Transferring risk to Ukrainian NGOs

An article by François Dupaquier 

Ukrainian civil society players mobilized in spectacular fashion following the Russian invasion of February 2022. The ensuing humanitarian crisis could have seen the commitments of the Grand Bargain finally implemented, for more effective humanitarian aid closer to the people. However, as of November 15 2023, OCHA counted $7 billion in humanitarian aid allocated to Ukraine by international institutions[1], of which only 0.8% was directly addressed to local NGOs[2]. These figures are a far cry from the Istanbul commitments of 2016, which set a target of 25% of funds dedicated to national structures. To implement their humanitarian actions as close as possible to the war zones, where few international players are present, these Ukrainian organizations therefore had to get closer to these IOs/NGOs[3] with 99.2% of the remaining funds. But these local NGOs have found themselves confronted with practices that run counter to basic humanitarian standards and threaten their very survival. As experienced in other contexts, it is the transfer of risk – physical, of course, but above all administrative – that represents the greatest danger for these local players, and therefore for the lives of the populations they help.

The opportunity to reform the humanitarian sector in Ukraine in line with the objectives of the Grand Bargain.

From the very first days of the conflict, not only did Ukrainian NGOs and groups organize to support their people, but civil societies the world over also mobilized to deliver the necessary aid. The Ukrainian volunteer movement existed before the Russian invasion. It had already been at work since 2014 during the Maïdan revolution and the Donbass conflict. In a country plagued by corruption, this fantastic impetus was already constitutive of Ukrainian society. Thanks to a high level of development and education in the country, these volunteers have demonstrated an uncommon efficiency. Doctors, engineers, logisticians, accountants and IT specialists have set up perfectly mastered project management processes, often from the private sector, which many humanitarian professionals would have had a lot to learn from.

Meanwhile, international NGOs and UN agencies responded to calls for projects from major donors. They collected the billions of euros donated by the international community, on projects that were often hypothetical, in consortium, and rarely in coordination with local players. As a result, some of the largest NGOs had not even crossed the Ukrainian border when they submitted their project proposals to the funders, who were themselves in a hurry to show their support for Ukraine. When it came to implementing their actions, not only were they forbidden to approach the war zones because of their security procedures, but there was ultimately no room for them. Indeed, these thousands of Ukrainians were already supporting their population, often at the risk of their lives, without waiting for anyone else, using their own means, and with the support of the diaspora and foreign civil societies.

While this situation offered a unique opportunity to localize aid, the international humanitarian system did not always seize it. And when partnerships were developed, IOs/NGOs often transferred their endless bureaucracy onto national NGOs. In this way, they have imposed even stricter and more restrictive rules on local players than those dictated by their own donors, while at the same time diverting financial resources that would otherwise have been needed by national NGOs. The zero risk policy of these international humanitarian actors, whether physical or financial, has led them to raise the bar even higher for local organizations. This approach creates a constant risk of local organizations collapsing and defaulting on payments.

Transfer of risk from IOs/NGOs to local partners: the 0-risk policy

Lack of consideration for the safety of the local partner

Although the principle of transferring physical risk is on everyone’s lips, it is not the problem in itself. It is essential in order to compensate for the fact that IOs/NGOs are unable to access the field because of their own safety regulations, but also because of a definite lack of will. In Ukraine, local volunteers crossed the front lines with or without the help of IO/NGOs. And this was necessary to help the people.

But the resources available to IOs/NGOs were not mobilized to improve the safety of local actors. At times, they even endangered the latter. International commitments to improve the safety conditions of local partners were all too rarely respected.

CSOs have thus experienced:

• Refusal to pay for safety equipment (ballistic vests, helmets, communications equipment, etc.), staff insurance, or adapted logistics, such as vehicles, to cope with field conditions.
• IOs/NGOs give only secondary consideration to safety management during preliminary audits, and often provide no support in this area.
• The imposition of processes that put volunteers’ lives at risk, such as the obligation to collect superfluous information in dangerous terrain, or with unsuitable methods, slowing down work in war zones.

Transferring financial and administrative risk to local partners

Ineligibility of expenses

The 0-risk policy of IOs/NGOs leads to a systematic search for ineligible expenses with the local partner, i.e. invoices whose payment or reimbursement is refused. To achieve this, the administrative processes imposed by IOs/NGOs on CSOs are stricter than those of any international donor. The aim is to “raise the bar” for the local organization, and thus for IOs/NGOs to face up to their own audits with a 0 risk of ineligible expenditure.

This strategy leads to uninterrupted exchanges on financial reports, where every document is scrutinized and left to the discretion of the IO/ONGI’s administrative staff. In order to avoid being found wanting, the tendency is to question any information or document presented, and to declare an expense ineligible without valid reason. This prevailing situation, giving unilateral prerogative of the financial decision, is contrary to law and practice.

