly changing local environment.

“Yeah, so, I interviewed the snitch,” she began, with a cheeky smirk.

I stopped the meeting.

“The what?” I said.

Portrait of two beautiful young girlfriends sitting in modern co

‘Snitch’, ‘grass’, ‘squealer’ – this was not the first time that I’d heard investigators themselves using pejorative euphemisms for whistleblowers, informants and sources. It is bizarre; often, without such sources, there would be no investigation. So where does this attitude come from?

There is another dimension of anti-corruption work that’s similarly full of euphemisms, and might offer an answer –  and that’s the act of bribery itself. As Richard Bistrong memorably said, “the language of bribery has many words – except ‘bribery’.”

A ‘drink’, ‘gravy’, ‘tea-money’, ‘consultation fees’ – such language is often an exercise in re-framing, a way to alleviate discomfort with bribery by using words that carry different (and lighter) connotations. So, is the truth that some investigators are uncomfortable with whistleblowers – that there is a deep aversion, perhaps culturally-rooted, to people who ‘tell on others’?

Fortunately, I don’t think many investigators fit into this category, but there are enough that we need to talk about the tension here. Firstly, the truth is that whistleblowers and their reports are the lifeblood not just of an investigation, but of an entire fraud and corruption control framework. Without these reports, we would not necessarily be able to:

  • Gain prior warning of materialising fraud and corruption risks;
  • Conduct trend analysis of risk areas (especially where reports did not contain sufficient data for full action);
  • Plug whistleblower data back into our risk assessment, honing our deterrence and prevention controls;
  • Evaluate the quality of our anti-fraud and corruption culture.

pexels-photo-568027Secondly, whistleblowers face enough challenges already. From stakeholders obsessed with identifying them, to those who try to use the whistleblower’s motivations as a shortcut for judging their credibility (and no – just because a whistleblower is motivated by reward or revenge, it does not mean that their allegations are untrue). Investigators play a critical role in mitigating these risks to them.

Thirdly, and this might come as a surprise to some investigators – whistleblowers don’t just talk to you. So if you fail in your management of them, chances are people will find out – and that impacts upon the chances of anybody else sharing information with you in future. There are more whistleblower horror stories than success stories. After all, if we handle a whistleblower really well, who ever really finds out that there was one?

What kind of investigator are you?

pexels-photo-356079Every so often, I hear investigators at conferences speculating (or riffing online) about what sort of people become whistleblowers. I wonder if a more pertinent question is, what sort of investigator are you? And in particular, how much attention do you give to your eternal, internal battle against cognitive biases, heuristics and errors – a battle critical to maintaining your objective investigative mindset?

Whistleblowers are real people, who for whatever reason, have placed themselves at some risk. I have seen these risks materialise, and it is not pretty. So, how can we ensure that our investigative practice sees whistleblowers as constructively as possible?

16404-a-woman-in-a-business-meeting-pvReflect on your own attitudes. What assumptions do you make, and bring to work? Are they valid, or are they biases? How might they affect your work? What could the consequences be?

Treat whistleblowers as an asset. Although an investigator is not necessarily there to be an ‘advocate’ for a whistleblower, they should ensure that the whistleblower’s material is treated objectively and securely, that they are treated fairly, and that the risks to them are properly identified, considered and managed as far as possible.

Business agreement deal at coffee shopEmbrace hot and cold debriefs. (Or ‘immediate and delayed’ debriefs.) Adopt a cycle of evaluating your own performance and incorporate how you handle whistleblowers into it. Handling a whistleblower includes how you interact with them, treat their information, manage the investigation around them, and manage other stakeholders.

Challenge the litany of euphemisms. Language affects how we think and act. Let’s call whistleblowers by their proper designations – confidential sources, confidential informants, confidential reporters, whatever the term your organisation or local regulatory environment uses. Don’t let investigators call them ‘snitches’.

The way that we allow ourselves to think about those who participate in our investigations can be the enemy within us. We need to manage it as we would manage any other risk.

FFCHGDS* Details have been changed. Images do not necessarily represent the locale or persons described.

Find out more about handling whistleblowers, building a meaningful fraud and corruption control framework, and more for humanitarian and development organisations in Fighting Fraud and Corruption in the Humanitarian and Global Development Sector (Routledge, 2016).

It’s out now – treat your office!

Silent Partners: Are you working with a local NGO that doesn’t exist?

In this guest post, experienced global development finance professional Najwa Whistler describes her experience investigating ghost NGOs in a conflict zone. Names and details have been changed.

roadSome years ago, I found myself investigating events in a program in a war-torn country. The program had been set up to build the capacity of small local NGOs to implement community development projects. The concept was great, the donor funding had been secured, local partner NGOs had submitted proposals and agreements had been signed, transfers had been made and reports had been received. The only problem was that most of these NGOs didn’t exist.

In development sector investigations, one of the first actions upon arriving in-country is to meet with the local program director and understand how the concerns began. But within moments of sitting down with Nancy, I could already start to see how the fraud had arisen.

afghanistan-60668_1920Ex-pat Nancy used to be a teacher in Canada, and this was her first job in an international NGO. She was young, and idealistic, but it was clear that she did not have the relevant skills and experience. A conflict zone is a dangerous and stressful place, often with high staff-turnover, and the international NGO had compromised on her qualifications to find someone willing to endure the hardship.

