On the Problem of Misuse in Emergency Aid 
Caritas Germany, International Department, and University of Freiburg i.Br.
[This document first posted on 15 June 1998]
This article focuses on corruption as an internal problem in emergency aid, i.e. misuse by the relief organisations themselves or by employees within the structures of the organisations. In many of the recipient countries of emergency aid corruption is an everyday phenomenon. The paper discusses structural components of the work of foreign emergency aid organisations which make it difficult for them to cope with the problem of misuse. Disbursement pressure and information barriers inside the emergency aid organisations are two of these components. Another factor is the inadequately maintained administrations of aid organisations which is due to a common condemnation of administration costs. If the assistance policy of foreign donors does not leave their local partners enough leeway to support the partners’ necessary structure and to pay qualified employees adequately, they encourage the development of corrupt structures within the partner organisations.
The following article focuses on the problem of corruption in emergency aid. This topic has been inadequately covered up to now. Staff members of emergency aid organisations usually do not dare speak about it in public, or if they do so, then only in very general terms, but rarely admitting that it happens in their own projects. In contrast with this official view, emergency aid organisations are forced to work under conditions which carry a high risk that one or another form of corruption may occur, because corruption is an everyday phenomenon in the countries where they usually operate. It is not the intention of this paper to put blame on southern countries, their state organisations and the non-governmental organisations working there. I feel a need to discuss the topic of corruption in emergency aid more openly than has been the case up to now. By concealing this problem foreign donors cannot fulfil their responsibility to organise their work in such a way that the scope of the problem is limited. This paper will argue that various structural components of the work of emergency aid agencies, for example disbursement pressure, a populistic condemnation of administration costs and information barriers inside their organisations, make it difficult to cope with the problem of misuse.
Inevitably, corruption in general and corruption in emergency aid is a topic granting limited empirical access. This is all the more so as emergency aid organisations usually do not allow any insight into their internal assessments concerning this topic, if any at all exist. Information barriers, which I will speak about later in more detail, are another reason for this limited empirical access. When writing on corruption, one is easily accused of either founding one’s arguments on personal experience which, of course, is difficult to generalise or on evidence of primarily anecdotal nature beyond one’s own personal experience. I hope that an open debate, including the readiness of emergency aid organisations to allow their field staff to speak on this issue and to give access to researchers to their internal evaluation reports, will facilitate empirical access to this topic. At least in the course of informal and often personal debates inside the aid organisations I have been involved in it has been consensus that the problem is serious enough to justify such an open debate. Emergency aid organisations should not quickly dismiss this problem as simply media hype. Can emergency aid organisations really expect that their own field of work remains unaffected by a set of problems which is widely spread in many of the countries they work in? Moreover, an open debate would be a much better strategy to answer public doubts as to whether assistance ‘gets there’, rather than just remaining silent.
This paper will address certain subjects which concern not only emergency aid but development aid as a whole. However, certain aspects of emergency aid make it more susceptible to misuse than general development aid. Emergency aid is often effected under pressure which limits the time available to examine the project carefully in advance. Foreign donors of emergency aid are much more vulnerable to ‘extortion’ than those involved in general development aid, especially when the survival of disaster victims is at stake. Moreover, emergency aid receives much more media coverage than does general development aid; the consequences thereof will also be outlined in this paper.
Corruption as an Everyday Phenomenon
The core definition of corruption applied in contemporary social science is the misuse of authority by an official in order to obtain a personal benefit . The official might be a civil servant or somebody who possesses authority in a private organisation, for example a director of a non-governmental organisation. In order to obtain the benefit, the official violates certain norms which lay down how his or her duty should be fulfilled; the norms are either legally defined or socially accepted. The two main forms of corruption are bribery and the embezzlement of funds or other assets committed to the official.
Needless to say, corruption is not limited to the recipient countries of international emergency aid. But in many of these countries corruption is an everyday phenomenon. An enlarged civil service which cannot be paid adequately due to financial limitations looks for alternative methods of augmenting its income. The expansion of the civil service is effected primarily for political reasons: to avoid the potential for unrest which can be caused by a better educated but unemployed urban youth. Or the expansion is effected to reward groups and individuals who are supportive of the government in power by giving them offices. An enlarged civil service often results in extensive regulations such as government controls or licence requirements. This provides an illegal source of income for the civil service, as licences or other government services can often be obtained through bribery only. The sluggish pace at which bureaucracy often functions is another result of its interest in secondary income: this pace forms the basis for what is euphemistically referred to as “speed-up-money”. The second important source of illegal income for the civil service is the embezzlement of public funds, including those which are intended for emergency aid or development aid in general.
