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!

Advertisements

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

pexels-photo-70292

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.

Syria humanitarian aid
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

OLYMPUS DIGITAL CAMERA

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?

800px-National_Crime_Agency
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.

2

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!

Going local: Could national NGOs prevent more fraud than international agencies?

Last year, UN investigations into several small, local partner NGOs in Somalia resulted in estimates that up to 79% of disbursed funds (in the region of US$3m) could have been stolen, with suggestions that some of it could have fallen into terrorist hands.

The local partners of international agencies vary widely; the term encapsulates an enormous number of diverse organisations, from grassroots collectives to municipal authorities, educational institutions, and local (or ‘national’) NGOs. The relationships themselves are also diverse.

Working with partners is crucial, offering international organisations deep insights into the localised causes, enablers and solutions of the issues that their missions tackle, as well as (often) heightened access to beneficiaries. Helping to establish, grow and support local civil societies is also vital to the future of global development.

file0001839386335.jpgBut there is a tension. Case studies such the UN’s experience in Somalia support a perception amongst many in the sector that, generally speaking, working with local partners represents an elevated fraud and corruption risk. A range of reasons are commonly cited for this, but the most common perhaps is where partners carry lower capacity and capability in finance and wider management by comparison to that of the international agencies, or donor expectations.

Another way to look at it

In the current global development paradigm, the perception of this risk may be accurate. But not only shouldn’t it surprise us – research suggests that across all sectors, smaller organisations are the most vulnerable to fraud – it also isn’t the whole picture, and rather belies the role played by international actors, including NGOs, institutional donors and development agencies, in perpetuating this vulnerability.

Ways in which these agencies leave the relationships open to fraud and corruption, and can inadvertently help to maintain the vulnerability of local organisations, can include:

  • Failing to assess or adequately build capacity, or issuing funds in excess of that assessed capacity;
  • Failing to operate in a true partnership – instead treating the partner as a sub-contractor, irrespective of its fundamentally different nature;
  • Unbridled and unmanaged risk transfer – sometimes down a long funding chain;
  • Failure to follow a proper engagement cycle (including strategic planning, assessment and selection, effective engagement and monitoring, and objective evaluation and review) which includes the consideration of fraud and corruption risk at each stage;
  • Cultural insensitivity, failing to factor in cultural differences around the perception of things like contracts and transactions.

But things could be different. In fact, there are some ways that local organisations could be better at deterring and preventing fraud and corruption than their international agency partners.

 1. They have local, contextual knowledge

Somgirharcon1The first is the very reason international agencies often work with them in the first place – they understand their local environment. They know where the risks are, and are in a strong position to evaluate how to reduce them. This can mean more informed planning (how long does it take to get that permit without paying a bribe?) and risk management, if the space is given to it.

2. They are closer to the action

flower-768504_1920Whether in remote programme management or not, local partners are often physically closer to project delivery or able to more efficiently move around and interact. This is a substantial advantage for monitoring, and the detection of red flags.

3. They might be part of local accountability systems

gambia-239849_1920Development expert Jennifer Lentfer tells a great story of an encounter with a Liberian village elder in which he described ‘hot money’ and ‘cold money.’ It was an illustration of how local accountability systems exist, but development money might not connect with them – denying it the investment of local communities necessary for greater oversight. Carefully-selected local partners may be part of such systems in a way that international agencies might not, presenting opportunities for greater deterrence of fraud and corruption.

4. They’re increasingly assisted by technology

mark-516277_1920The global coverage of telecommunications is expanding as fast as its costs are declining, meaning that much humanitarian and development work is happens underneath its umbrella. This means that innovative software and hardware solutions to manage and monitor programming are increasingly available and affordable.

So what?

So how can international actors respond to this – reducing the role that they play in perpetuating the cycle, and instead helping local civil societies to unlock this counter-fraud potential?

1. Actually build capacity

IMG_4460
Counter-fraud workshop for local NGOs underway in the Philippines

However many project proposals mention capacity-building, it often does not happen, or if it does, it does so without the clear assessment of need, a plan, and an evaluation phase that are so important for it to actually have effect. Where the capacity and capability of a potential partner is assessed pre-engagement, this should provide the basis for a capacity-building plan. What can we live with, and how do we need to help the partner to grow?

As international NGOs challenge themselves to look for ways they can devolve responsibility, funding and power to local civil societies, helping them to improve their resilience to fraud and corruption would be a great start.

2. Consider the risk of fraud and corruption at each stage of the partner engagement cycle

Fraud and corruption risks vary as a project progresses. At the outset, kickbacks and nepotism can cluster around selection processes. Towards the end, as short-term employment contracts expire, theft of funds and stock can begin to climb in likelihood. At each stage, both partners should give space to identifying the risks and how best to protect the partnership.