As I talked through Nancy’s concerns that their local partners might not exist, two things became very clear. The first was that Nancy did not have field trip and progress reports and had not visited their offices.

“Why?” I asked.

“Oh, I can’t visit, it’s too dangerous,” she said.

The second was that, instead, Nancy had relied heavily on a single individual to manage this project.

“Can I see the checklist for the review of the partners’ proposals, and who was involved in the decision making?” I asked.

Nancy nodded. “Raj, the national program manager, reviewed the proposals and approved them – then he prepared the contracts.”

Raj had worked for the international NGO for many years.  In his late forties and a man of few words, he was a hard worker – the first in the office, the last to leave, and rarely took a day off. Nancy delegated most of her tasks to him.

volkswagen-569315_1920When my team drove out to the field to visit the partners and the communities, I went with Malik, a driver, who turned out to be Raj’s brother. The driver tipped off the ‘NGOs’ that we were coming for a visit.

Malik took us to a building consisting of five rooms and a hall way. On the door of each room was a crisp, freshly printed A4 paper with the name of each ’NGO’. In each room sat one man, the ‘managing director’ of each ‘NGO’. Solidarity, cooperation and co-ordination between NGOs at its best perhaps, and rarely seen to such an extent!

Malik was not the only person I met that day close to Raj. All five men came from the same village, and the same kinship group, as the brothers. This was surprising too – as the community development projects were in an area where the majority of locals were from a different kinship group – one with a long history of conflict with that of the brothers.

Over the day, I sat with each ‘managing director’ and asked about the progress of the work, the challenges, their records and their reports. Not one could locate any team members, volunteers or records with whom I could engage.

“I keep the documentation at my house because it is not safe to keep them in this building,” said one. Perhaps unsurprisingly, he would not allow us to follow him to his house or wait while he retrieved the documents as the house was ‘too far’.

Unfortunately, this picture is not unusual. But the red flags were visible in this case – and there are things we can do to better spot them and manage these risks.

office-594132_1920Firstly, ensure a realistic and validated assessment of potential partners takes place. More than one person or function needs to be involved in this assessment, and it should compare project proposals. Involve logistics and procurement teams to verify market rates.

Secondly, constantly review your project management approach during its lifecycle. Perform regular visits to the projects when the security situation allows. Ask the team members of the local partner organisation to meet you at your office from time to time.

Thirdly, even in environments where we trust our colleagues, ensure that you take a robust approach to verification. If security doesn’t allow you to physically visit the project, perhaps you can ask for GPS located photos of activities – and do not be afraid to ask for them again if the first ones look odd! Interview beneficiaries over the phone. Talk to donors and other international organisations working in the same area about their experiences.

passport photoNajwa Whistler is a finance director with 18 years of experience working for several international NGOs around the world. Growing up in a small village in Lebanon in poverty during the civil war built her resilience and determination to work in international development. She enjoys cooking and dancing. You can reach her via naj.whistler@gmail.com

International NGOs: What does Deloitte’s new bribery and corruption report mean for you?

This week, Deloitte published One Step Ahead, its 2017 bribery and corruption report. It provides insights from Deloitte’s survey of Australian and New Zealand risk leaders, asking about their perception and experiences of domestic and foreign bribery and corruption.

International NGOs operate in some of the most high-risk jurisdictions in the world, often in the bottom half of the Transparency International (TI) Corruption Perceptions Index. So what are the implications of the report’s insights for such organisations? This article suggests four key questions for your internationally-operating NGO.

Do you recognise the reputational risk – and how to manage it?

1reputationThere is a disconnect between the perception of reputational risk and the action taken to manage it.

Deloitte’s report notes rising public scrutiny and political concern in Australia, with a number of recent initiatives including a review of Australia’s legislative and policy framework on corruption, the consideration of Deferred Prosecution Agreements, proposed changes to whistleblower protection and beneficial ownership legislation, and a proposed new corporate offence of failing to prevent foreign bribery. These measures arise as Australia slips down TI’s index, and survey respondents overwhelmingly saw reputational impact as the most serious consequence of incidents.

And yet despite this dizzying acceleration, Deloitte’s survey actually implies a slowdown in the progress of organisations. Detection rates and the perception of the risk were broadly consistent with 2015, and almost half of respondents did not even intend to upgrade their anti-corruption frameworks in the next five years.

International NGOs will recognise the reputational dimension, often perceived to impact upon fundraising. But they may also recognise the slowdown. There’s a paradox here and it begs the question – are you best managing the risk? Considering reputational risk after an incident has occurred is too late – it needs to be a driver for investing in meaningful prevention and detection systems.

What does ‘risk assessment’ mean to you?

Clusterflunk stock photo.One of the report’s most surprising findings was the under-use of risk assessment. This might not surprise NGOs, however; my counter-fraud colleagues and I have found the quality and extent of risk assessment in the sector to be patchy at best.

The problem is often in how it is seen. Is it a dry, bureaucratic, tick-box activity carried out for donor proposals and then forgotten about – or a powerful and creative tool for building resilience, evidencing stewardship, and quality-assuring your NGO’s anti-corruption approach?

The narrative we create around risk assessment, and the space we make for it, is critical. For example, I have delivered fraud and corruption training all over the world and people love risk assessment exercises – being invited to think about how they might defraud their organisation, and what could stop them! We can harness that intelligence. For example, consider proper risk workshops, horizon-scanning, ‘red-cell’ thinking, and reflect on how risk management is framed to your staff.