In countries in which corruption has become an everyday phenomenon, corrupt civil servants no longer act individually and secretly, but rather cooperate as groups in demanding bribes or embezzling funds. Often there are hierarchical distribution patterns within the administration by means of which highly placed civil servants – whose actual responsibility is to supervise the lower-placed civil servants – have a share in the illegal income. As the possibilities of legally investigating civil servants’ activities are generally lacking or very limited, citizens often have no choice but to pay for a government service. Huge difficulties in enforcing their legal rights also limit citizens’ possibilities of taking action after having been victims of embezzlement in the public sector.
Social Benefits of Corruption?
That the behaviour of an official violates certain norms does not necessarily mean that the behaviour is harmful from the point of view of development. A vast literature discusses potential social benefits of corrupt behaviour. The most important benefit corruption is supposed to have in Third World Countries is that it serves as a market substitute and a means to circumvent constraining regulations often hostile to development. In economic terms, a corrupt structure can be a “second best”. These arguments have a point, but it is convincing to argue, as Klitgaard does  that the potential benefits of corruption are only valid from a very limited point of view and that the harmful effects outweigh the social benefits.
Under the conditions prevailing in many recipient countries, emergency aid is often confronted with corruption as an external problem. ‘Unofficial taxes’, for example, illegal payments when importing relief goods into the country where they are needed, may be unavoidable. Payments to speed up bureaucratic procedures may be demanded by bureaucrats who work at a very slow pace, even when an emergency situation is at hand. Payments at road checks might assure delivery of relief goods in time. These different forms of bribes might be needed to make a relief programme work when done for the sake of the emergency programme and not for private purposes, as when those responsible in emergency aid organisations decide to cooperate with corrupt officials and to pay these bribes after responsibly weighing the detrimental effects for their own work against the positive ones.
Corruption as an Internal Problem: Embezzlement
The following part of this paper focuses on corruption as an internal problem in emergency aid – that is, misuse by the relief organisations themselves or by employees within the structures of the organisations. ‘Diversion of funds’ is primarily achieved through various forms of embezzlement:
- ‘Kick-back’ agreements when placing orders. Relief goods are ordered at excessive prices; the additional amount or part of it is given back to those who place the orders.
- Accepting relief goods of poorer quality than was agreed in the contract: in an arrangement similar to kick-backs, a share of the additional profits which result from delivering poor quality are distributed between those who place the orders or who are responsible for quality controls.
- Selling relief goods to dealers.
- Distributing relief goods to persons not entitled to receive them in exchange for payment.
- Delaying the spending of funds intended for emergency aid and using them in the meantime to make a profit (for example by investing them, which is a lucrative form of embezzlement given the high inflation rates and high nominal interest rates in many developing countries). The profits which result are paid out privately to those responsible.
- Taking advantage of the considerable differences which exist in some countries between the official rate of exchange (which is used for statements of account provided to foreign donors) and the far more advantageous rate on the parallel or black market.
This list of methods of misuse is by no means complete; there are many combinations and other forms of misuse depending on the imagination of those concerned and their willingness to undertake risks.
Certainly, diversion of funds on a larger scale reduces the quantity of assistance for those in need and creates benefits for hidden target groups which the emergency aid organisations never intended to support. Usually, also quality and appropriateness of the assistance is affected. As embezzlement is illegal and risky, it is organised by officials in ways that limit their risks. Short-changing on the use of input goods is one of these ways; of course, this affects the quality of investments made as part of a rehabilitation programme. The timeliness of aid is affected when the spending of funds is delayed for the purpose of intermediate investment.
Are there any potential benefits embezzlement can have for emergency aid programmes? The only meaningful benefit which comes to mind is when funds are embezzled by partner organisations with the intention to unofficially raise the salaries of those employees who are paid below what is usually paid for comparable qualifications; or to fund administration costs their foreign donors are not prepared to fund officially. Later I will refer to this issue separately. But if the quality of an emergency aid programme depends on such informal payments it would be a much better solution to make funding rules more flexible instead of tolerating embezzlement as ‘second best’. This paper is based on the position that controlling embezzlement and therefore limiting corruption in emergency aid is an indispensable part of a professional emergency aid policy.