Indeed:

• Funding contracts do not give them such prerogatives.
• IO/ONGI staff act as financial auditors. Yet only a chartered accountant, a regulated profession working to international standards, has the prerogative to consider the ineligibility of expenditure.
• IGOs often refuse to organize financial audits to settle disputes.

Financial report versus monthly audit

While most donors require interim or quarterly financial reports, IOs/NGOs impose monthly financial reports on their local partners. This work is therefore just-in-time within the CSO. It prevents administrative departments from carrying out other essential tasks, and inevitably leads to cascading problems with the IO/NGO.

Although cumbersome, it is still possible to draw up a monthly statement of expenditure. But under the guise of a financial report, the prevailing rationale is to audit the local partner, in a policy not only of 0 risk, but also of transferring the entire workload to the CSO.

To this end, each month the IO/ONGI requests the entire documentary chain of the local partner’s accounts. Every month, this represents the classification of dozens or even hundreds of documents for each invoice.

The following documents are expected to be supplied, organized, classified and scanned, according to the different rules and formats of each IO/ONGI:

• The financial report.
• All invoices.
• A voucher for each invoice.
• Proof of payment for each invoice.
• Administrative and accounting documents relating to each invoice: supplier or staff contracts, pay slips, job profiles, advertisements, purchase orders, pro-formas, supplier quotations, purchasing procedures, supplier evaluations (including international sanctions, anti-terrorist lists, etc.), etc.
• Proof of receipt of aid by beneficiaries.

While IOs/NGOs complain that they are constantly being audited, there is only one audit per project, based on a sample of a few dozen invoices. For the local partner, it’s a continuous audit of 100% of the accounts, covering several thousand invoices.

No IO or INGO, with all the experience they can muster, would be able to resist such a constraint, but above all, none would accept it for themselves.

These processes are therefore designed to facilitate the work of IOs/NGOs as a whole, in contradiction with the interests of the local partner. With 100% of the document chain ready, translated and filed, these organizations have nothing left to do for their own audits. They can supply any document at the click of a button, regardless of the sample selected.

Risk 0 is thus achieved, as are substantial savings. Indeed, these intermediary IOs/NGOs often charge the lion’s share of operating and administrative costs.

Secondly, this system has two major consequences, not only for the beneficiaries, but also for the local NGOs:

• IOs/INGOs do not release contract payments to the local partner until this work has been validated by their departments. Exploring the documentation chain can be a never-ending process. In fact, each financial report gives rise to endless additional requests and months of discussions. This puts the CSO at risk of non-payment and financial jeopardy, and ultimately prevents aid from being delivered to beneficiaries.
• In this frantic search for the ineligible, IOs/NGOs immediately place the CSO in a position of fault, or even guilt, thus imposing inappropriate pressure on staff and violence in working relations.

Payment delays

Payment delays exist even when we’re not waiting for financial reports to be validated. Initial payments can take weeks or even months after contracts have been signed. The local partner is either obliged to wait to implement its activities, and therefore in turn not to respect the conditions of its contract, or to take the risk of committing cash.

Imposing dangerous and/or illegal measures

Some IOs/NGOs try to impose measures on local partners that cause them to lose control of their activities, in order to protect themselves in the event of a control or audit.

The most striking example is when a CSO is required to use the IO’s/ONGI’s project monitoring tools, rather than its own. In this way, the latter captures the data collected by the CSO during the implementation of activities directly on its digital server. It can use this data more rapidly in its reports, communications, fund-raising and audits. Conversely, this deprives the local partner of control and access to information, as well as the ability to monitor and correct its actions.

This practice is contrary to its professional and legal obligations, putting the local organization at risk.

Indeed:

• As a humanitarian organization, the CSO must respect humanitarian principles and standards, including quality standards. This goes hand in hand with having its own monitoring and evaluation system to control and justify its actions.
• As the implementing organization in its partnership, the CSO is professionally committed to monitoring, controlling and reporting on what it does.
• Under most funding contracts, the CSO is responsible for the chain of documentation and control, from the moment it receives supplies or funds, until it delivers the aid. This is a necessity in terms of auditing.
• As a legally registered organization in the country, the CSO undertakes to respond to all requests and controls from the authorities, including those relating to the fight against fraud and corruption. It would be legally unacceptable for the CSO not to have the capacity to monitor its activities.
• Moreover, while the CSO agrees to monitor its activities and provide the information needed to feed the UN reporting system (beneficiaries disaggregated by age and gender, location, etc.), the IO/NGO questionnaires are much broader and constitute quantitative assessments unrelated to monitoring. This process poses numerous problems, as it slows down the work process too much, which is sometimes done door-to-door. The logistical and financial consequences are considerable. It also poses security problems in many regions where CSOs operate close to conflict zones. Any extra time spent in the field puts staff and beneficiaries at risk.