How effectively are you managing conflicts of interest?

3conflictsThe biggest proportion of incidents reported were conflicts of interest, with personal favours not far behind. This may resonate with NGO managers; anecdotally, conflicts of interest in procurement and recruitment can be a real issue.

There is often scope for improvement in how conflicts of interest are identified and managed. Because the process is often reliant on self-declaration by those who are not necessarily incentivised to declare, compliance is not automatic. Good conflicts of interest frameworks need to be simple, well-communicated, focused on heightening transparency, and subject to ongoing reinforcement.

What do you say, and what do you incentivise?

4incentivesRespondents most frequently declared organisational culture and tone-at-the-top as the greatest preventative factors. I have written about the link between culture and corruption for NGOs before (here and here), but in my experience most NGO managers believe they do set the right tone and have the right culture. The problem here is that by culture and tone, we don’t just mean what you say and how you say it, we also mean what you incentivise and are perceived to permit. In my book, I describe how tone at the top is about not just words, but actions. For example:

  • Did you take the right action over that manager who might have given a contract to his sister’s company?
  • Did you ask the right questions about that mysteriously rapid movement of humanitarian equipment into that high-risk jurisdiction when other agencies were held up at customs?
  • Do you include anti-corruption objectives into personnel appraisals and job descriptions?
  • Are the objectives and timelines for projects and programmes set at such an ambitious level that you inadvertently incentivise corruption?

Your staff, volunteers, institutional donors, private supporters are watching. Crucially, so are your beneficiaries.

 

FFCHGDSTo read more about how to deter, prevent, detect and respond to fraud and corruption in humanitarian and global development work, make sure you pick up a copy of my book, Fighting Fraud and Corruption in the Humanitarian and Global Development Sector (Routledge, 2016). It’s out now and packed with relevant material!

In Rehab: Restoring a team after an insider fraud

When I arrived at my last employer’s headquarters on my first day as their new head of counter-fraud, I did not know that the vacancy had arisen because my predecessor had committed… fraud.

The last person to hold that office had stolen nearly £65,000 using false invoices from fake companies. He had been arrested, would plead guilty at court and receive a custodial sentence. Despite the lurid headlines, the organisation was open about what had happened.

1If a humanitarian or global development organisation gets serious about tackling fraud and corruption, then it will detect cases – possibly in significant numbers. As my organisation invested in counter-fraud efforts, for example, we saw recorded suspicions in its global operations nearly treble in three years (this, of course, reflected a rise in vigilance and engagement rather than incidents).

But what happens after an incident of insider fraud or corruption, when the dust settles?

rippleThe job does not finish with the dismissal or conviction of the suspect(s). These incidents have long tails – there is work still to be done to rehabilitate the project or business unit in which the incident took place. An incident represents a severe breach of trust; workers may feel abused and betrayed. The ripples can spread wide.

How we go about rebuilding a team and restoring a business function depends hugely on the circumstances of the case, and there is no ‘one-size-fits-all‘ approach. Although we only have space here for a few pointers, I have learned some lessons from helping teams like mine to overcome setbacks like this – these considerations may be helpful for you too.

First things first

The aftermath of an incident is the time to ask some basic questions: Could this happen again, and are there any other vulnerabilities we can spot?

Startup Stock PhotosHopefully, the organisational response included a lessons-learned exercise, generating changes to implement. This should look beyond the internal controls, also into enabling factors such as culture, communication and awareness.

That said, a fresh and full fraud and corruption risk assessment of the department can be helpful. Are there other vulnerabilities beyond the affected processes? An unexpected further case – just as things settle  – can create more uncertainty for the team if more changes to processes are necessary. Instead, let’s make all the adjustments we need to now (and capture the benefit of a sense of ‘moving on’) rather than risk constant change for the team.

planningNow is also a good time to do some contingency planning. Is the incident serious enough that it could result in regulatory interest, onerous remedial controls applied by institutional donors, or put future funding at risk, for example? We can prepare for these.

Startup Stock Photos

Remember to seek advice. Overcoming an incident of fraud or corruption is a risk-rich activity. Consider engaging with HR, internal communications, legal, any dedicated counter-fraud or ethics or integrity office, staff health and/or other relevant specialists.

Treat people as individuals…

colored-pencils-179167_1920Team members will respond to the matter differently. While some may be relatively unaffected, others may not. It is important to note that where staff have made a commitment to an organisation on the basis of their values – perhaps more common for charities, nonprofits and NGOs than for private sector organisations – a breach of trust could be more impactive. Perhaps there could even be a grief reaction for some team members.

sadLook out for, and respond to, the traditional symptoms of stress, low morale and anxiety. These might include absenteeism, disciplinary issues, a rise in complaints, and disillusionment. An incident can impact upon personal and professional confidence, and colleagues may feel fear, shame or embarrassment. Will the incident create a funding crisis, putting their jobs at risk? Will staff have to justify themselves to an angry public? Consider access to staff support systems, and formal interventions such as counselling and facilitated debriefing.

16404-a-woman-in-a-business-meeting-pvBe a compassionate and responsive manager. Avoid assuming you understand how people feel or why they behave the way they do. Instead, in your one-to-one meetings with team members, explore how they are experiencing the crisis and responding to it. Remember, of course, to make it clear that this is pastoral and not investigative. Similarly, it is important to restore individuals’ sense of control. In a way, employees in whose midst an act of fraud or corruption occurred are victims of abuse. Solicit and listen to their concerns and visibly respond to them.

