Donors don’t always know how NGOs intend to spend funds. We can all concede that the very effort of raising funds, require funds. So funds cannot all be allocated to a cause without incurring extra costs like salaries, catering costs, discounted entertainment costs, rent, audit fees etc. Where’s the Spend Accountability?
Donors have quite a challenge deciding between all the causes they get introduced to. They use several screening methods to ensure they pick the right one. Of all the reasons for giving, donors rank these as being most important: to enhance the reputation of the organization, and to make a bigger impact on society at large.
The screening criteria seem to focus more on the NGO’s potential to enhance the donor’s public image, than the organization’s planned allocation of donated funds. The NGOs financials are rarely assessed, and if at all, rarely followed though on.
The fundamental question that arises is: how to get spend accountability for your charity? According to Charity Navigator, typical charity spend can look something like this:
- 75% is spent on NGO programs, including expenses such as salaries.
- 10% is spent on fundraising. This includes costs like advertising, public relations, logistics factor in.
- The remaining 15% is spent on administrative functions.
Like any organization, NGOs will need more funds to raise more funds. But without a strong profile, it becomes difficult to attract the right donors. A challenge experienced by most NGOs is spending responsibly. Budgeted funds can all too easily line up someone else’s pockets.
We’ve seen a lack of accountability in the following situations:
When junior staff members become instruments of corruption
Fraud committed by NGO staff is a bitter pill to swallow. Those working for non-profit organisations are expected to be generous, honest and caring. Not really the usual suspects.
Do people join charities in order to steal or are they corrupted in time? It is easier for a senior staff member to have a junior do the dirty work. Much easier when the junior in question is someone recently employed by the NGO. Maybe with promises to get a share of the ill-gotten profits at a later stage, maybe not.
Once caught, the junior may be compelled to shoulder the blame alone. This makes it extremely difficult to unearth the truth with conclusive evidence. The accomplice/scapegoat may well be solely accused.
Findings: The most efficient way to stop this problem from repeating itself, is to introduce customized purchasing policies company wide. The purchase approval rules should include more than one approver per purchase (more for larger amounts of spend), so more people can observe the movement of funds. Wastage and mismanagement can be curbed before it starts.
When payments and purchases are handled the same person
An NGO may have staff that is 100% committed to the cause, but there will always new hires. Only a few qualified professionals are willing to work for an NGO. Those who will, mostly do so on a temporary basis. It seems like the only qualified accountant willing to give the time and knowledge is either an inexperienced one or a retired one. And the accountant will seldom have an assistant.
There is danger in letting one person handle such a huge workload. Where there is a shortage of finance staff, there’s also an opportunity to embezzle funds. As much as it costs to finance staff, not employing the right staff may even cost your NGO more.
The person approving payments may also be expected to process payments, open accounts, and balance books. When there is a need to switch banks, the very same Financial Manager has to rush to the bank to get the accounts switched.
Findings: The best way to deal with a staff shortage, is by training those who are less active as assistants to the Financial Manager. Transparency is key, so expenses should be managed with an app that allows for that plus easy, on demand reporting.
When we pay too much
It all begins with the poor selection of a Supplier A who’s high prices are repeatedly approved, no questions asked. Granted, prices are influenced by economic conditions, what we paid in 2015 may be twice that in 2016. Sometimes there’s just not enough time for comparing prices and the funds.
So, when the Youth Programs department requests that children are transported from the orphanage home to the Amusement Park, what would be the easiest thing to do? Yes, you guessed it: use the same service you used last time.
Findings: Get the purchase requester to choose the best out of 3 quotes and remove that costly supplier from your database. Change suppliers from time to time and compare prices all the time. Sometimes involving a second person in gathering quotes makes negotiating easier. Replace those lax purchasing processes with mandatory, efficient policies.
If your financial management team can’t show how the donated funds are being spent, then the NGO should consider replacing them too.
For an NGO to secure funding, a good rating needs to be maintained all the time. This can be easily achieved with an efficient system is in place to monitor expenses. It only takes one fraudulent act to ruin a good name, and only one rotten apple to drag the whole team down.
See how UNICEF achieved spend transparency.