Where did the money go?

Michelle Perry reports on increasing demands from the public to know how their charitable donations are spent, and how fundraisers are responding

Allegations of corruption and a lack of transparency at humanitarian fundraising organisations over the past few years have wiped out any commonly-held belief that these sectors are immune to those wishing to enrich themselves on the back of the public's altruism.

Fortunately, it has not eroded people's willingness to give to those in need. But what it has done is encourage people to take a more participatory role in charity giving and force change at those organisations.

Private individuals nowadays are not just content to appease their consciences by doling out their cash. They want to know where and how that money is being spent. In short, the not-for-profit and charity sectors are being made to be more financially accountable and communicative.

The private sector has seen this push for more disclosure and transparency grow rapidly over the past few years because of a number of corporate scandals. Now the initiative is slowly permeating other sectors. It's understandable when you consider the revelations of corruption at powerful organisations such as the United Nations. It can only be a positive move.

In February, the scathing conclusion of an independent inquiry into the United Nations' oil-for-food deal with Iraq following the 1991 Gulf War has surely done little to improve the public's perception of powerful organisations tasked with spending taxpayers' money.

Appointed last April by UN Secretary-General, Kofi Annan, to investigate the allegations of corruption, inquiry chief Paul Volcker concluded in an interim report that UN official Benon Sevan had acted in a way which was 'ethically improper' in dealing with the operation.

The UN and other fundraising bodies are, however, embracing demands for more disclosure and openness, and it couldn't have come at a better time.

The tsunami that struck south-east Asia on 26 December 2004 left the world reeling, but triggered an unparalleled humanitarian response from private individuals, businesses and governments around the world.

So far, overall aid pledged from or through governments, non-governmental organisations, business and private sources totals $6.28bn, according to the UN Office for the Coordination of Humanitarian Affairs, which has overall responsibility for supervising relief aid.

The affinity the public feels with the affected countries means people are keen to know about relief efforts there and how their donations are being spent. The UN and all the charities involved in the humanitarian response are rising to the challenge.

In response to concerns of corruption at the UN, OCHA, in agreement with all NGOs in receipt of funds, is establishing a public platform in order to track funds better and inform the public of their progress.

Increased disclosure

Robert Smith, manager at OCHA's Financial Tracking Service in Geneva, says this initiative for more disclosure is founded in the desire to allay concerns over corruption at the UN and secure future fundraising efforts.

The FTS' mandate ends with the receipt of funds pledged. It has no responsibility to audit those donations or communicate to the public. But the mood of change means the UN wants to assure the public of its accountability and financial controls.

Thanks to one of many generous offers made by the private sector in the wake of the tsunami, PwC is to provide pro bono work to help update the UN's monitoring systems. The plans are still under development but it is hoped a pilot system will be up and running within months, says Smith.

Representatives from PwC's advisory data management group will provide system-related consulting to enhance the OCHA's financial tracking system. Advisory's dispute, analysis and investigations teams from the firm will provide a forensic data analysis of their tsunami-related expenditure.

This will involve matching names to tsunami-related agencies against a database of 'high-risk entities', running selected forensic tests against the agencies' data to spot unusual transactions.

Historically, the UN and organisations that work with the UN have collated and shared information on relief efforts but have never had a policy of proactively sharing this information with the public.

Smith says: 'In the humanitarian profession there's an ongoing effort to hold ourselves to higher standards of effectiveness and efficiency. Details of accountability are crucial to finding out if we are living up to those standards that we have set ourselves.'

This trend towards increased financial reporting and stricter controls to assure accountability is increasingly visible in the UK charity sector as well.

Alex Jacobs, executive director at Mango, a not-for-profit UK organisation which works to match financial expertise with the needs of NGOs, says the organisation has seen a distinct rise in the number of charities looking for financial help in recent years.

In February, Mango reported that it had recruited 15 financial professionals into finance posts with INGOs this year. Five of those appointments were with agencies responding to the tsunami disaster.

Paula Downey, of the British Red Cross in Sir Lanka, says: 'With the large amount of funding received for this appeal I am working to ensure that financial controls are solid and sustainable, and reporting to donors is transparent.'

Jacobs is also in discussions with Oxfam, one of the agencies in receipt of funds from the UK's Disasters and Emergency Committee's tsunami appeal, on how Mango can run more training courses on financial controls and reporting for agencies.

With the main focus for NGOs, until recent years, on carrying out humanitarian work, Jacobs acknowledges that reporting and transparency has been somewhat lacking.

'One of the approaches we are advocating is to publish simple financial reports to both beneficiaries and donors detailing how donations have been spent,' explains Jacobs.

'One of the ways you get high quality participation by beneficiaries is by involving them in the whole process. Research proves this. And it's the same for donors,' he adds.

As with the UN's FTS, the DEC has no mandate to track and audit funds. Its role is simply to appeal for funds and allocate them. But the DEC has faced criticism for not using the internet and e-mail to its advantage and letting people know they've received donations and where the money is being spent.

Ordinarily, an independent inquiry is conducted nine months after a DEC appeal to evaluate how funds have been spent. Still, this information is not widely disseminated, leaving donors wondering about their efforts.

Given the unprecedented response to the tsunami appeal, that evaluation process is expected to take place much later than normal.

'The volume of funds is so big this time that there's no way the money can be responsibly spent in this timeframe [nine months], so the DEC is reviewing its timeframes for evaluations,' says Jacobs, who has worked as an independent evaluator on a number of previous DEC appeals.

Finding a sensible balance between carrying out humanitarian work and ensuring accountability to donors and beneficiaries is an issue that is being widely discussed in academic circles as well.

Jacobs, who is also a visiting fellow at the Oxford University Saïd Business School's Skoll Centre for Social Entrepreneurship, says this is exactly the topic that is under debate. 'The minority of fraudulent situations within the charity sector erodes confidence. Donors are increasingly aware of their responsibility and are doing more. But when too many donors ask for too much detailed information it gets in the way of doing the work on the ground. There must be more creative solutions that can provide the way forward,' he says.

What is clear is that the public is increasingly mobilising itself and this is what the charity sector wants - more involvement - but not to the detriment of the very focus of their humanitarian efforts.

That said, what is important right now is that the UN and other fundraising organisations learn to communicate better or else run the risk of losing the humanitarian support that the tsunami disaster highlighted.

Michelle Perry is a freelance journalist specialising in financial and business issues.