Accept that restoration may take time. Do not assume that the passage of time, themes in office chatter or improved productivity are signals that everybody has moved on. While these might be positive indicators, look out for those left behind.

…But re-build the team

Teams can be fragile creatures, and discovering that someone was out for themselves can undermine the workplace trust that allows them to function.

gambia-239849_1920Clear communication. Rebuilding trust requires the open communication of reliable content. Low information creates anxiety, more information helps manage our ‘fight or flight’ crisis response. Concealing the matter from the team is, therefore, more likely to sow suspicion and fear than peace and confidence. Be as open as you can about what has happened, and what will now happen, within the boundaries of policy, employment law and data protection legislation. As you describe the future, avoid over-promising – employees need clear and consistent messaging from management. If you cannot make promises, don’t; recognise uncertainty and explain what is being done to reduce it.

Similarly, set the right key messages for staff and stakeholders. Absolutes (‘this will never happen again,’ ‘rogue employee,’ ‘isolated incident…’) and over-reassuring can be risky for expectation management.  More sustainable messaging might include that fraud and corruption are normal business risks which we can reduce but not eliminate, and that the best way to respond to incidents is to use them to make us stronger.

Allow the opportunity to debrief. Ask staff what the incident has meant for them, and for the team. Consider soliciting suggestions on how to move forward, which can demonstrate management’s ongoing belief in the wider team (despite the actions of one). It also helps to empower the team to claim their status back, and move forward.

Team_Building_LanzaroteFoster trusting relationships. Ensure that teams meet as regularly as possible, in person or via teleconferencing. Consider holding team-building events, reflective away days and/or ‘how are we doing’ agenda items in meetings. These measures can improve understanding, interaction and trust between team members.

Arrange a good-quality fraud and corruption awareness workshop. This will not only help reduce the risk of incidents, but will also help staff to feel empowered; the best workshops help to generate a sense of solidarity and support amongst the honest majority. Be cautious not to let it feel remedial.

beautiful-day-1374424_1920Lead by example. We know that employees look to the behaviour of their managers to determine their own. So be present; you cannot role-model behaviours and attitudes if you cannot be seen by anyone. Be positive and show how you treat what has happened constructively, managing risk, avoiding blame, taking care of your colleagues (and yourself), and using the incident to make the business unit stronger in the future. As one casualty of a fraud or corruption incident is honesty, ensure that you are (and are seen to be) authentic. So, for example, if you feel hurt, vulnerable or confused, consider sharing those feelings with the team. This helps to normalise these emotions.

Avoid blame. This includes the narrative that we create around the perpetrator. It is tempting to turn them into the catch-all receptacle for all that has gone wrong, but this risks helping to foster a blame culture that can trip us up later. Furthermore, it can help us to move on from a crisis if we are able to see that there are things we could have done differently.

Get back to business-as-usual as quickly as possible

roadReaching project milestones or completing tasks puts clear blue water between the incident and the present, assisting both staff and stakeholders to move on. It also, of course, ensures the progress of the project or business unit. Embed, as rapidly and effectively as possible, any changes to processes to reduce the risk of a recurrence.

Remember the big picture – the goals and values of your organisation. Trust may have been betrayed on this occasion, but a refocus on why we all come to work in the first place can assist everyone to work hard towards recovery.

Thanks to Liz Crowe, Wellbeing at Work Specialist, for her contributions to the content. Liz tweets @lizcrowe2, or visit her website at LizCrowe.org.

FFCHGDSTo read more about how to deter, prevent, detect and respond to fraud and corruption in humanitarian and global development work, make sure you pick up a copy of my book, Fighting Fraud and Corruption in the Humanitarian and Global Development Sector (Routledge, 2016). It’s out now and packed with relevant material!

Fraud and corruption: 10 tips for obtaining buy-in from your NGO’s Board

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The Commonwealth corruption conference and anti-corruption summit in London last week saw the full engagement of civil society. Leaders from big household name NGOs were active online and in person, taking the opportunity to challenge a range of related injustices. It was exciting and encouraging, but these events should prompt those NGOs to ask themselves, ‘how effective are our own organisational counter-fraud and corruption frameworks?’ If the question needed underlining, we also learned that the US government is investigating allegations of corruption affecting NGOs in the Syria emergency response.

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US humanitarian aid bound for Syria

What Boards need to do in order to reduce fraud and corruption risk is well-trodden ground. But for international NGOs, one of the great challenges can, in fact, be the Board. As your organisation’s counter-fraud lead, what do you do if members of your Board don’t recognise that fraud and corruption is a problem? Or merely give it lip service, unwilling to invest in meaningful risk reduction efforts? Or worse, are content to turn a blind eye to the risk of physical assets, funds and stock falling into the wrong hands if most aid gets through?

Obtaining the buy-in of an NGO’s Board isn’t about selling them a product – we need their ongoing support and ownership. It’s about changing perspectives; a long haul, not a quick win. So, in helping to generate that ongoing support, I’ve found that these tips (which are not exhaustive and in no particular order) have assisted my colleagues and I; perhaps they might help you too.

