Integrity risks in the aid system

I have had the opportunity to assess the integrity of the international aid system over the past ten years, both in major inter-governmental agencies, bilateral aid programmes and through the lens of NGOs and local communities. Is corruption in aid more pervasive than it is in international business, politics in poor countries, or in the state bureaucracies more generally? I'm afraid that the answer may be yes. What is most damaging about this type of abuse is that it hits the poorest the hardest. Not all aid is directly targeted at the world's poor. But it is given in their name.

Some of the practices I've come across on a recent visit to one of the poorest countries in the world included the following:

• 'Double-dipping' by local NGOs who seeks or accept funds from more than one donor for the same project. Current reporting standards and audit reports are an inadequate safeguard. Only improved information capture and donor coordination can get around this problem.
• Theft or diversion of resources from intended beneficiaries, e.g. village leaders obtaining infrastructure, being the only ones to use the 'communal library', phantom projects in remote areas, etc.
• Kickbacks on salaries, whereby consultants to projects are asked to pay 10-15% of their reported consultancy fee back to the person who sub-contracted them, usually the head of the domestic NGO. This appears to be an almost standard practice.
• Long-term and contract staff for domestic NGOs being required to return 20-40% of their salaries as 'overheads' to the organisation. This is a common practice among international consultancies. What differentiates the local context in this country is that the reported project salary is equivalent to a basic salary. When up to 40% are subtracted it becomes an inadequate or unviable salary, meaning that staff feel less commitment to their employers or are forced to take up more than one job. One I spoke with is working with their domestic partners to have an open reporting mechanism, actually pay overheads, and discourage this practice generally.
• Lack of governance within NGOs, with professional staff filling the board, NGOs being run like family businesses, poor audit procedures, etc.

How serious are donors about curbing these problems? Not particularly, judging by the quality of current controls.

On a positive note, I came across one sanction mechanism which has legs recently. One of the more interesting audit and monitoring mechanisms I've come across contains a credible set of enforceable against offenders: If a contractor is found to have cheated the penalty is proportionate to the number of inspections made. If 5% are inspected, the fine is 20x the value of the single offence. Contractors are not just blacklisted. They are fined. Contractors in turn have local agents and are thereby made responsible for internal controls. As the sub-contracting companies are paid in arrears and the orders are large, the fines can easily be 'withheld' and the incentive are in place to continue fulfilling the contracts with the main agency.

In a case that is unfortunately far more typical of large-scale aid projects, particularly by agencies that purport to have a 'zero tolerance' policy on corruption, the executing agency (a major inter-governmental organisation)

• Has no complaints mechanism to headquarters in the country, let alone outside the country that local people are made aware of.
• Independents audits do not take place
• In a project that spans several thousand villages, less than one per thousand (yes, a tenth of one percent) of community organisations are proactively monitored.
• Auditors are only concerned with financial audits. Technical audits are someone else's responsibilit

• Many people think that these problems are benign. After all, some money does remain in the country. Other people think that the problem is limited to developing countries. Let me give you three case illustrations that I have come across first hand that illustrate the opposite:
  
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  Case scenario #1 A research institute with an international reputation for breakthroughs in scientific research asks a donor to fund a $12 million research programme that may lead to a cure for rare congenital disorder. A donor commits $10m to this programme. Another donor commits $5m. Each donor believes that he is the major benefactor of this research programme.
  
  Problem Neither donor is aware of the size of the other's contribution nor that the research institute has raised more than it budgeted to conduct the research.
  
  
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  Case scenario #2 The December 2004 tsunami that swept through parts of Asia killed thousands and destroyed the livelihoods of many coastal communities. In the coastal Indian state of Tamil Nadu dozens of fishing communities lost their fishing vessels and thereby the basis for their livelihood. Aid agencies were quick to provide them with boats. Many communities ended up with more boats than they had previously owned. In order to operate the bigger fleet of boats some fishermen have taken their children out of school. School attendance is decline, illiteracy is on the rise, and over fishing is a growing problem. In the Indonesian province of Aceh hundreds of children were orphaned by the tsunami. Dozens of orphanages were built. The well-equipped orphanages provide better teaching facilities and overall conditions than schools in poor fishing and farming communities can provide. Because there are more orphanages than there are orphans, some children are encouraged to pretend to be orphans to benefit from these new facilities. This is disrupting families, schools, and local communities.
  
  Problem By the time the problem of the boats and the orphanages was identified, it was already too late. Once the boats were in use and the orphanages were built it was difficult to undo the damage they were causing. Mechanisms to prevent such waste and perverse effects are needed upstream.
  
  
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  Case scenario #3 A major Scandinavian children's charity with a programme in an African country gets $2m a year from a European government to build schools and recruit teachers together with local communities. The region they are working in is the poorest, most war torn region in one of Africa's poorest countries. The projects are good: the schools are built and the children attend them. The projects are implemented through local NGOs who know the region well. The Scandinavian children's charity does regular inspections and audits and they are satisfied with the work. This is a model project meeting important development needs in a country that is only just emerging from war.
  
  Problem Once the project is up and running and delivering positive results, the local NGOs can easily 'sell' the project to other donors. The Scandinavian children's charity and the European government are unlikely to ever find out.
  
  Anyone with residual doubts about how serious this problem is must see Sorios Samura's remarkable undercover documentary:
  
  Corruption in Africa Part 1
  Corruption in Africa Part 2
  Corruption in Africa Part 3