Progress in the fight against corruption and financial irregularities in development aid

"The growth is probably due to several factors. In recent years, Norad has been responsible for an increasing share of the Norwegian development aid budget. With more projects and larger sums of money, the risk for irregularities is naturally higher. At the same time, we see a tendency of continuous consolidation within Norwegian aid organisation's routines for detecting and dealing with suspected fraud," says Svend T. Skjønsberg, who manages Norad's Fraud and Integrity Unit (FIU).

Organisations now place more emphasis on controls performed by independent entities by comparing information from accounts against information provided by "third parties”, explains Skjønsberg. This can be done by contacting the provider of services and goods and check whether they have actually delivered the said product, and also contacting the people listed as recipients of services - such as trainings - and inquire whether they received what is actually being reported.

"We may also assume that organisations are more motivated in notifying about suspicions after the rules for repayment of funds were modified," explains the head of the FIU.

"2019 was the first year in which Norad grant recipients had the opportunity to repay the misused funds back to the originally agreed project. Previously, the rule was that all misused funds should always be paid back to Norad."

Zero tolerance

Based on the notifications in 2019, the FIU opened 56 whistleblowing cases. Of these, 51 are completed, and in 46 of those cases, Norad claimed repayment of misused funds.

During the year, NOK 18.3 million was repaid to Norad as a result of whistleblowing cases. The largest amount repaid was more than 7.2 million NOK. In eight cases, more than NOK 500,000 was repaid. The smallest amount claimed was 330 NOK.

Norway and Norad have zero tolerance for corruption and other forms of financial fraud. This means that grant recipients must repay the same amount that has been misused.

"All misuse of development aid funds must be repaid. There is no lower limit to what can be considered misused. Even very small sums of money can impact negatively on the level of achievement of the project goals. Also, very often small amounts of documented misuse can actually represent widespread and serious deficiencies," says Sven T. Skjønsberg.

"Many responsible grant recipients have implemented a necessary and important improvement in their project management even after small funds have gone astray or been misused. We know that fraudulent activities may sometimes start off "small", but then if the malpractice goes "well" (undetected) then it can lead to larger and more serious fraudulent activites."

New rules

One year ago, the rules for reimbursement of misused funds were changed. The new guidelines from the Ministry of Foreign Affairs opened for the possibility that the misused funds can, when it meets certain criteria and after careful consideration, be paid back to the project rather than to Norwegian authorities such as Norad.

The criteria for this are that the grant recipient itself detected the incident and immediately notified Norad in accordance with agreement. In addition, there must have been no major deficiencies in the grant recipient's, or its' local partners, internal control.

In 2019, therefore, in those cases where the organisations themselves notified Norad in time, misused funds were for the first time paid back to project instead of Norad. Norad hopes the trend of good disclosure and early notification will mean that an increasing number of cases qualify to have the misused funds repaid to the project.

"It is desirable that the money goes to the intended purpose. A lot of planning and work lies behind the rigging of good development aid programs. Given that the organisations affected by the misuse itself has not failed to follow up on the agreement with Norad which regulated the use of funds, it is both cost-effective and reasonable that the misused amount can be repaid for planned purposes," says Skjønsberg.

The Norwegian organisations usually have good control over the use of the funds in Norway, he emphasises. But they are also responsible for ensuring that the local partners who carry out the aid projects also have good internal controls.

"Organisations at the local level must have the capacity to avoid fraud, for example in the form of bribes, embezzlement or nepotism. Transparency is perhaps the most important value. In addition, an understanding must be established that critical questions and control are part of daily management. This is where it often fails," says the head of the FIU in Norad.

"The request from Norad is that all parties carefully follow all the requirements in the agreements and close any discrepancies that may occur."