1. Educate to effectuate

apple-256261_1920Fraud and corruption has, historically, not been well understood in this sector. Your Board may have a low or rudimentary understanding of the risk and how to respond to it. This means starting at a basic level, making no assumptions, taking the time to address myths and misconceptions and playing a longer game. ‘Educate as you go,’ Willie Oelofse from Deloitte Kenya told NGOs at a conference in January. As we do so, of course, it’s important to remember that counter-fraud is a good news topic – your organisation may be at high risk, but actually there’s a lot that can be done to reduce it. Boardrooms are learning environments too.

2. Keep it simple

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Board members are busy. NGOs (especially humanitarian agencies) are often very responsive, and Board members’ attention is divided between competing thematic risk areas and arising issues. Use your time with them wisely. Proposal documents and assessments, for example, should be short or with executive summaries. Don’t bury key messages in a risk assessment document the size of a telephone directory.

3. Speak from within

people-men-grass-sportCivil society is under attack the world over, and the issue of their fraud and corruption exposure can be something that sends Board members running for their shields and helmets  – especially if it is perceived to come from an out-group rather than in-group. Take charge of how the matter is framed. Don’t let them entrench in defensive positions to ‘fend off’ your ‘attack,’ or sit in a ‘prospective client’ chair to listen to you ‘pitch’. Instead, use their business language, show your understanding of the difficulties they face, and speak from inside their group. Explain the landscape around them, and how you can help them navigate across it.

4. Remember that they’re individuals

colored-pencils-179167_1920People make decisions differently and on the basis of different values. For example, I am a big fan of the MBTI, which is one of a range of models that can help us to understand how we like to work and how best to relate to others. Models like these can really help to improve workplace relationships. So try to understand each member of your Board as a person, and what really drives their decisions. Some will be persuaded by cold, hard data, others by less tangible matters such as how your agenda relates to values, supports people, and so on.

5. Bring the risk to life

DSC06922Fraud and corruption, especially at a strategic level, can be abstract concepts. Help the Board to connect by painting a picture of the risk with case studies. If you don’t have any in your own organisation, then perhaps partners, donors or other organisations have some they will let you use? If not, then find cases in the public space affecting comparable organisations. If you’re really struggling, consider using fictional examples – but remember to state that they’re fictional!

6. Show the benefits

cost-benefit-analysisNGO Boards are often allergic to anything with a whiff of extra expense, especially if it is ‘overhead’ or ‘administration’ flavoured. So explain the benefits of the agenda not just in terms of what it prevents, but also what it gains – efficiency, effectiveness, quality improvement, and so on. Much of counter-fraud work synergises with good management (an example arises from the world of retail – smiling as a customer enters not only deters shoplifting by making the individual feel noticed, but is also good customer service!).

7. Take an evidence-based approach

evidenceNGO Boards manage a lot of risks, only some of which materialize. Using evidence helps them to appreciate how fraud and corruption sits, whether that evidence is perception-based, representative sampled, or from other diverse sources. Cast the evidence net wide – consider staff surveys (especially anonymous surveys), risk assessments, project and programme evaluations, audit reports, security reports, academic research and open source. This may mean that you need to start by improving the detection of incidents, in order to gather enough material. Be cautious with the use of quantification estimates, as these can be inherently open to challenge by those feeling resistant, and with over-stating the case (being debunked seriously damages credibility). Remember to cater for any risks created by the counter-fraud agenda, and to consider any donor or legal obligations.

8. Align with organisational objectives and strategy

marketing-board-strategyJust as is the case with private and public sector organisations, the counter-fraud agenda needs to directly support the organisation’s mission. This needs to be clearly elucidated so that Boards can see that counter-fraud is a mainstream activity, rather than a distraction.

9. Obtain a sponsor

hands-people-woman-meetingIn March’s Charity Finance magazine,  I explained why fraud and corruption needs to be a standing priority for NGO Boards. But in addition to this, the counter-fraud agenda needs a champion at Board level. Benefits of this include how the champion can look out for synergies with other business areas as they’re discussed.

10. Put in the legwork

Startup Stock PhotosA ten-minute agenda item at a Board meeting is not enough to ensure that a Board truly embraces counter-fraud and corruption. Obtain regular meetings with each member to explore their own position and build their buy-in – especially before key decisions are to be made. Similarly, the counter-fraud agenda needs to align not just to the organisation’s mission but to the agendas of those individual Board members. How does countering fraud help, not hinder, the aims of the person in front of you?

11. Bonus tip!

Why not get the members of your Board a copy of Fighting Fraud and Corruption in the Humanitarian and Global Development Sector? It explains the risk, busts myths and misconceptions, and sets out ways for NGOs to minimise the risk. It’s out now with by Routledge, pick up a hardback or e-reader copy via the Routledge website or Amazon!

FFCHGDS

 

 

 

When NGOs break the law: Consequences for fraud risk

The 1986 movie Top Gun, starring Tom Cruise, opens with a fantastic scene of aerial derring-do.

In this fictional scenario, American planes are engaged by a rival power’s ‘Mig’ aircraft, one of whom activates its missile lock on an American aircraft. The pilot calls out to Tom Cruise’s character to ‘get the [guy] off’ him. As I understand it, what Maverick apparently should have done was to fly behind the Mig and engage his own missile lock, deterring the Mig from firing at his comrade. Maverick doesn’t do that. He’s got his own plan.

4It’s a great scene, and we celebrate Maverick’s daring heroics. But let’s be clear, this wasn’t what he was supposed to do. It was dangerous. We only celebrate because Maverick pulled it off. If something had gone wrong, Top Gun wouldn’t be a heartwarming movie about a young pilot’s quest for meaning, love and success. It would be a dark political thriller about a world on the brink of nuclear war following a mid-air collision caused by a reckless American pilot.