It is difficult to determine the exact extent of embezzlement in emergency aid as it is based on confidential agreements between the parties concerned. However, when viewing some emergency projects one has to conclude that funds are embezzled to a considerable extent. For example, cyclone shelters in India built out under government supervision which are in such poor condition after just a few years that they cannot be used anymore: iron supports are hanging down, pieces of concrete have broken off and the concrete is crumbling. When properly constructed and if properly maintained, such shelters provide protection during cyclones for the population for many decades. Or, for example, government-built houses for flood victims in the Gulf of Bengal: when they were built, cement was skimped on to such an extent that the houses began to deteriorate after one or two years. As a result, the houses rapidly became too dangerous for the “beneficiaries” to live in and were used as stalls for animals. Keeping in mind the methods of diverting funds, it is difficult to assume that the failure of this or other projects carried out under government supervision is a result of incompetent administration only. In most cases economic considerations are responsible: those persons in charge who accept excessive prices or material of inferior quality and neglect their supervisory duties receive a share of the additional profits which result for the contractor by means of kick-backs, bribes or other mechanisms.
State or Non-Governmental Organisations: Is there a Difference?
The reservations which attend emergency aid under government supervision arise from the fear of emergency aid forming part of the system of illegal remuneration of an enlarged public sector. These reservations are often justified; however, one must differentiate between various countries. In order to avoid the shortcomings of government-sector emergency aid, organisations channel a substantial part of their assistance via local non-governmental organisations. How should NGOs be judged with respect to our examination of misuse in emergency aid? Corruption, of course, does not only occur in the government sector. Directors and employees of NGOs have positions which are comparable to a public office and which can be misused for private purposes. All the forms of embezzlement listed above are also possible with projects which are carried out by NGOs. Some examples: an NGO in a West-African country commissioned a company backed by the president to effect customs clearance for foodstuffs which were to be imported as part of a relief program. The prices agreed upon were far above normal and obviously comprised a kick-back to the benefit of the director of the NGO. At the same time, part of the imported milk powder found its way to dealers who processed it into yoghourt and sweets for the middle and upper-class of the country. One Latin-American NGO, for example, took advantage of the extreme inflation when diverting funds: in a statement of account given to its foreign donors the NGO indicated that it had exchanged the funds immediately after receiving them into the local currency and ‘proved’ this with forged bank statements. In reality however, the exchange was made in small amounts over a longer period of time. Given the rapidly changing rates of exchange due to rampant inflation it was able to obtain a much higher equivalent in local currency. Therefore, a considerable portion of the funds obtained were not accounted for to the foreign donor. An NGO in Asia founded a special intermediate trade organisation for large deliveries of building material to a disaster area. In this way it was able to issue its own receipts when making its statement of accounts for the foreign donors. The profits concealed in this way were used as financial reserves for the organisation and to augment the salaries of its employees.
The assumption that there is no danger of misuse when assistance is provided through NGOs is unrealistic. This may have been the case before official development aid institutions discovered NGOs – that is, at a time when the intention of diverting funds was no motive for founding an NGO. With the discovery of the NGO as a partner in development aid (and also in emergency aid), that changed. It is therefore no guarantee against misuse when the formal responsibility lies with an institution outside of the government sector.
However, assistance provided through NGOs does help to control misuse as the foundation of NGOs creates competition in the field of emergency aid work. When there are several organisations there is competition for relief funds. NGOs compete to prove themselves more worthy of receiving such funds than other recipients. Foreign donors of emergency aid can withhold assistance if they are convinced that their funds are being misused. When several NGOs come into existence and put an end to the state monopoly, the responsibility of foreign donors of emergency aid increases: their relief policy should favour the development of competent NGOs. The efficiency of the assistance provided must be the decisive criteria for allocating foreign aid funds.
Methods of Control
Even if foreign donors of emergency aid don’t usually talk about the problem of misuse of funds, they are naturally aware of it. In most western industrialized countries there are budgetary regulations which include various mechanisms to prevent misuse. There are two main mechanisms: stipulating that an invitation to tender must be issued before large orders are placed and that the use of the funds must be proven with receipts. In countries in which corruption has become an everyday phenomenon, such administrative mechanisms provide much less protection against the misuse of the funds than in Germany, for example. In many countries it is almost part of standard ‘customer service’ for suppliers to issue receipts for more than was spent which can be used in statements of accounts given to foreign donors to conceal embezzled funds. Another procedure is to issue two original receipts for only one purchase transaction; the same transaction can then be included in the statement of accounts to two donors. Another possibility is coercing employees to sign for higher wage payments than they actually received or including fictitious salary payments and fees in statements of account. A large NGO in Indonesia with which I was in contact even employed someone part-time in order to forge the receipts which were intended for foreign donors.
