Managing international funding and development aid risk

Our latest insight report on Global Growth explores the opportunities and challenges for organisations when working internationally. Managing risk is a critical pillar of any multinational operation, and for international charities and NGOs, recent scandals have left the sector exposed to heightened scrutiny. Making sure money and aid is being used where it is supposed to be has never been more important. With public trust at an all time low, it is critical for organisations to get this right.

2018 saw the 30 members of the OECD Development Assistance Committee (DAC) report a joint spend of USD 153 billion on development aid. Given the twin drivers of prioritising value for money and limiting unethical use, many donors are now requiring implementers to be able to account for, and trace spend to its intended purpose. Whilst many DAC members have their own assurance and oversight bodies, the responsibility (in most cases) for that spend rests with the implementor, often under a contract with a repayment/reimbursement clause.

Supply Chain Risk

The supply chain can pose some significant risks for international implementors, particularly those working in challenging conflict or disaster hit countries often at short notice. This often means relying on third party organisations or volunteers. Thus, implementors need to recognise that their supply chain also needs to reflect the standards and ethics that they hold themselves to. 

Just having a ‘I need to get the job done’ mentality is no longer acceptable in a global society that has the power to topple the funding structures of many of these organisations. These risks must be understood and acted on, including: 

  • Conducting a risk assessment on the project itself - not just by value but reputational impact. For high risk projects ensure the board and/or trustees fully understand the risks and set the risk appetite.
  • Knowing and identifying exactly who you are dealing with. This is often challenging where official data is limited but it is an essential step in the risk management process;
  • Verifying the veracity and accuracy of the information supplied by partners and third parties is critical. As part of this it is important to ensure that this holds up against vetting processes; 
  • Testing partner systems such as the arrangements in place for governance, risk management and control along with the partners’ ability to to deliver, their financial stability; their reliance on sub-contractors and their proposed use of downstream partners;
  • Researching the ownership structure and the background to directors and trustees;
  • Testing budgetary assumptions and considering  whether the proposed costs seem reasonable (by value and by type of cost) and in line with expectation; 
  • Considering funder requirements, contractual terms together with international and local legislation and how these will be considered and mitigated by you and your partners. As part of this it is vitally important to take account of global (or local) requirements for things like data protection, GDPR, safeguarding and terrorist Financing; and 
  • Considering how you will be able to monitor project progress.

For more information on managing risk in the international development sector, please contact Richard Smith or Mark Sullivan.