Supporting governments and donor agencies implement inclusive and effective development programmes
while monitoring progress, promoting transparency and ensuring accountability is vital in ensuring donor funding reaches the masses for whom it is intended.

In Swahili we say "Ulichokula ndicho ununuacho" which translates to "Free gifts are often given to bind the benefactor to the donor".

Recently Doug White, director for the Master of Science in Fundraising Management programme at Columbia University, asked the following question with regards to donor funding: What is a gift? In an ordinary sense, a gift is something - money, property, advice - given freely by one party to another without the expectation of receiving something in return. We all like gifts, and so too, do NGO/ NPO/Co-operatives that benefit from public and private donations, large and small. A gift isn't really
a gift; it's a gesture with a purpose - a purpose informed, to varying degrees, by the intent of the person or institution that gave the gift.

In South Africa, there have been several high profile examples of misuse of donor funds within civil society and the state through fraud and corruption.

Fraud is pervasive; it does not discriminate in its occurrence.  While anti-fraud controls can effectively reduce the likelihood and potential impact of fraud, the truth is that no entity is immune to this threat. Fraud and corruption have devastating effects, especially on the poorest citizens of developing countries
and communities. Corruption has no borders and has spread worldwide, even to countries once considered "clean."

The regulatory framework facing the not-for-profit (NPO) sector is no less onerous than that facing any other company.  Though the sector is regarded as a minority when compared to the corporate profit generating sector, it does not mean the cost of fraud and corruption is any less severe. Millions have been lost and donor scepticism is on the rise, ultimately affecting the wellintended communities for which it is destined.

An example of the prevalence of fraud and corruption in this sector is a recent South African National Lotteries Board (NLB) verification exercise which prevented the loss of R247 million in South Africa based on fraudulent information supplied to the NLB. Of the 21 projects submitted to the NLB by nine organisations, 17 were found to contain major irregularities.

The trend of donor funding abuses has been on the rise and, is further confirmed by the Association of Certified Forensic Examiners (ACFE) Report to Nations as far back as 2006, which highlighted that it can be assumed that as much as $61 billion dollars was lost to fraud in NPOs.

The report further highlighted two areas of broad categories of frauds that are perpetrated against NPOs - internal and external. Internal frauds are committed by persons inside of the organisation such as employees, officers, management and directors. External frauds are committed by persons outside of
the organisation, such as vendors, sub-recipients, grant applicants and programme participants.

Internal frauds can be broken down into two separate categories:asset misappropriations and fraudulent financial reporting.  Asset misappropriations are the most common and can involve any of the following (but not exclusive to): revenue and cash receipts schemes, purchasing and cash disbursement schemes,
payroll, failing to comply with donor-imposed restrictions pertaining to the use of a gift and employee expense reporting schemes and non-cash asset misappropriations:

Donors need to understand the environment where their beneficiaries operate and the key issues associated with them, to avoid the 'Angels and Demons scenarios', where donors' good intentions are abused for the benefit of undeserving benefactors.

The battle against fraud and corruption in the donor funding sector is not fought in isolation.  Collective commitment to supporting governments and donor agencies in implementing inclusive and effective development programmes while monitoring progress, promoting transparency and ensuring accountability is essential. Also, robust anti-fraud and corruption policies and measures must be in place to help prevent the abuse of resources intended for the development of our communities. 

Contact Mazars KZN:
197 Peter Mokaba Road, Morningside, Durban
Tel: 031 818 9000
www.mazars.co.za