25/04/2024

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Non-Governmental Organizations: The Other Side of the Coin

6 min read
Non-Governmental Organizations: The Other Side of the Coin

Some charities have been used for terrorist financing. After the attacks on September 11 2001, charities came under global scrutiny. For example, in February 2004, the assets of Al Haramain Foundation’s (AHF) branch in Oregon were blocked because, according to International Narcotics Control Strategy Report of 2005, individuals connected with AHF appear to have concealed the movement of more than $100,000 to Chechen mujahideen.

It is common that international donors choose to channel the aid via NGOs instead of the government directly. The biggest risk is that some recipient NGOs misuse the donors’ funds and fail to account for the money to the government. Under the country’s laws, NGOs are required to register with the competent governmental authority, and account for their activities. The laws aim to ensure transparency in the NGO sector, and guard against foreign political interference via NGOs.

Whilst international funding has considerably increased the resources available to NGOs, it obviously poses problems of its own. Foreign donations can raise questions about the credibility of an NGO’s activities: if foreign donors are providing money for an NGO, might they be dictating its goals as well?

How NGOs raise funds

NGOs rely on several methods to collect funds for philanthropic, humanitarian, educational or development purposes. Most rely on a variety of income sources that can include public support; government funding; local and foreign private foundations grants, foreign governmental grants, or fees collected for services they provide to members.

There are several solicitation methods, which include mandatory religious donations. The methods may vary depending on if solicitation targets individuals, organizations or the corporate sector. NGOs and charitable organizations can raise funds in many different ways. Examples of most poplar solicitation techniques are:

-Fundraising events, i.e., raffles, and marathons/races

-Direct in-person requests

-Direct mail or telephone solicitation requests

-Newspaper and magazine advertisement

-Sales of tickets to special events or sales of products

Part of these funds have been and are vulnerable to being diverted to terrorist networks or political groups, often without the donor’s knowledge. The additional fear is that the funds might be diverted to private pockets.

NGOs and misuse of funds

There are doubts that wide ranging frauds some NGOs have been stealing the funds meant to help the poor or save the lives of the afflicted. Several prevalent malpractices include NGOs illegally transfer donated funds for their declared activities to foreign accounts abroad and later refund the money in local currency, huge extra budgetary expenditures, lack of transparency in the NGO’s procurement management process, undocumented expenditures, overstating expenses by creating fake bills, inflating employee expenses, misrepresenting field activities and misreporting the financial status to donors.

Thus, heartless and greedy individuals and groups fritter the donated money away into private pockets. Not only that, with or without the knowledge of donors, NGOs sometimes direct donated funds to serve political or social agendas. Evil NGOs might use foreign funds to incite the public sentiments and stage protests against government policies leading to political unrest in various parts of the country.

It is galling, indeed, to think that while some kind-hearted donors are making sacrifices, denying themselves some luxuries in order to help the poor or support a noble cause, some depraved individuals are turning themselves into desperate parasites, feeding fat on the blood of the people they are supposed to protect. Worst of all, their political agenda could endanger the country’s safety and security.

Weeding out ill-intentioned NGOs from the good is a difficult task. That is why governments and individuals must join hands clamping fraud, terrorist financing and attempts to cause political unrest.

How financial institutions can “Know Your NGO.”

Financial institutions must carry out enhanced due diligence on the accounts of NGOs and charitable organizations in particular. Senior management must approve the relationship, and all should keep in mind that the risk level is high. A representative of the bank should visit the premises of the charitable organization and prepare a visit report. The report should include details such as:

-The organization’s legal type, license of activity, source of capital (if applicable), number of employees, years established, years at present location, nature of activity, geographical location of activity etc.

-Details about owners/directors and their powers

-Check if a Politically Exposed Person (PEP) or a connected individual partly or fully owns the NGO.

-Check if the NGO is authorized to accept donations locally or overseas.

It is crucial for financial institutions to subject the accounts of NGOs to close monitoring in order to recognize the `indicators’ or “red flags” that call for further scrutiny. Some of the indicators are listed below:

-Corporate layering: transfers between bank accounts of NGOs and directors or staff of the NGO for no clear reason

-Wire transfers by an NGO to beneficiaries located in countries known to be bank or tax havens for no clean reason

-Transactions with no logical economic purpose (no link between the activity of the NGO and other parties involved in the transaction)

Donors should be careful as well.

Several NGOs have carried out good work. However, the huge number and ease of foreign donations have resulted in the emergence of several fake organizations with a motive to siphon off easy money in the name of development. The NGO sector is most vulnerable to fraud and criminal practices, including the potential for misuse for the purposes of money laundering and terrorist financing.

As a donor, you should have some answers before you give money. Questions frequently asked are “How do I know that this NGO is legitimate?” and “Where does this money go once I make a donation?” The following tips are designed to help you know whether an NGO is genuine and how to avoid being victimized by an organization that is not legitimate or that may misuse the donated money without your knowledge:

Do not give cash to strangers. You do not know if that person would use your hard-earned

money for the charitable purpose or divert it elsewhere.

-Do your homework. Take the time to learn about the NGO you support or considering supporting. Ask for literature and read it. Tell the solicitor that you would like to do some research on the charity. Read and understand everything before you make a decision. Ask questions

Don’t be deceived by a convincing name.A fake or dishonest NGO will often have an impressive name, or one that looks like the name of a reputable, legitimate NGO.

-Don’t let pressure win.Don’t surrender to pressure and feel that you must contribute on the spot. Legitimate organization will not expect you to donate instantly. Remember, you can say no.

-Don’t pay cash. Once you have a satisfactory answer to all your questions, you can make all donations by check to the charitable organization or by credit card. But beware! Do not give your credit card number to someone you do not know.

Governments should provide adequate oversight on NGOs

Likewise, government authorities should strengthen their oversight on NOGs. Some measures include:

-Carry out background checks on the NGOs;

-Create a whistle-blower mechanism and a fraud response plan for any unethical behavior noticed by individuals affiliated or working with NGOs;

-Carry out periodical training to ensure best ethical practices;

-Carry out preliminary risk audits,

-Handhold the NGOs by bringing transparency into their day-to-day affairs and get their accounts and operations periodically audited by independent experts.

Donating to NGOs is a way to support the needy during these troubled times or to support a noble and legitimate cause. Sadly, there are some people ready to take advantage of donors’ kindness. Therefore, individual and corporate donors must do their homework before donating the hard-earned money and reasonably take all measures to ensure that the money does not fall in the wrong hands. Needless to mention, governments must exercise adequate oversight over NGOs.

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