It is not usually possible for foreign donors to check the veracity of receipts effectively. They do not have the authorization to investigate whether, for example, a supplier’s books contain an entry which corresponds to receipts issued or whether the receipts he indicates are accounted for in his tax return. As long as none of the authorities in the country concerned perform such checks or as long as the authorities are kept from doing their jobs by bribery, the effectiveness of demanding receipts to prove expenditures is limited. An invitation to tender as a mechanism for preventing misuse is only effective if its not manipulated by those responsible for placing the order, for example, by selecting the suppliers who may submit a tender or by not being objective when comparing quality.
This does not mean to say that such administrative regulations are pointless and that one could just as well do without them. They at least pose certain risks for those involved and thus help to limit misuse. Foreign donors of emergency aid must therefore insist on these control mechanisms to support those forces in the Third World who are pushing for greater transparency concerning the spending of public or trust funds . When choosing which NGOs they will support, foreign donors of emergency aid should see to it that their partners have proper statutes, that there is a supervisory board with clearly defined rights and duties and that there is a system of reporting which ensures transparency within the organisation in question and toward the public.
Since the effectiveness of administrative control mechanisms is limited, additional methods of preventing misuse are necessary in emergency aid as they are in development aid in general. When foreign donors of emergency aid investigate market prices themselves, they considerably limit possible manipulation of receipts and offers to tender. Evaluation of projects and independent contact with the target groups by linguistically competent persons whom the foreign donor can trust give an indication of how successful prevention of misuse within the organisation was. It is also interesting to see what has become of past projects – even when they were concluded long ago from an administrative point of view. The author had the opportunity to view cyclone shelters which has been built by Caritas Bangladesh many years before and which had survived major cyclones and floods without any signs of damage. This kind of stability is only possible if the construction of the shelter is carefully supervised. The concrete of the cyclone shelters must be mixed using sand from fresh water rivers. What could be more tempting than to reduce the high transport costs and increase the profit margins by adding sand which contains salt and which is available everywhere in coastal areas? This is likely to be the main reason for the deplorable condition of many other cyclone shelters on the Indian subcontinent. In a country in which corruption is common, offers are naturally made to those responsible for supervising the construction to partake of the extra profits which the building contractor can make if the supervision is somewhat less strict. In the case of Caritas Bangladesh, such offers were apparently not accepted; this means that the local employees of Caritas Bangladesh were dedicated to the project and that control mechanisms inside the organisation worked. It is evident that positive experiences such as this one say more about a partner’s reliability than the submission of wonderful reports and receipts.
Local Structures for the Prevention of Misuse
Attempting to prevent misuse based on administrative regulations only and foreign donors’ attempts at evaluation is fighting a losing battle. There is no point in working with independent local organisations unless there is sufficient trust that the asserted humanitarian goals of the partner organisation are genuine and not intended to conceal a system for diverting funds. This trust comes about and grows when the local partner is willing to provide transparency toward foreign donors. Foreign donors of emergency aid and local partners can then cooperate in matters of misuse prevention as well. Where this trust is not possible, perhaps because the local partner conceals relevant information for evaluating the use of funds or influences evaluations so that it is not possible to gain insight into the project, there is no basis for working together in the future. When the emergency aid sector is not monopolized by the state or by state-controlled organisations, foreign donors of emergency aid have a choice and are obligated, in order to prevent misuse, to give an opportunity to those organisations who are willing to work in a more transparent manner.
The extent to which misuse can be prevented not only depends on the internal structures within the local partner organisation. Misuse can also be prevented by the victims of disasters themselves, the so-called target groups and their representatives. Involving local committees in the distribution of relief goods can create transparency concerning the criteria used for distribution. Church-related partners of Caritas international have often organised the distribution of relief goods as a „public event”. The relief goods are distributed at a publicized time in a public place. Everyone can observe the distribution and see who receives goods and in what quantity. As those watching are well informed about the social and economic situation of the individual recipients, at least much better than local employees or representatives of relief organisations, this procedure helps to limit possible misuse. It also serves to protect honest employees of emergency aid organisations in countries in which corruption is common and in which, consequently, everyone who has an opportunity to earn illegal income is suspected of corruption.
Avoiding Disbursement Pressure
When discussing the problem of misuse in emergency aid foreign aid organisations should also look on themselves. The problem of misuse has to be located in the wider context of debates concerning aid effectiveness. Some structural components of the work of aid organisations make it difficult for them to cope with this problem.