Absence of administrative or indirect costs

Administrative costs are a matter of survival for both local organizations and IOs/NGOs. They enable the CSO’s associative project not only to survive, but also to cover all costs not included in direct costs, and to cope with problems.

This situation is recognized internationally. It was reiterated in the latest DG-ECHO scoping note of March 2023 entitled “Promoting equitable partnership with local stakeholders in humanitarian situations”. International donors explicitly ask IOs/NGOs to pay these fees to their local partners. Yet many refuse to do so.

At a time when these same IOs/NGOs are systematically looking for ineligible costs to charge to CSOs, by depriving them of administrative costs, this is the last lifeline they take away from their partners before they drown.

Inconsistent due diligence

Before launching partnerships, IOs/NGOs carry out long and arduous due diligence processes to test the skills of local NGOs. It can last months and involve dozens of IO/ONGI staff, each with a sector to assess: finance, logistics, management, HR, monitoring-evaluation etc. In this way, the IO/ONGI verifies that the partner has the appropriate procedures in place to be accountable for the funding it receives.

Finally, once this process has been successfully completed, and it’s time to sign the contract, the local partner is often required to disavow its own methods and apply all the IO/ONGI’s internal procedures, with no negotiable contract conditions. Not only are these procedures adapted to the size of the IO/NGO, which may have an annual budget of several billion dollars. But each IO/NGO also has its own procedures. The local partner working with several IOs/NGOs quickly finds himself in an untenable position.

This situation is often due to the fact that the final decision on a contract rests with the IO/ONGI’s finance department. They have the final say, and have often not followed the long months of negotiations between their organization and the CSO. When the time comes to sign, the financiers apply their 0-risk policy, and impose the most restrictive conditions of the standard.

Obligation to use dedicated project accounts

The obligation to use a dedicated bank account per grant contract is also a threat to the local partner. It removes the local partner’s ability to manage its own budget, an essential skill which was nevertheless assessed during the preliminary audits. As a result, the local partner finds itself having to manage multiple accounts, creating administrative imbroglios for cost allocation.

But much more threateningly, the local partner finds itself unable to play with its cash flow, between its various contracts, knowing that late payments by IOs/NGOs, sometimes outside the project dates, rapidly push the CSO into a situation of payment default that could lead to its dissolution.

Conclusion:

We can conclude that:

• IOs/NGOs often impose processes on local partners which they have often fought against in the past, and which they themselves would be incapable of respecting.
• IOs/NGOs finance CSOs not as partners, but as subcontractors, in an unequal relationship that is sometimes truly dominant.
• The contractual constraints imposed by IGOs and INGOs force local organizations to increase their payrolls and expenses with limited resources, since delays or the sudden cessation of funding can result in their bankruptcy.
• They place local partners in a situation of permanent pressure, with every delay or decision by the IO/ONGI jeopardizing the organization’s survival.

However, it should be borne in mind that the pressure experienced by IOs/NGOs also has a cascading effect on their administrative staff working with CSOs.

In this context, it seems essential that:

• International donors respect the commitments they made during the Grand Bargain, and reform their operations to provide much greater direct funding to local players.
• IOs/NGOs reform their operations to enable a transition to localized aid.
• International donors, who were the first to impose 0-risk standards, are addressing the issue of transferring administrative risk to local partners. This problem of contractual relations with local partners must also be addressed as soon as possible by the governing bodies of IOs/NGOs.
• International humanitarian aid must decide to put an end to the 0-risk policy, which is not applicable in difficult areas, as the risk is ultimately assumed by local partners. International donors must support IOs/NGOs in this new direction.

 

[1] https://fts.unocha.org/countries/234/summary/2022

[2] In this document, the terms Local Non-Governmental Organizations (LNGOs) and Civil Society Organizations (CSOs) are used interchangeably to refer to Ukrainian national humanitarian structures and initiatives.

[3] International organizations (mainly United Nations agencies) and international non-governmental organizations.

 

François Dupaquier

François Dupaquier has been working in the humanitarian sector for over 20 years, in many crisis areas. He is a consultant in evaluation and accountability systems with the FrontView consultancy firm he heads (www.frontview.fr). In April 2022, he founded the NGO U-Saved, active on the frontline in Ukraine (https://www.instagram.com/usaved_ua). His aim is to develop new approaches to aid effectiveness. François is also a documentary producer and director, and author of novels, published by Fayard and Flammarion (La lionne, 2023, https://editions.flammarion.com/la-lionne/9782080423948).