From time to time in my work with NGOs, I’ve caught glimpses of internal cultures where compliance is not as valued as one might expect. When the organisation’s overall aims are moral, getting away with non-compliance might even attract honour. But just as would be the case with Maverick’s airborne antics, there are consequences if risk catches up with reality.

PASSPORT 5Some international NGOs are tempted to break the laws and regulations of their countries of operation, registration, or both. Here we don’t so much mean situations where legal authority is unclear, or regulations and obligations are ill-defined or differently interpreted, or laws which violate human rights. Here we’re focussing on a situation where an NGO wilfully or negligently breaks legitimate, clearly-defined and communicated local laws and regulations. Temptations might include, particularly:

  • Breaching immigration, tax or employment law;
  • Procuring on the black market;
  • Conducting projects outside the authorised parameters;
  • Breaching NGO regulations or directives (e.g. reporting).

INGOs do complex work in complex places. Common reasons why staff or managers may take this action (or indeed, inaction) might include:

  • A tension between the time it takes to negotiate labyrinthine or contradictory local bureaucracies versus their urgent humanitarian objectives or donor expectations;
  • A disconnect between headquarters expectations versus local realities;
  • Failing to invest in the preparation and planning necessary to properly identify relevant regulatory factors and formulate organisational responses to them;
  • Failing to maintain proper oversight to ensure that staff are delivering objectives lawfully – sometimes potentially deliberately (‘don’t ask, don’t tell’);
  • Internal cultures where ‘getting the job done’ is valued more highly than compliance.

This exposes an international NGO to a wide array of risks. Now, this is not a legal blog and I am not a lawyer, but I do note that some possible consequences of non-compliance might affect an NGO’s ability to reduce its risk of fraud and corruption. In this article we’ll suggest three such areas.

The impact upon responding to fraud incidents

file2831269190184When an incident of fraud takes places in a project where the NGO was working unlawfully,  managers may then be incentivised against taking civil or criminal justice action for fear of drawing attention to the project’s own misdemeanours. This may significantly hamper the prospect of redress (getting our money back), and impact upon the available sanctions for a perpetrator. This, in turn, could damage the NGO’s ability to deter fraud and corruption if a potential perpetrator knows that such an outcome is unlikely.

The impact upon counter-fraud culture

My book suggests four characteristics of such a culture, one of which is that ‘all commit to, and participate in, reducing fraud and corruption to an absolute minimum.’ It is not hard to see how the toleration of unlawful activity can contradict this. As a previous blog post has mentioned, how can we ask our employees to role-model accountability and transparency if the managers of our organisations are not doing it?

file4081251141923The risk goes even further, however. While international staff may be able to hop on the next plane home if things get too hot with local authorities, local staff can’t press that escape button. They may therefore bear the greatest risk of consequences like prosecution. This outrageous burden is hardly helpful to the positive workplace relationships necessary to help deter corruption and promote whistleblowing.

Similarly, we need to consider how expecting or allowing workers to break the law, or breaching their employment rights, might disenfranchise them. A breakdown in the relationship between employee and employer – particularly where an employee feels wronged – might, in some cases, contribute to the rationalisation of occupational fraud.

The impact upon preventing fraud and corruption

Operating unlawfully could contribute to a country’s wider crime problem and undermine the legitimate state. In this sense, we help to sustain the environments of complexity and injustice that make transparent and accountable work so difficult – not alleviate them. In turn, this helps to maintain the risk of fraud and corruption in our operations there.

DSC06922An area where this ‘do-no-harm’ themed risk is particularly evident is where NGOs procure from the black market, an option that can arise during scenarios such as the recent fuel crises in Yemen and Nepal. Doing so makes an NGO part of an opaque supply chain and financial flow – where did the product really come from, and where is your money really going? The transparency of your contacts is in no way incentivised, and they are unlikely to volunteer to whom or what they are linked (think Six Degrees of Separation).

Subsequently, an NGO could easily appear in a network that features terrorist groups or those subject to financial sanctions, or in which the financial flow benefits those involved (or ultimately supports investment) in other forms of state-destabilising serious organised crime. Being a black marketplace buyer can make an NGO part of a network in which its donors and supporters might be surprised to see it.

How can these organisations claim to help the nation’s development when, through corruption, they weaken the rule of law? How can we deal with this hypocrisy?

– Ingrid Nanne, What happens when NGOs break the law?

Conclusion

Humanitarian and global development work is complex, and programmes are often under pressure from multiple sources. However, operating unlawfully carries a range of risks, and the crystallisation of some of those might damage a programme’s resilience to fraud and corruption.

Managers need to take these risks seriously. This means avoiding the blanket application of a ‘humanitarian need’ trump card to all their operations, and instead ensuring that a nuanced and considered approach to business planning and risk management identifies and caters for foreseeable tensions with legitimate local laws and regulations. The days of ‘don’t ask, don’t tell’ need to be a feature of history textbooks, not modern programme doctrine.

FFCHGDSFind out more about the risk that fraud and corruption pose to humanitarian and global development organisations, and how they can better deter, prevent, detect and respond to it, in my book! Click here to get your copy of Fighting Fraud and Corruption in the Humanitarian and Global Development Sector from the Routledge website or Amazon!