The phenomenon of being under disbursement pressure is one of the paradoxes of development aid. Development aid organisations – that is, those responsible within them, are under pressure to spend funds allocated for a certain purpose within a certain time limit, but insufficient structures in the developing countries often prevent this. Disbursement pressure results for two reasons: firstly, because funds are usually allocated for a specific purpose which can be defined regionally or sectorally, and secondly, from deadlines set for spending funds, whether they are legally fixed or a result of certain goals or a strategy of the organisation. When funds are allocated for specific purposes only and deadlines set for spending them, organisations are prevented from using the funds in other areas, other sectors or at a later time, when, in the areas originally intended for support, the requirements for worthwhile projects are not or have not yet been fulfilled.
In the case of projects which are financed with public relief funds, disbursement pressure results primarily from the obligation to spend them within a fixed and approved time period, an obligation which results from budgetary laws. Non-governmental emergency aid is largely financed by means of donations. The purpose for which the funds are to be used is determined by the donors, assuming that the organisations which call for donations respect the will of the donors when they budget resources. Time limits for spending the donations result to a certain extent from the auditing policy of the tax offices which have, in Germany, recently developed more restrictive ideas of what they accept as a reasonable period of time for using donations. According to tax laws, the tax offices have the right to set non-profit organisations time limits for spending donations which are subject to tax-privileges. If the policy of tax offices becomes more restrictive, the pressure on the organisations to spend donations quickly or to use them for narrowly defined purposes will increase. 
Of much greater relevance for the length of time it takes for donations to be spent are the strategic considerations of non-governmental organisations, especially concerning their position on the donation market. Donations are primarily called for during the acute phase of disasters, as long as the disasters receive media coverage. Quick relief operations and direct aid to the suffering conveyed through the media cause many people to make donations. With the growing number of organisations competing for shares of the donation market, there are naturally calls for donations which are not professionally grounded, which promise quick help but for which the local structures are lacking. In order to justify themselves to the donors and in order to fulfill the expectations partially created by their own appeals for donations, relief organisations feel under pressure to be present at the disaster site, especially in the acute stages. Their work is only seen by a large part of the public, and thus by past and potential donors, in this phase.
From the point of view of misuse prevention, such pressure to use funds is disastrous. One is inevitably less critical when deciding which project proposal to accept and the amount of assistance to grant when one is under pressure to use up funds. Whether it is a matter of critical questioning, checking up on the reliability of partner organisations applying for funds, or searching for possibilities to provide assistance more effectively and cheaply, disbursement pressure gets in the way of all of this. If, like the author, one has experienced co-financing large emergency aid projects in the acute phase of a catastrophe with a lot of media coverage cannot help but get the impression that, in such a situation, many organisations provide funds generously without asking many questions, even though they would normally subject their partners in the country concerned with questioning and conditions if there were no such disbursement pressure. Therefore, disbursement pressure is a factor which makes emergency aid considerably more expensive in its acute stage, naturally with negative consequences for the financing of longer-term projects which have to be effective after the focus of the media has turned to another disaster. Partners in emergency aid are, of course, aware of this disbursement pressure. It reduces the motivation for partners to control misuse within their own organisation: in such a situation misuse would not necessarily be at the cost of assistance for disaster victims, but rather at the cost of the budget of those organisations which act under disbursement pressure. When employees of local partner organisations sense that more than enough funds are available, at least in comparison with the amount of assistance which can be realized locally, this can reduce moral inhibitions toward misuse.
Disbursement pressure can also be detrimental to emergency aid partners who are honest and who had successfully combated internal misuse up to the time when a catastrophe became acute and received a lot of media coverage. Honest, experienced and capable partners are often the bottleneck factor in emergency aid. When foreign donors of emergency aid are under pressure to use up funds, the capable local organisations are faced with numerous offers for cooperation. They are then under pressure to increase their program work to such an extent that their own structure is overtaxed. Honest partner organisations also have difficulty limiting themselves to what is possible in the acute phase of a disaster when foreign funds are much more easily available than they normally are. If a partner organisation wants to increase its program work as a result of the offer of foreign funds in an acute disaster situation, it means expanding its administrative structures, rapidly hiring additional personnel whose reliability possibly cannot be judged and expanding into regions in which no experience or contacts exist. All of these aspects make it difficult to control misuse within the partner organisation. Disbursement pressure therefore creates the danger of overtaxing local bodies and, in the worst event, of destroying them as honest organisations.
