NGO governance
Corporate Governance Paper Competition 2024 – Best Paper: part 2
In this second and final part of the Best Paper of the Institute’s latest Corporate Governance Paper Competition, the authors offer a number of practical solutions for NGOs to improve their governance practices through an analysis of three case studies that serve as salutary reminders.
Highlights
- lessons learned from case studies involving governance failures can be effectively utilised by NGOs to improve their own governance frameworks and crisis response measures
- adopting a suitable governance framework can help NGOs enhance transparency and accountability, ethical standards, stakeholder engagement and financial controls
- improving governance in the nonprofit sector requires a concerted effort from all stakeholders, including NGOs, donors and regulators
The Institute’s annual Corporate Governance Paper Competition and Presentation Awards has been held since 2006 to promote awareness of corporate governance among local undergraduates. In part one, the authors identify the main governance obstacles facing NGOs, while here in part two they focus on three governance models, illustrated through pertinent case studies, to suggest solutions that would be most relevant and beneficial for NGOs.
Case study 1: Oxfam Haiti scandal
Incident overview
The 2018 Oxfam Haiti scandal revealed severe governance failures in safeguarding, accountability and transparency. Following the 2011 Haiti earthquake, a number of Oxfam staff members were accused of sexual misconduct. Four staff members were dismissed and three others, including the country director, resigned. However, Oxfam did not fully disclose these incidents to the UK’s Charity Commission, the Haitian authorities or other stakeholders, leading to allegations of a cover-up.
The Charity Commission found that Oxfam’s governance and leadership did not meet the required standards, highlighting a ‘culture of poor behaviour’ and a lack of transparency. The investigation revealed Oxfam’s inadequate protection for victims and insufficient cooperation with local authorities. Another independent review identified systemic weaknesses in Oxfam’s safeguarding policies and inconsistent investigative processes.
This scandal underscores the importance of robust governance in NGOs to uphold ethical responsibilities and maintain public trust. Effective governance involves clear policies, robust monitoring and a culture of transparency and accountability. NGO boards must prioritise safeguarding, and handle incidents promptly and thoroughly. External scrutiny and regulation are crucial for identifying governance failures and recommending reforms.
In response, Oxfam has committed to improving its governance and safeguarding with a revised framework, additional resources and the Independent Commission. However, rebuilding trust requires sustained commitment and a fundamental cultural shift. This case should serve as a catalyst for the NGO sector to apply robust governance to protect vulnerable populations and uphold integrity.
Implementing the policy governance model
The Oxfam Haiti scandal aligns well with the policy governance model, which focuses on clarifying roles, responsibilities and accountability within an organisation. This model emphasises the board’s basic responsibility of setting policies and operational objectives, as well as ensuring that executive management is held accountable for their implementation. The model establishes a governance structure that is organised and transparent, while ethical and care measures are prioritised. The clear separation of policy-making and operational roles is essential to maintaining accountability and transparency, and is vital for restoring public trust and protecting vulnerable populations. Strategies that need to be implemented by NGOs and others to better apply the policy governance model include:
- putting policies and boundaries in place, including clear safeguarding measures, reporting structures and penalties for any breach
- reinforcing monitoring and reporting systems, along with detailed action plans for remedying any issues highlighted, and
- enhancing board oversight and accountability, with the board proactively governing the implementation of safeguarding policies and the CEO being responsible for any slip-ups, as well as setting up regular independent audits, with findings reported directly to the board.
Comprehensive safeguarding solutions
We propose the following solutions derived from the principles of the policy governance model and the practical applications outlined above.
1. Establish a safeguarding committee. This committee, comprising members with expertise in child protection, ethics and organisational governance, should oversee the implementation of safeguarding policies, review incidents and ensure appropriate actions are taken.
2. Develop a comprehensive safeguarding policy framework. Engage stakeholders, including staff, beneficiaries and external experts, in developing an extensive safeguarding policy framework covering all aspects of conduct, reporting and response. This policy should provide clear guidelines on acceptable behaviour, mandatory reporting of incidents, and procedures for investigating and addressing complaints.
