Say No to Corruption

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 that ranking when it comes to the ‘F’ word (fraud) and corruption? 

 The sector itself remains highly vulnerable, as it is almost completely reliant on developing and maintaining a high level of public and donor trust.  Despite this, there continues to be an explained complacency when it comes to the topic of fraud.

   While acknowledged by many NFPs as a problem for the sector, corruption is rarely viewed as an issue when it comes to assessing their own organisation. Unless NFPs recognise, and start to properly manage fraud and corruption risks, the reputations 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?

So why are NFPs vulnerable to fraud and corruption?

The absence of a profit motive has resulted in many NFPs being extremely mission driven. This, coupled with an over-reliance on the use of volunteers, has resulted in an environment reliant on a high level of internal trust.

  This in turn is paralleled by an even higher level of external trust, where those working for NFPs are afforded an almost automatic presumption of honesty and moral authority (by the general public).  As a result, governance can at times be viewed as being secondary to the organisation achieving its mission.

In addition, the NFP sector has traditionally been inwardly focused and closed to external forces that traditionally provide an appropriate level of checks and balances. Unlike other sectors, in many jurisdictions NFPs have tended to be subject to a lighter regulatory approach — leading to a lower level of oversight and scrutiny by authorities.

 When combined with low salaries, or no salaries in the case of volunteers, the sector has inadvertently created an environment that provides individuals with opportunity, motive and rationalisation: the three components of the traditional fraud triangle.

• Programs that operate in jurisdictions characterised by high levels of corruption and a low-level of governance and accountability.
• Comparative to other sectors, a relatively high level of ongoing resource flows (usually kept in hard currency, as it is a reliable store of value which can be traded globally); and a heavy reliance on cash-based distribution systems.
• Cultural issues that also increase fraud risk — an example being neo-patrimonialism, still prevalent in many parts of the world, where an organisation’s resources are distributed by the office-holder in return for personal support and loyalty.

Conclusion of the fraud case

While the fraud scheme outlined above finally made it before the courts, it took two years, and only got there after concerted efforts by a number of highly placed individuals with close connections to the accused, failed to have the investigation and subsequent court case discontinued. 

  This included the NFPs own board, which twice attempted to halt proceedings.  Notwithstanding the evidence uncovered, the manager at the centre of the scheme was held in such high esteem that even a guilty verdict was insufficient for many within the organisation to believe he was actually guilty  proof that NFPs still have a long way to go regarding the ‘F’ word.

Laws interpreted as directed against corruption. The laws can stem from resolutions of international organizations, which are implemented by the national governments, who are ratifying those resolutions or be directly be issued by the respective national legislative.

Laws against corruption are motivated by similar reasons that are generally motivating the existence of criminal law, as those laws are thought to, on the one hand, bring justice by holding individuals accountable for their wrongdoing, justice can be achieved by sanctioning those corrupted individuals, and potential criminals are deterred by having the consequences of their potential actions demonstrated to them. national and in international legislation, there are laws interpreted as directed against corruption. The laws can stem from resolutions of international organizations, which are implemented by the national governments, who are ratifying those resolutions or be directly be issued by the respective national legislative.

Laws against corruption are motivated by similar reasons that are generally motivating the existence of criminal law, as those laws are thought to, on the one hand, bring justice by holding individuals accountable for their wrongdoing, justice can be achieved by sanctioning those corrupted individuals, and potential criminals are deterred by having the consequences of their potential actions demonstrated to them.