Disbursement pressure must therefore be avoided, especially since it favours misuse. It must also be avoided for other important reasons: disbursement pressure undermines the necessary cooperation and coordination among foreign emergency aid organisations, as cooperation and coordination cannot thrive in an atmosphere of competition for centre stage. Disbursement pressure during the acute phase of a catastrophe naturally means that less funding will be available for long-term rehabilitation work following disasters which do not receive media attention. In order to avoid or at least reduce disbursement pressure in the case of projects financed with public donations, it is necessary for donors to change their way of thinking. As donors begin to better understand that assistance is dependent on local structures and that, in order to fulfill the purpose of their donation, their funds must be used with a long-term orientation, disbursement pressure on NGOs during acute disasters will diminish. First and foremost, this change requires realistic appeals for donations and realistic information. Appeals and information must not, in an effort to maximize donations, suggest possibilities for assistance so immediate that they do not correspond to the difficult circumstances in countries which are faced with acute disasters. In order to change public thinking, it is also necessary to inform the donors from the very beginning about the long-term rehabilitation work which follows the acute phase of a disaster.
Don’t Condemn Administration Costs!
Part of the scepticism about whether relief aid even ‘gets there’ is due to the assumption which is shared by many donors that most, or at least a substantial part of donations is eaten up by the administration of the relief organisations themselves. Donor contacts indicate that administration costs of 30% or more are considered realistic, which is at least two to three times the actual amount incurred by sound organisations. Relief organisations which depend on donations to finance their work virtually outdo each other in assuring their potential donors that no deductions are made from their donations to cover administration costs. In this way the donor can be “sure that every penny of his/her donation benefits the people affected” (Quote from an appeal for donations of Caritas Germany only a few years back). This condemnation of administration costs which relief organisations have been practising in their appeals for donations for decades has probably reinforced prejudices about the volume of administration costs. There are not too many donors who do not realize that administrative costs are unavoidable. A clear statement about the percentage of the assistance provided which is spent in addition for administration costs would reassure donors far more than general assurances that their donation is not used for such purposes. For many people such a concrete statement would help to clear up the misconceptions they have had up to now. Only concrete statements of this kind permit donors to compare various organisations when they are deciding which to support. In order for them to do this, however, it is necessary for organisations which receive donations to reach a binding agreement on how to define administration costs and how to separate them from costs directly related to projects. Instead of creating this kind of transparency, the donation-collecting agencies have reacted defensively to the very legitimate questions of their donors and the media and in this way have contributed to the condemnation of administration costs.
While it is true that a sensible limitation of administration costs is an important criterion in judging the efficiency of relief organisations, lower costs are not necessarily better. This is true especially from the point of view of preventing misuse. In an environment which is characterized by corruption and lack of legal security, it is necessary to choose and supervise projects very carefully. When providing support to a sector of non-governmental partners it is difficult to know who one is dealing with; one can only separate the ‘wheat from the chaff’ by working together with other organisations and partners, by taking time to ask questions, by not regarding reports merely as a partner’s formal obligation and by at least making spot checks of project sites. Charitable organisations can only guarantee to spend 100% of donations, but whether these actually ‘get there’, and whether they are converted into efficient aid is also determined by the efficiency of their administration. The professionalization of emergency aid, a task which at best has just begun, is not possible without an adequately maintained administration.
Non-Governmental Structures which are Similar to those in Government
Foreign emergency aid organisations which work with NGOs in developing countries may be confronted with structures within the NGOs which are quite similar to those of a state bureaucracy. When organisations which are set up as NGOs but where founded by bureaucrats or are directly dependent on the state, it is not surprising if their structures are similar to those of state bureaucracies. The following deals with NGOs which are independent of the government and therefore deserving of their name. Structures can also develop within these organisations which are similar to government ones, especially when the system of remuneration in the NGOs is similar to that of the government sector. The level of remuneration often depends on the funding decisions of their foreign donors.
In many developing countries, civil servants are underpaid compared with the salary earned by those in the private sector with comparable qualifications. Nevertheless, the fact that the civil service is a desirable employer is not only due to the greater security and the social prestige which such a position provides: under the conditions which are prevalent in most developing countries, civil servants have the possibility to compensate or overcompensate for the difference between their salary and a comparable salary in the private sector by means of illegal income. Control mechanisms which are intended to eliminate or at least limit bribery and embezzlement prove ineffective; this is partly because large groups of civil servants view illegal earnings as justified, as they are necessary in order to permit a lifestyle which is considered “appropriate”, and which would not be possible with their official salary only.
