Category: Fraud

Why NFPs aren’t comfortable using the ‘F’ Word!

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Photo of Man with covered mouth showing an F

Every year for the past decade, the Not-for-profit (NFP) sector has been voted the most trusted in the world – but just how valid is the ranking when it comes to the ‘F’ word:  fraud and corruption?  Despite the sector’s ongoing reliance on maintaining a high level of public and donor trust, there continues to be a unexplained complacency when it comes to the topic of fraud.

Although acknowledged by most NFPs as a problem for the sector as a whole, when assessing its own organisation, corruption is rarely seen as an issue. Unless NFPs and charities recognise – and start to properly manage – fraud and corruption risk, their reputation and public confidence – built up over many years – could be wiped out overnight. So where does this apparent reluctance to deal with the issue come from?

This article was originally written for the ACFE’s publication The Fraud Examiner.

The Unravelling of an NFP fraud scheme

A recent fraud investigation I carried out for a large international NFP is a textbook example of how fraud can occur in the sector. Despite one of its humanitarian projects being externally audited four times (two external financial audits, a capacity audit and a specific project audit), vague mutterings continued to circulate about improprieties. None of the four audits had highlighted any irregularities.  On the contrary, the capacity audit stated that the project had been “appropriately designed, well planned, and effectively managed,” while the project audit confirmed that all relief items had been physically delivered to all beneficiaries. More

How to create a robust Anti-Corruption Framework (Part 1)

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Corruption - Picture of ace of spades playing cardIs your corruption prevention program going to deal you a winning hand, or will it collapse like a house of cards?  In today’s increasingly complex global environment, it’s no longer a question of whether an organisation has an anti-corruption framework in place, but how robust that framework actually is.  Corruption prevention and compliance programmes that fail to stand up to scrutiny when stress-tested, can have significant and far-reaching consequences.

In Part 1 of this two-part series, I’ll outline the essential building blocks that should be included in an effective anti-corruption framework.

How a failure to prevent corruption by employees led to a US$772 million penalty

While the resources needed to develop a robust corruption prevention framework may seem significant, the financial risks of not investing are even higher.  First and foremost are the direct financial and reputational losses caused by the act itself. This is highlighted by the ACFE’s annual global fraud surveys, which consistently estimate that the typical organisation loses 5% of its annual revenue to fraud alone. More

Corruption is perverting NGO missions – but are its leaders up to the challenge?

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Photo of Hands-up to stop corruptionAccording to the UNDP, funds lost to corruption in the Global South are 10 times the amount of official development assistance (ODA), while the World Bank estimates that each year between 20% and 40% of ODA itself is “stolen” by public officials.  It does not end here though, as its pervasiveness and magnitude –  when combined with the risks inherent to the non-profit sector – has now reached the point where corruption is perverting NGO’s missions.  At stake here is the accountability and credibility of the sector as a whole.  But are its leaders up to the challenge?

Acknowledging the elephant in the room

A simple litmus test for this is to ask an NGO’s leadership the following question: ‘Is corruption a problem within your organisation?’  In a 2014 survey of Australian and New Zealand NGOs, while 90% felt that corruption was a problem for the sector, 72% (or three out of four) stated that it was not an issue for their organisations.  In other words, while it was a problem, it wasn’t theirs, but someone else’s! So if most non-profit leaders don’t see corruption as an issue, why should their staff? More

For the Love of the Game: Corruption and Sports NGOs

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Photo - Sports NGOs & Corruption Sport is now the dominating source of entertainment worldwide. Just under the surface though, is a darker, shadier world where corruption (usually in the form of bribery, match-fixing, extortion, doping and money laundering) is common place.  Sports NGOs are particularly vulnerable to these activities, with this article exploring why – and what can be done about it – in more detail.

Sports NGOs and ‘Corruption as usual’

It seems that barely a month passes without yet another report of corruption in sports being splashed across newspaper headlines. In relation to large sports NGOs, these have included: members of FIFA’s executive committee accepting bribes, a former president of CONCACAF being charged with fraud and money laundering, hosting nations paying bribes to win Olympic hosting rights, match-fixing, and the IAAF’s involvement in corruption and cover ups. More

Why Anti-Corruption Programmes Fail

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Photo of drowning person - Why Anti-Corruption Programmes FailCurrently estimated to cost five per cent of the world’s total GDP, or US$2.6 trillion per annum, corruption is now the third largest industry globally and is growing. In response, anti-corruption legislation around the world is being strengthened, with a growing emphasis now placed on enforcement and compliance. Organisations not only need to have an anti-corruption programme in place, but are increasingly required to prove its effectiveness.

The following article was originally published in Ethical Boardroom Magazine Winter 2016 Edition.

Eight mistakes that boards & management need to be aware of when establishing anti-corruption programmes

Unfortunately, a growing number of anti-corruption programmes are failing to meet this new challenge; the most recent being the French industrial group Alstom. Despite having an integrity and anti-corruption programme in place, Alstom was recently fined US$277.3 million to resolve criminal charges relating to a widespread corruption scheme. The scheme involved the payment of at least US$75 million in secret bribes to government officials around the world.

So what went wrong? Why was it that its anti-corruption programme failed and failed so miserably? While there is no silver bullet to guarantee success, there are a number of common pitfalls, which, if avoided, can dramatically decrease the chance of failure.

While not exhaustive, outlined below are the most common mistakes that boards and management need to be aware of when establishing anti-corruption programmes. More

Corruption: What NGOs don’t want you to know

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See no evil, hear no evil, and speak no evil!

The three monkeys of fraud and corruption: What charities don't want you to knowDespite the growing level of funds channelled through NGOs (or maybe because of it), fraud and corruption continue to be a highly sensitive topic, with most NGOs reluctant to openly discuss it.  This was highlighted a few years ago, when Médecins du Monde initiated a study in an attempt to open up discussion on corruption within the humanitarian aid sector (one of the most corruption prone areas of development).  Of the 17 largest French NGOs contacted for a confidential interview, accounting for more than 80% of all French humanitarian aid, 11 refused to participate. Attitudes such as this, a general lack of transparency within the sector, and a scarcity of empirical evidence available on fraud and corruption, has resulted in the topic avoiding appropriate scrutiny.

Following on from my article on NGO accountability, this is the second in a series of three articles examining NGO accountability and corruption.  Its focus will be on what we know about actual corruption within the NGOs.

‘Rose-tinted’ glasses’:  Corruption only happens in NGOs working in the developing world … or does it!

When the topic of corruption is raised, the natural inclination is to point the finger elsewhere.  In the case of Northern NGOs, this tends to be at their counter-parts operating in the developing environments of the South.  This was brought home to me in a discussion with a CEO & President of a North American based INGO last week, who stated with absolute conviction, that the ‘real’ need for anti-corruption measures was in Southern NGOs, as those in the North (like his) could safely “rely” on their external auditors and internal risk management systems to prevent it from happening.  When I pointed out that the latest ACFE fraud survey showed that he had twice the chance of uncovering a fraud within his INGO by accident (at 6%) then it being uncovered by his external auditors (at 3%), he was a little taken aback.  That aside, just how accurate was his assertion that the problem of fraud and corruption within the NGO / non-profit sector is limited to certain parts of the world? More