Stealing from the Poor: Corruption in the NFP Sector

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On 6 March, the Ethics Centre kindly co-hosted SDC’s first event for 2017.  

Over two hours, SDC Convenor Jeremy Sandbrook shared his wisdom on the topic of corruption within the international development sector. The presentation included unpacking a real-life case study of a complex fraud scheme that took place in an INGO based in Malawi. This case study not only highlighted the complexity of the topic, but raised a number of associated ethical dilemmas, proving that corruption is not as black or white as we like to think.

The presentation started with an overview of what corruption is. Costing around five percent of the world’s economy (around US$2.6 trillion a year), corruption is now the third largest industry in the world. In development terms, the current estimate is that between 20% and 40% of total Overseas Development Assistance is “stolen” each year through high-level corruption from public budgets in developing countries. For every dollar of aid received by developing countries, $7 (or US$2.6 billion per day) is lost in illicit capital outflows.

Jeremy Sandbrook - Ethics CentreCorruption is now so pervasive that it is increasingly interwoven into a growing number of societies, and is a systematic feature of many economies. It is now acknowledged (by the UN and the World Bank) as the greatest obstacle to reducing poverty and the most pressing global and ethical problem currently facing the development sector. Despite this, it is rarely spoken about by NGOs!

Jeremy then discussed corruption within the NGO sector in Australia, highlighting several eye-opening facts:

  • A governance deficit: 61% of concerns raised with the ACNC relate to governance breaches, fraud, and private benefit.
  • “Out of sight, out of mind”: less than half of NGOs report corruption to the authorities.
  • Corruption is not seen as a key issue for most NGOs: Whilst 90% agree corruption is a problem for the sector, 72% say it is not a problem for their organisation!? Where is the disconnect here?
  • Over half of fraud allegations received by the ACNC relate to the conduct and activities of senior managers, including the CEO, board directors, and financial officers/CFO.

The additional complexities in the international NGO sector were then discussed, particularly the role culture plays. Research undertaken in Malawi found the three top drivers for corruption to be ‘greed’, ‘poor management’ and ‘staff dissatisfaction’. We were then taken through a fascinating real-life case study of an actual fraud in an INGO in Malawi. The key lessons to learn from the case study and corruption generally are:

  1. To recognise that corruption is an issue for every organisation operating in the international development sector; and
  2. To be aware of the role culture plays in initiating and perpetuating it.

The key pieces of advice given by Jeremy for reducing and eliminating corruption was:

  • Know your corruption-risk profile;
  • Know the main forms of corruption within the sector; and
  • Know how corruption is detected.

About the Presenter:  Jeremy Sandbrook (founder of Integritas360), is a global anti-corruption expert who has conducted corruption prevention work throughout the world, and lectures on the topic at the University of Sydney’s Centre for Continuing Education. He was previously head of anti-corruption and integrity for SOS Children’s Villages International, and led the INGO’s efforts to tackle fraud and corruption across its 131 operating countries, 35,000 staff, and $1.7  billion annual budget. Jeremy was also the inaugural co-chair of the INGO Accountability Charter’s Peer Advisory Group on Corruption.