The official salaries in the civil service often serve as a guideline for those in non-governmental organisations. For this reason alone there is a danger of structures similar to those in government developing in NGOs. NGOs which work as local partners of foreign relief organisations depend on qualified employees who, if they meet the requirements, can earn much more in the private sector than by working for the civil service or for NGOs with similar salary levels. At the same time, senior employees of the local organisations have considerable freedom to make decisions, for example, when procuring relief goods or drawing up plans for their distribution. This leeway can be used to earn illegal income. It is reasonable to assume that the more employees feel that they are underpaid for the work they do, the fewer scruples they would have in supplementing it. These patterns of justification are similar to those of corrupt civil servants. The simple desire of a qualified employee to provide a secondary-school education for his children can lead to a financial burden in countries in which the costs for secondary schools must be borne privately. Given these costs cannot be met with the official salary of a civil servant, in such a situation, the advancement of one’s own children has greater priority than the correct use of trust funds. Of course, fair remuneration alone is no guarantee against the misuse of funds as long as there are no effective control mechanisms. But without fair payment, control mechanisms cannot be enforced effectively. If rigid controls were enforced to eliminate illegal earnings in spite of employees being underpaid, qualified employees would be forced to leave the NGOs (with the exception of a few saints, which tend to be rare even in humanitarian organisations). As long as employees are underpaid there is no combating the cooperation between them and the collective concealment of information from controlling authorities.
The assistance policy of foreign donors must take into account the correlation between the salary structure of NGOs, the incentives to misuse funds and the chances of preventing misuse. If their assistance policy does not leave them enough leeway to support the necessary local structure of their partners and to pay qualified employees adequately, they encourage the development of corrupt structures within the partner organisations. There are, of course, employees of NGOs who remain in project work in spite of receiving less pay than they could earn elsewhere without trying to compensate their income by diverting funds. However, this should not serve as an excuse not to provide payment within NGOs which is in line with market standards.
The diversion of funds within NGOs not only occurs to compensate the salaries of its employees, but also occurs to cover administration costs which possibly cannot be covered officially with foreign assistance funds or to create financial reserves for the organisation. This is not corruption in the sense of misusing an office for private purposes but it is nevertheless misuse of funds provided by the foreign donor. In order to achieve more transparency in this area however, foreign donors must be prepared to take into account the legitimate interests of the partner organisation itself. Its partners also need an adequate internal administration for their work and they need certain reserves to ensure the independence of their organisation. When foreign donors simply ignore these legitimate interests of their partners, they are in danger of financing administration costs and reserves in a hidden way, for example, by means of kick-backs.
Overcoming Information Barriers
Successful prevention of misuse is only possible when the employees of emergency aid organisations are willing to notice the signs which indicate possible misuse. This is not necessarily the case. This refusal to see such signs can be a result of the disappointment experienced when one is forced to change one’s mind about things one had felt sure about. For example, the realization that one may have been mistaken to believe that a partner organisation is above all doubt, that helping people in need is the only purpose of their work and that their basic orientation excludes any form of misuse. In this way, idealistic perceptions of partners, which were common especially at the time when assistance via NGOs began, can be counterproductive, especially from the point of view of controlling corruption.
But even when employees notice signs of misuse in their areas of responsibility, the organisation can only react if information barriers within the organisation do not prevent it from using the information. If misuse within one’s own area of project work is never an issue, the person who discovers misuse in his area of responsibility is perceived as a trouble-maker. Or he is then suspected of being responsible for the problems since they were only evident in his area of work. The fact that misuse occurs only in his area of work shows that he was not careful enough in his choice of approaches, partners and projects. If such an atmosphere is present within an organisation, information is not readily passed on and the knowledge of the employee is of no use to the management of the organisation.
When drafting their conditions for the approval of funds, public donors of funds encourage information barriers if they disregard the fact that emergency aid must be undertaken under more difficult conditions than those in the area for which, for example, German budgetary law was originally drafted. The stipulation that the financial contribution must be given directly and exclusively to the people in need is a legitimate part of the conditions for approval. The recipient is otherwise required to reimburse the contribution in part or in full to the public donor. The misuse of funds by local partner organisations or their employees is by definition a breach of the conditions for approval. The foreign emergency aid organisation as a recipient of public funds is therefore responsible for a project being carried out without misuse under conditions which are partially, or largely, beyond its control. How does this affect the willingness of employees in relief organisations to notice signs of misuse, to look beneath the surface of the statements of account and distribution reports? In the case of publicly financed projects, this involves financial risks for one’s own organisation: the danger of having to pay back funds to public donors. For organisations whose work is primarily supported by means of public contributions, this can pose a threat to their existence. Of course, it is not possible to release the recipients of public contributions from their responsibility for the realisation of a project. But donors of public contributions could make more allowances for the conditions under which projects must be carried out, and they could make a greater distinction between misuse which occurred due to negligence on the part of the recipient and that which occurred for reasons which could not be helped. Out of fear of the Federal Audit Division, public donors react to changes in plan which could be an indication of misuse by immediately threatening to demand repayment of funds, even if it is only a matter of slight differences between the quantities of food indicated in the distribution report and the quantities delivered. This, of course, does not help to limit misuse, but instead creates information barriers within the organisations, which are put in the uncomfortable position of having to answer for projects over which they have only limited control.