Kangaroo court: Why do NGOs need to get fraud investigation right?

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NCA headquarters, London

Early in my training at the Serious Organised Crime Agency (now the National Crime Agency, NCA), my colleagues and I shuffled into a classroom for a presentation on an old case – the 1975 murder of Lesley Molseed. That morning, however, was not about the case’s tragic victim, but about its tragic conviction. Stefan Kiszko, convicted of Lesley’s murder, was innocent – and some refer to it as the ‘worst miscarriage of justice of all time.’

The horror of the Kiszko case presents a litany of police and legal failures that resulted in an innocent and vulnerable man going to prison for 16 years, where he was physically assaulted, became mentally unwell and died soon after his eventual release. Its inclusion in our training was to help us appreciate the importance of getting investigation right – particularly the boring bits. And it worked; as some of my later colleagues would grumblingly attest, my passion for investigative detail, precision and order has burned ever since.

Median detected fraud loss by sector, 2016-2Scarce resources make it even more important to steer clear of avoidable mistakes. Recently, the ACFE’s regular study of detected fraud worldwide reported similarities in losses between government and not-for-profit organisations – and yet while government departments might enjoy considerable investigative resources, this is often not the case for NGOs. In this article, then, we’ll explore (in no particular order) some common errors that can help turn NGO fraud and corruption investigations into a ‘kangaroo court‘. In all cases, of course, local legal advice should be sought.

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Rushing the investigation

John_Nettles_(2013)
John Nettles, who played the detective in Midsomer Murders

In my home country, there’s a great TV show called Midsomer Murders. Each week, the dogged detective wanders around an English countryside village chatting to people about a murder, and – after just over an hour – confronts the suspect (who, naturally, confesses in full). Roll credits.

In real life, an internal investigation of fraud or corruption is not like that. It is best thought of as a project which builds a corpus of robust material that can be used to inform decisions that manage risk and improve organisational resilience. It also a project which creates risks as well as minimising existing ones. It takes time, and care, and caution.

Humanitarian or development programmes are often under considerable pressure, but failing to allocate sufficient time to an investigation can mean missed evidential opportunities, employment (or even human) rights abuses, severe damage to trust in the workplace, and inaccurate ‘lessons learned’. In short, rushing an investigation is a false economy.

Not having or following our own policies and procedures

road-sign-464659_1920This includes failing to have and apply lawful and proportionate performance management and disciplinary policies and procedures, internal suspicion reporting systems, and external reporting mechanisms (for example, to regulators). This exposes programmes to an array of risks, including confused or inconvenienced stakeholders, invalidated insurance, and accusations of bias (with the subsequent legal action). Being shown to have failed to follow your agency’s own protocols can be a rapid way to lose a case involving a former employee.

Expecting an inappropriate burden of proof

scales-36417_1280In some country contexts – especially conflict zones and fragile states – a criminal justice outcome for a case of employee fraud or corruption may be very unlikely for an NGO. While we should usually proceed with the intent to take a case to court, we must recognise that sometimes a disciplinary outcome (such as dismissal) has to be enough.

Generally speaking, the weight of evidence required in a disciplinary hearing is lower than that required to convict someone of a criminal offence in a court – and yet NGO disciplinary panels may erroneously expect that heavier burden. Critical concepts like ‘burden of proof’ and ‘circumstantial’ or ‘direct’ evidence might not always be well understood by such panels.

This can mean that NGOs fail to apply the correct sanctions, which can damage the trust of whistleblowers and keep dishonest people inside our organisations (or conversely, punish the wrong people). Ensure that you seek local legal advice.

Inadequate transparency with institutional donors

fence-470221_1920It is easy to see why implementing partners might want to carefully manage what their donors see and how it is framed. Many donors seem increasingly risk-averse, and have a history of unhelpful, disproportionate reactions.

The problem is that this creates a vicious circle; low transparency generates heightened suspicion, and heightened suspicion elevates the likelihood of strong reactions. These might include suspended disbursements, parades of reviews that trample evidence into worthlessness, and onerous emergency controls that strangle programming. It also undermines the NGO’s internal culture of transparency and accountability – how can managers ask their staff to model these values if they do not do so themselves with donors?

Instead, honesty with donors enables them to appreciate the challenging contexts in which their projects are being implemented, heightens their trust of an NGO’s systems to prevent and detect corruption, contributes to our own internal anti-corruption cultures, and may enable us to access more investigative or audit resources through the donor.

Using investigators without sufficient training or experience

Money In God We Trust

In an ideal world, every NGO’s internal investigation would be conducted by dedicated counter-fraud specialists. In reality, large NGOs process more investigations than they have dedicated staff to cover and smaller NGOs don’t even have dedicated staff. Investigation frequently falls to audit, finance, legal, logistics or security teams.

An internal investigation is a serious undertaking that manages a dizzying array of risks to people, the organisation, and itself. Lives have been threatened in the course of such activities. If dedicated staff are not to be used, then NGOs, charities and nonprofits should invest in proper training and development for those charged with investigations, or use third party providers. These things are not luxuries, but part of the cost of working in the modern world.

FFCHGDSFind out more about the risk that fraud and corruption pose to humanitarian and global development organisations, and how they can better deter, prevent, detect and respond to it, in my book! Click here to get your copy of Fighting Fraud and Corruption in the Humanitarian and Global Development Sector from the Routledge website or Amazon!

