This article is part of an AlertNet special report on humanitarian aid: futureofaid.trust.org
By Luke Balleny
LONDON (AlertNet)- Despite the most stringent safeguards, there are still so many ways aid money can go astray -- through state corruption, mismanagement, theft by warlords and even diversion by aid workers.
In October, a British parliamentary watchdog warned that more British aid could be lost to fraud and corruption because of plans to increasingly channel aid money to politically unstable and conflict-ridden states like Somalia and Pakistan.
In contrast to other countries, Britain has committed to raising its aid spending to 0.7 percent of gross national income (GNI) by 2013 -- a target set by the United Nations.
In 2010, Britain spent 8.354 billion pounds on overseas assistance -- including humanitarian and development aid -- or 0.56 percent of GNI.
With such big sums of money involved, what is the British government, particularly the Department for International Development (DFID), doing to make sure its aid gets to where it is supposed to be going?
"All our programmes are independently audited and a risk evaluation is undertaken in each area for each project and programme," said a DFID spokesman.
But in countries that pose a particular corruption concern, the spokesman said further funding of programmes depended on results shown. In the case of education, for example, more funding for schools may be tied to graduation rates and numeracy and literacy scores.
Another way to reduce the risk of funds going missing was to bypass local governments suspected of graft, DFID said.
"In countries where corruption is considered endemic in certain parts of government, for example, Bangladesh, we don't work through the government," the spokesman said.
"We don't do what's called budget support for example, where we might support a government's educations sector in certain fields like providing schools for the poorest communities. We'd only work through accredited NGOs (non-governmental organisations), so charities like Oxfam or Save the Children," the spokesman added.
DFID, like most development agencies, funnels the vast majority of its humanitarian aid through multilateral organisations or trusted international NGOs (INGOs) that can respond more quickly to an emergency.
"The way that donors generally work, is that they would do an assessment of the INGO's capacity or its own systems on the security of the funding," said Maryam Kennedy, a partner in Ernst and Young's Fraud Investigation and Dispute Services, a unit often enlisted by development agencies to track their aid.
"So when the emergency arises, they can say, 'Right, we've got an emergency in Southeast Asia, we know these four or five (INGOs), we've already evaluated their systems, we just give the money to them and we place reliance on what they're going to be doing,'" Kennedy told AlertNet.
Given the speed with which funds and equipment need to be dispersed in an emergency, corruption is always a significant risk. Media reports of corruption in high profile humanitarian crises have further increased scrutiny of DFID's emergency aid disbursement.
But according to a 2011 online survey commissioned by Britain's Humanitarian Emergency Response Review, 60 percent of respondents "disagreed" or "strongly disagreed" with the statement: "Emergency aid is wasted through inefficiency and corruption, and the money and support doesn't get to the people who really need it."
In the modern world of online banking and high-tech electronic security, monitoring flows in and out of a bank account should be a fairly simple task. If money is unexpectedly transferred out of an account, there's normally an electronic paper trail to follow.
However, in cash-based societies, ensuring aid is not siphoned off before it reaches its target is a lot tougher.
Kennedy said that one problem in Afghanistan where DFID funding is channelled through the World Bank-administered Afghan Reconstruction Trust Fund, was that money going through the government to pay the salaries of civil servants and security forces, like the police, was not reaching them.
In an attempt to alert the police to the dent corruption was making to their wallets, trust fund officials texted every policeman on his mobile phone to inform him of how much money the fund had transferred to the Afghan Central Bank and therefore what his salary should be, Kennedy said.
"The first time this happened there was uproar because they'd never received anywhere near the salary that they were supposed to because it was being pilfered along the way," Kennedy said.
"So that's an example of, in this country, in this sector, what we need to do (which) is to get the local community angry. That'll be the best way of putting pressure, to have effective monitoring," she added.
MONEY'S MISSING, NOW WHAT?
Once aid funds have been found to have gone missing, lawyers and forensic accountants must start the long, laborious process of asset tracing. They are often forced to follow the money through multiple jurisdictions and a complicated network of trusts, numbered bank accounts and shell companies.
Every name that the investigators come across must be noted and mapped to build a picture of the web of relationships involved in the corruption.
"Understanding those relationships and networks becomes ever more critical in any case but especially when you've got a lot of cash transferring," Kennedy said.
Even if the aid money is traced to one particular individual --by no means a foregone conclusion -- there is no guarantee the development agency will be able to retrieve their money.
"The first question for the development agency is -- where do you want to get to? Is it about asset tracing and recovery? Is it about identifying the facts and stopping it now? Is it about making some decisions about future funding and how you're going to structure future funding?" Kennedy said.
(Editing by Katie Nguyen)
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