Managing overseas aid accounts

This time, the delicate issue is just what is happening to EU money when it is donated to the Palestinian Authority. Innocuous at first glance, the problems become apparent when you consider the growing concerns that EU money dispatched to the Palestinians might be funding text books for school children that incite hatred against Israel.

Not something the EU wants to become embroiled in during these difficult times.There’s no telling at this stage whether that is how the EU money was spent, but if it was, the financial aid to Palestinian school children would take on a new, unwanted political significance.

But just how do you make sure your aid money is being spent on the things it was intended for?

Can financial controls be the way out of delicate and potentially hazardous political controversy?

The issue has very strong parallels to the difficulties faced by the big charities collecting money in the UK to fund projects overseas in often underdeveloped and inhospitable places. They too need to ensure their money is going where it needs to go, after all they are accountable to the donors who parted with the cash.

Can they ensure their money is spent on education, food and water instead of perhaps guns or lining the pockets of corrupt local officials?

One senior risk expert for a UK firm of accountants says the chances are that you can’t. ‘It’s an act of faith. You mostly just hand over your money and hope it gets to the right people and is spent on the right things.’

But when the hundreds of millions of pounds in aid are added up, it’s difficult to believe that the organisations involved – the UK’s department of international development, the EU’s external assistance programme, countless other government agencies and the big charities – do not have some way of ensuring their cash is buying the right kind of books, food and water, instead of guns and ammunition.

Specialists not only take issue with the ‘act of faith’ school of thought, but say that large-scale disasters of money going astray are extremely rare. The reason for this is that measures can be taken to provide assurances that the money is hitting the right mark.

Two models exist for charities collecting funds in the UK. One is to pass funds on to an overseas branch of the same charity, the other is to work through a local partner.

For either method, the crucial issue is to receive regular financial reviews and reports from the overseas operators. These are either carried out by internal auditors or sometimes by external volunteer auditors, who are sent out to make sure the processes are being maintained.

This checking will address the basic, but essential, elements of any good financial procedure. Who has access to the bank accounts? Who is drawing on the account, what for and for how much? Other issues include checking invoices and receipts.

But any charity will have to weigh the risks involved. Richard Wales, a risk expert at PKF, says many will decide that what they want to achieve is worth the risk of losing some of their funds. ‘They have to take on and accept a level of risk because of the nature of what they do,’ he says.

That acceptance of possibly having to sacrifice funds also extends to potentially making ‘facilitation’ payments – bribery in layman’s terms.

But that doesn’t necessarily have to mean problems for the accounts leading to the impression that money is leaking. It may well be that the charity will consider it vital to achieve their aims. But as long as a note openly appears in the accounts there should be few problems resulting.

If there is an Achilles heel for charities, it may well be in the rush to respond to emergencies, such as natural disaster. Where relief is urgently needed charities speed up their response time and as result may cut corners when trying to put in place procedures and safeguards. It’s here that money may begin to wander.

But even so, ask charity finance experts and it’s hard for them to recall an incident in which a charity has lost vast amounts of money.

Richard Wales says: ‘It’s unlikely to be on a large scale. What’s more likely is a low-level seepage, but ongoing.’

The EU is proposing strong measures for its funds aimed at the Palestinian Authority. It will now be placed in an account administered by the World Bank and will be ring fenced for specific projects. Even so it is undoubtedly the case that the EU will have to accept that a certain level of risk goes with any project.

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