The Panama Papers: Money laundering and NGOs

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This week, the world is reeling from two significant scandals in the space of five days, Mossack Fonseca in Panama and Unaoil in Monaco. They are both interesting cases, potentially offering fascinating insights into the shady world of illicit financial flows and their enablers. NGOs worldwide are lining up to challenge the global financial order afresh.

But as they do so, now might be a good time for them to reflect internally on the extent to which their own operations minimise the risk of involvement in the darker side of finance. One risk in particular is money-laundering – the process by which the proceeds of crime are given a veneer of legitimacy, obscuring their origin or ownership.

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Monaco

While there may be some examples of illegitimate NGOs being used as vehicles for money-laundering, there are also dangers that this risk can be over-emphasised and perhaps used unfairly to penalise local civil societies. A more common and credible risk, instead, might be that legitimate NGOs are abused by criminals during a money laundering phase known as ‘layering,’ in which multiple transactions are created, perhaps between entities, across borders and involving other fraudulent activities.

Indeed, depending on the jurisdiction, NGOs, nonprofits and charities may have explicit or implied legal obligations to minimise money-laundering risks. What all such organisations should do, however, is consider where there might be a risk of exposure and take steps to limit it.

This article suggests some common areas of particular risk. It does not, of course, advocate that NGOs avoid all these situations wholesale, nor that they are necessarily indicative of money-laundering. But, these could be situations of heightened risk and therefore our diligence in managing them should rise accordingly.

Funds from anonymous donors

mask-1249923_1920Anonymous donors are a normal feature of fundraising. We’ve all popped a few coins into a collection bucket. But where NGOs receive unusual or significant funds, with no information on their provenance, a red light should flicker into life. Anonymous giving could be the starting point for a number of laundering methodologies, perhaps even involving insiders. NGOs need to take reasonable steps to identify the sources of such contributions.

Donors with restrictive demands

Major institutional donors are likely to meet our due diligence requirements – so that’s not necessarily who we mean here. We mean the rich, local businessman who approaches our NGO to execute a project entirely of his choosing – especially where it sits outside or at the fringes of our stated mission, or where it comes with unusual requirements.

credit-card-851506_1920An example might arise from the UK. In 2013, the Charity Commission published a warning that followed a Serious Organised Crime Agency (SOCA) alert. Some British charities had been approached by an individual who wanted to give them a large donation – but the charity had to pay some of it to a foreign charity of the individual’s choosing. Alas, the person was laundering the proceeds of fraudulently-obtained credit cards, and there was no foreign charity. It was the criminal’s own bank account, and a number of charities fell for this scam.

Requests to move funds between organisations

OLYMPUS DIGITAL CAMERALet’s say you are running a social development enterprise. A company approaches you to purchase a quantity of your beautiful wooden products. You’re delighted – but then the company asks if a second company can settle the invoice on its behalf. They’ll settle up between themselves, later, it says. The red light should come on.

A second example might be what’s known as conduit funding, which is variously defined but broadly means that our NGO acts a funding intermediary without influence or control over what happens to the funds. The Canada Revenue Agency gives a good example of this here.

Requests from donors to return funds to them

RETURNED COINSLet’s say that our rich, local businessman approaches you with a proposition. He wishes to store some money in a savings account, but he doesn’t like banks. Maybe he says they’re greedy and corrupt, and he wants to help those who live out his own commitment to social justice. He suggests giving you his US$100,000 – which he will retrieve in six months, while you get to keep the interest. Red light.

Another example might be where a donor asks for a refund for some reason, perhaps stating that the donation was in error or quibbling over the extent to which the NGO delivered on its promises or stated purpose. Requests for refunds are not uncommon, and may present elevated money-laundering risk – particularly when amounts are substantial or unusual. A good defence is a clear and publicised policy on refunds.

Using Money Transfer Organisations (MTOs) in high-risk locations

IMG_2298A range of complex issues face NGOs that move funds into and around locations of elevated risk, such as conflict zones, fragile states and areas of significant terrorist activity. One of these is that we don’t know who else’s money an MTO is moving in or out of these places. If our NGO engages an unscrupulous, unregulated or badly-run MTO, there are real risks of breaching the principle of ‘do no harm’ and of reputational impact.

We need to do what we can to assure ourselves of the agent’s probity ahead of engagement. This is known as due diligence, and should include comprehensive checks on identity, legality and competence.

How can NGOs respond?

There is much that an NGO, charity or nonprofit can do to minimise the risk of abuse by money-launderers. Some of the cornerstones of a framework might include:

  • A clear organisational policy, together with an owner for the issue;
  • A system of regular and meticulous risk assessment that identifies what could happen and how best the NGO can minimise these risks;
  • Procedures that prevent, monitor and detect suspicious transactions, and meaningful due diligence of third parties (staff, volunteers, contractors, consultants, partners etc) – both informed by the risk assessment;
  • Good quality training and communication to staff and managers, prioritising the roles most likely to encounter the risk and that considers induction, reinforcement and performance management;
  • The embedding of the framework into the NGO’s governance systems and across all operations (including and especially programming), together with its ongoing monitoring and regular review.

 

FFCHGDSFind out more about the risk that fraud and corruption pose to humanitarian and global development organisations, and how they can better deter, prevent, detect and respond to it, in my book! Click here to get your copy of Fighting Fraud and Corruption in the Humanitarian and Global Development Sector from the Routledge website or Amazon!