Emergency aid must often be conducted in countries in which corruption is an everyday phenomenon. For foreign donors of emergency aid risks are therefore unavoidable, including the risk that their funds will be misused, and, in extreme cases, that the misuse would not even be noticed for a long period of time. As a rule, it is not in their power to change the conditions under which they do their project work. What they can do, is to organize their work structures in such a way that misuse becomes more difficult. Promoting the development of capable partners is an important part of misuse control, as this undermines the monopoly of a state administration which in many countries is susceptible to misuse. Foreign relief organisations have the responsibility to contribute by means of their aid policy to the development of an efficient sector of NGOs. They are approached by sound NGOs and by others whose real goal is the diversion of funds; unfortunately, the difference is not always evident. Administrative control mechanisms are by no means adequate in order to differentiate between the two: it is necessary to gain sufficient insight into the projects themselves, locally. Intensive project supervision, systematic evaluation and close contact to local organisations make it possible to differentiate between partners. These tasks are ensured by the administrations of the relief organisations which are so often scorned but without which it is not possible to control misuse effectively. External prevention of misuse is not sufficient however; when deciding which NGOs to support, one should make sure that the organisations in question are transparent and set up in such a way that their executives must answer to a supervisory committee. Such structures create internal mechanisms for preventing misuse. If legitimate running costs of local partner organisations are not recognized by foreign donors, this encourages the development of corrupt structures within the partner organisations similar to structures in government. In order to control misuse, it is necessary to reduce the disbursement pressure which is rampant among emergency aid organisations as a result of marketing strategies for donation appeals. And one last thing: in the emergency aid field the misuse issue is not readily spoken about – a situation not in keeping with the presence of the risks. Misuse and misuse control must be spoken about more openly in order to reduce information barriers and in order to integrate these issues in the training and further education of employees of a more professional emergency aid.
1. The author is grateful for many productive discussions with his colleagues at Caritas Germany. I would like to thank Günter Hölter, Jürgen Lieser, Bernhard Hallermann, Martin Salm, Franz-Josef Vollmer, (all Caritas international) as well as Rolf Hanisch, Peter Moßmann and Heribert Weiland for critical comments on the first draft of this article and suggestions for its improvement. Many thanks also to Stephanie Logan for translating from an earlier German version.
2. Arnold J. Heidenheimer, Michael Johnston, Victor T. LeVine (Ed.) (1989): Political Corruption. A Handbook. Transaction Publishers, New Brunswick and London, p. 8ff.
3. For a good survey, see Robert Klitgaard (1988): Controlling Corruption, University of California Press, Berkeley.
4. An overview is documented by Heidenheimer et. al. (1989). See, for example, the papers of Colin Leys: „What is the Problem about Corruption?” or Nathaniel H. Leff: „Economic Development through Bureaucratic Corruption” reprinted in this volume.
5. Klitgaard (1988), p 21. For a discussion of the effects of corruption on development see M. Shahid Alam (1989): Anatomy of Corruption: An Approach to the Political Economy of Underdevelopment. In: American Journal of Economics and Sociology, Vol. 48, No. 4, October 1989, S. 441 – 456; M. Shahid Alam (1990): Some Economic Costs of Corruption in LDCs. In: The Journal of Development Studies, Vol. 27, No. 1, October 1990, S. 89 – 97; Pranab Bardhan (1997): Corruption and Development: A Review of Issues. In: Journal of Economic Literature, Vol. 35, September 1997, S. 1320 – 1346.
6. On the topic of donations, see Bundestagsdrucksache [Circular of the German Parliament] 12/82: Antwort der Bundesregierung auf die große Anfrage der Abgeordneten [The Federal Government’s Answer to the interpellation of Members of Parliament] Rudolf Binding, Evelyn Fischer (Gräfenheinchen), Monika Gansefort, weiterer Abgeordneter und der Fraktion der SPD [other Members of Parliament and the SPD parliamentary party] Humanitäres Spendenwesen in der Bundesrepublik – Schwerpunkt Auslandshilfe [Humanitarian Donations in the Federal Republic of Germany – Focus on Foreign Aid]. On the question of the period for disbursement, see number 42, page 29.
Dr. Georg Cremer, Caritas Germany and University of Freiburg i.Br.
Address for correspondence: Caritas Germany/Caritas international, Postfach 420, D-79004 Freiburg