Non-governmental organisations (NGOs) undoubtedly perform stellar work across Kenya. When vulnerable citizens at the bottom of the pyramid cannot participate fully in our supply and demand economy, NGOs frequently fill the gap and help alleviate suffering.
However, while the majority function admirably, an alarming number fail to meet standards in efficiency, transparency and internal controls.
Disturbing stories surface from time to time about a non-profit in Nairobi with a crooked kick-back tender panel, a family in Western Kenya starting an NGO and profiting from skimming and family hiring or an NGO at the Coast holding conflicts of interest with non-independent auditors and monitoring and evaluation personnel.
How can small donors become savvy and know the right questions to ask and how to investigate NGOs?
Some large NGOs hide transparency through a few sly tricks. The charities first create multiple related entities. So when non-institutional less knowledgeable donors give money, the NGO states, “We only take 12 per cent for overhead administrative expenses”, thus impressing the giver.
The entity then proceeds to pass the funds to another related but legally separate unit. Perhaps the NGO for The Netherlands sends the money to the NGO’s Africa headquarters who remove an additional five per cent for their expenses, then to the East Africa office which cuts another three per cent.
The NGO’s Kenya office uses 15 per cent in administrative overheads, then the field office – where salaries and rent often do not even count towards most of the calculation of administrative costs – takes 30 per cent.
So instead of the stated 12 per cent, a whopping 65 per cent fails to go towards beneficiaries by instead supporting burgeoning NGO bureaucracies.
Donors should seek proof of the amount reaching beneficiaries, not nebulous overhead reporting.
For sizable institutional donors and large NGOs, often the burn rate of funds stands out rather than the impact. An NGO that carefully achieves high impact while saving costs for future inputs stands to lose future funding instead of getting rewarded.
The backwards incentive system often yields into lavish end of year team building activities at the most posh resorts, expensive status symbol Toyota Prados for directors who rarely use the four-wheel cars for field work and salaries and benefits far exceeding industry averages.
On the opposite, most small organisations get funding from international donors who are never keen to know specifics of how the funds are used.
Their largely non-institutional donors are less concerned with overheads and are more enamoured with anecdotal stories. A good story goes a long way accompanied by a picture of a smiling poor dishevelled beneficiary.
The small charity donors are left wondering whether the funds they donate go towards the sole aid purpose as stipulated.
Donors and their agents should get out and talk to communities instead of just relying on financial statements and reports. They should also keep in mind the fact that not every accusation carries truth.
However, often when substantial smoke rises in an investigation, a fire is burning somewhere in the organisation. The community knows when small NGOs hire family members for all positions, stack the board or favour relatives as beneficiaries.
Also, ask the same investigative questions to every board member, manager and employee interviewed. Search out verbal delineations of standard operating procedures, policies, hiring practices, beneficiaries selected, funds disbursed and reports generated.
You will notice cracks in the enamel when you get varying answers when similar replies are expected.
Finally, small organisations undertake a larger number of small transactions, many of which do not give receipts in return when buying supplies in markets, giving cash payments and giving out gifts in kind to beneficiaries. The lack of internal controls in such entities becomes glaring.
Small donors should not forgive chaos and structures that foster fraud because they identify with the mission.