3. Seek their advice, and that of national staff

It should be uncontroversial to point out that expat workers are not local experts. And local experts are available – in the partner, and in international agencies’ national staff. Agencies need to take the time to actually ask these reservoirs of knowledge about how best to squeeze fraud and corruption out of this work, and do so in sufficient time that the information can be applied. When I conduct counter-fraud awareness workshops, it is always exciting to hear local participants’ innovative and contextually-relevant ideas.

Conclusion

friends-1027840_1920There are corrupt local organisations out there, of course, who have the sole or corollary aim of gaining access for their principals to international agencies’ funds. But the vast majority of local organisations whom I have encountered have been full of passionate people doing amazing work in difficult circumstances. Robust selection processes are needed to ensure that these are the partners who are taken on.

There are other necessary changes of course – Mango currently champion universal financial management standards for NGOs, which would significantly improve transparency and accountability. But for now, there is much that international agencies can do to truly contribute to local civil societies – not just write about it in their annual reports.

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!

Going round in circles: Do NGOs and fraud hide from each other?

In the Foreword to my book, Fighting Fraud and Corruption in the Humanitarian and Global Development Sector, fraud expert Jim Gee mentions the ‘un-virtuous’ circle of fraud detection in the third sector.

I thought I’d draw up what this circle might look like. The starting point, as previous blog posts have mentioned, is that fraud and corruption hide. So, in essence, the un-virtuous circle means that NGOs, nonprofits and charities can lose physical assets, funds, and stock regularly and in potentially significant quantities without any red lights appearing on management’s dashboard. It is fuelled by a fear of the consequences of detection – the potential impact on public reputation, donor relationships, staff morale, and project delivery.

The un-virtuous circle might look like this:

Slide1

water-783355_1920Another way to think of this concealed drainage is like corrosion under your car – unless you go looking for it, you won’t ever realise its presence, scale and danger… until your car falls apart in the middle of the motorway. You may fear the consequences (e.g. costs involved) of detecting the corrosion and needing to deal with it, but these costs in the long run are less than those that the motorway incident might involve.

Concealed drainage vs squeezing every drop from our resources

background-906145_1920As public scrutiny of the sector rises, together with increased recognition of the scale of fraud and corruption risk facing such organisations, we need to move to a virtuous circle, fuelled by a desire to secure donor, public and staff trust by evidencing accountability and transparency. A virtuous circle might look like this:

Slide2

In this circle, global development organisations invest in a counter-fraud framework that detects incidents, allowing them to take an evidence-based approach to developing ever-more effective counter-measures and therefore reduce their exposure to fraud and corruption.

Improving the detection of fraud and corruption

‘But what if my organisation really doesn’t have any fraud?’ one might ask. Possibly, but given the scale and nature of the risk factors affecting humanitarian and global development organisations, wider under-detection is a better explanation of low detection.

A holistic approach means that countering fraud and corruption is not just about detecting suspicious matters, but detection is an important strand. In addition to effective and embedded detective controls (such as inventories and reconciliations), key detective methods for humanitarian and global development organisations should include:

  • Clear ‘overt’ reporting mechanisms for staff and third parties to raise concerns with line management;
  • Confidential reporting mechanisms for staff and third parties to report with an expectation of confidentiality and safety;
  • Dedicated work to build trust in ‘overt’ and confidential systems amongst staff, and to communicate and promote these systems;
  • Beneficiary feedback mechanisms;
  • The use of electronic systems to identify ‘red flags’, anomalies and patterns;
  • Proactive examinations of records (‘fraudits’);
  • Information-sharing with third parties, such as other INGOs or information exchange services;
  • Methods to provide early-warnings of incidents, or rising risk, in local partners;
  • Investment in the wider components (deterrence, prevention, response, strategic management, cultural development, and enabling activities) of a holistic counter-fraud and corruption framework that support the detection agenda.

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!

5 psychological traits undermining your NGO’s fight against fraud and corruption

As humans, we love to think that we’re rational, sensible people making rational, sensible choices. The problem is that modern research suggests that this is pretty far from the truth, and that there are common biases and errors that affect our thinking.

As NGOs, charities and non-profits, some of these can really impact upon our efforts to reduce fraud and corruption to an absolute minimum. Here’s a little selection of some of those that I think I’ve observed.

1. Availability bias

AVAILABILITY BIAS-2In 2010, there were a number of shark attacks off the Egyptian resort of Sharm el-Sheikh. In the following weeks, it seemed to me that the news was full of shark encounter stories. What was going on? Had sharks suddenly become more aggressive? No – this was availability bias in action, a mental shortcut in which we rely on the most immediately available information to make decisions, without considering how that information became available. All that was happening, was that the media were reporting more on the subject, and that I was more attuned to the matter. (David Mcraney uses a similar example in his great book, You Are Not So Smart.)

Fraud and corruption love availability bias. These two creatures naturally hide, so availability bias means that senior managers are usually responding to more readily-apparent risks, often de-prioritising fraud and corruption. And when these phenomena are off the radar, they can blossom until they’re too big to ignore – and then it’s too late; public scandals are imminent.

Instead, we need to recognise that the unique nature of humanitarian and development agencies gives these risks high likelihoods and impact. So, they should be made a standing organisational priority, with their own reporting framework that provides management information on both the perceived risk areas and the performance of countermeasures.

2. Loss aversion

LOSS AVERSION-2Research suggests that we feel losses more intensely than gains – so if you lost a £100,000 sports car, you’d feel that much more powerfully than you would if you won a £100,000 sports car in one of those airport car lotteries. This emphasis leads to an aversion to losses that can be stronger than the lure of benefits.

Committing to counter-fraud and corruption work means that in the long run, we have more money with which to help our beneficiaries and are more sustainable – our work is more resilient to catastrophic reputational events, and we could enjoy greater public trust. But these less tangible long-term benefits face a big challenge from very tangible short-term losses. Spending more money on anti-fraud mechanisms, or refusing to pay bribes, can mean we slow down (or perceive a lessening in) our operational delivery. That means helping fewer beneficiaries by comparison to our expectations. So implementing a counter-fraud and anti-corruption agenda can appear to come at a loss – not a gain.

Counter-fraud specialists need to clearly articulate the benefits of counter-fraud and corruption work, using every available means. This requires creativity and effort. Further, donor agencies and private supporters need to leverage the NGOs they fund, making it clear that this better way of operating represents their expectation.

3. Rationalisation

RATIONALISATION-2Celebrated psychologist Dan Ariely conducted an interesting experiment in which he placed dollar bills and cans of Coca-Cola around the campus of an American university. When he went back, the dollar bills were all still there – but the Coke cans had gone. (You can read about this, and other experiments, in his fantastic book Predictably Irrational.)

What might be happening here is that the less like money something seems, the less like stealing it feels. This is rationalisation, the process of making something we want to do (even something dishonest) fit with our own self-respect.

This is really important for NGOs, because although we might have good controls for cash handling, do we take sufficient protective care of our physical assets, and the stock in our warehouses? Studies like this one would seem to suggest that these items are at a high risk too.

4. The fundamental attribution error

fundamental-2When you’re driving, have you ever noticed that if someone else makes a mistake, then they’re an idiotic and dangerous driver – but if you make a mistake it’s because you were interrupted by a passenger, the car needs servicing, or you were responding to something another car was doing? This effect is known as the fundamental attribution error – the tendency to ascribe the actions of others to their own internal factors, but yours to external factors.

Something we sometimes do in NGOs is to assume that people who commit fraud and corruption are fundamentally bad people that we need to keep out of our organisations. When we do this, we forget that people are complicated, and can become perpetrators while inside our organisations.

In Donald Cressey’s enduring ‘Fraud Triangle’ theory of behaviour, anyone can behave dishonestly if the pressure on them is sufficient, if they have an opportunity to do it with a sufficiently low chance of detection or meaningful sanction, and if they can rationalise (justify) it in their minds. Though our thresholds for each may vary, we all have a triangle, and might progress towards or away from those thresholds according to the factors acting on us throughout our lives.

This is important for NGOs, because it means that all our physical assets, funds and stock are at risk from all our staff, all of the time.

The best way to respond to this is to commit to an ongoing, holistic programme of activity that deters, prevents, detects and responds to fraud and corruption – and which is considered as fundamental to our business as having an HR or IT function.

5. Learned helplessness

learned-2A few years ago, in a Middle Eastern country, I was delivering a workshop for managers on reducing fraud and corruption. A lady interrupted me to say, ‘but this is just the way things are here!’

When I encounter that view, it reminds me of an experiment conducted by psychologist Martin Seligman. Seligman found (by accident) that if dogs received electric shocks while they were unable to escape, they would learn to accept their fate and even when an escape route became available later, the dogs wouldn’t take it. The effect is known as learned helplessness.

When we work in complex and difficult places, we can sometimes give in to learned helplessness. This phenomenon lies to us with such thoughts as ‘this is just how business is done around here,’ or ‘we can’t do this work in any other way.’

The truth is that for every problem there is an opportunity – even if that sometimes means doing things the long way round, or investing more funds in doing them. Helpful approaches include maximizing local contextual knowledge, incorporating a realistic and informed planning phase, and seeing response activities like investigations as business improvement tools that fuel a virtuous cycle of self-improvement – what can we learn in order to become more resilient?

What other effects have you seen in action, and how best can they be countered?

 

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!