3. Implement mandatory safeguarding training. All staff, board members and volunteers should undergo training, covering the organisation’s policies, reporting mechanisms and ethical conduct expectations. Regular updates to the training should reflect changes in policies and emerging best practices, ensuring participation is tracked and enforced.
4. Establish an independent safeguarding review mechanism. Establish an independent commission or external review body to conduct regular reviews of the organisation’s safeguarding policies and practices. Such a body should have access to all information necessary to propose remedies and the power to make any necessary recommendations.
5. Enhance transparency and communication. Establish an open communication procedure for stakeholders to be informed on a continuous basis of safeguarding activities, including frequent updates regarding policy modifications, incident reports and risk management measures. Promote open conversation with beneficiaries and communities to hear out their pain points and allow them to play a role in building mechanisms to ensure their protection.
By establishing clear policies, enhancing board oversight and prioritising transparency and accountability, NGOs can better protect vulnerable populations and uphold their ethical responsibilities. Implementing the proposed solutions could help Oxfam and similar organisations rebuild trust and ensure long-term governance improvements.
Case study 2: World Vision Gaza scandal
Incident overview
One prominent case study illustrating the governance challenges faced by NGOs is that of Mohammad El Halabi, the former manager of operations for World Vision in Gaza. In June 2016, Halabi was arrested by Israeli authorities and charged with diverting millions of dollars of World Vision’s funds to the Islamist militant group Hamas.
World Vision disputed the allegations, noting that the claimed diversion of US$50 million exceeded its entire Gaza budget of US$22.5 million over a decade. The organisation’s strict protocols, including background checks, spending caps and internal audits, made the claimed large-scale fraud unlikely. Audits of World Vision done by Deloitte and the Australian government found no evidence of missing funds. Halabi’s refusal of plea deals and maintaining innocence raised further doubts. UN human rights experts expressed concerns over the trial’s fairness. However, in June 2022, Halabi was found guilty and sentenced to 12 years in prison. World Vision and Human Rights Watch have criticised the verdict.
This case serves as a reminder of the need for robust financial controls and transparency in high-risk areas. Despite the strong protocols, the allegations caused significant reputational damage. NGOs must balance effective programme delivery with the political agendas of host governments and donors. NGOs must also prioritise financial management, stakeholder engagement and advocacy for staff rights to overcome such challenges. Upholding ethical standards and accountability is crucial for retaining trust in the communities they serve.
Implementing the community engagement model
This case study fits perfectly with the community engagement model, with its focus on inclusive decision-making processes, strong local partnerships and community involvement in governance. This model fosters transparency, trust and mutual accountability between the NGO and the communities it serves, and is predicated on achieving strong, trust-based relationships with communities and other stakeholders. NGOs in complex environments, like Gaza, where there is a diverse array of stakeholders – including local communities, donors and beneficiaries – must be effectively managed to ensure operational efficiency and to maintain balance between the various stakeholders.
When working in highly politicised and conflict-prone conditions, community involvement is paramount to responsible governance, which in turn can serve as a protective tool against misuse of funds and ensure that aid is reaching the correct target populations. The application of the community engagement model in practice requires the following:
- making space for community representation in governance and decision-making, such as through providing community members with a seat on the board and establishing advisory committees
- ensuring ongoing open communication and reporting via forums and community meetings, with regular updates and channels for feedback and complaint, and
- building stronger partnerships with local organisations, governments and stakeholders, and investing in capacity-building initiatives with the community.
Holistic community-engagement solutions
Based on the principles of the community engagement model, a host of strategic and practical solutions can be advanced.
1. Establish a community advisory board. In addition to advising and monitoring World Vision’s projects, this board should include local leaders, beneficiaries and stakeholders. Monthly meetings to review project plans, budgets, status reports and emerging issues can enhance transparency and accountability.
2. Implement participatory budgeting processes. Engage community members in the process of determining how project funds are distributed and used. Conduct workshops so that people of each community have the skills required to make important budgeting decisions.
3. Develop transparent reporting mechanisms. Develop straightforward, transparent communication templates to provide project and financial updates that are communicated via community meetings, newsletters and digital resources. Create an easily accessible, public online space with detailed financial reports, project updates and audit results for all stakeholders to review.
4. Strengthen local partnerships and build capacity. Identify and partner with reputable local organisations and governments to enhance project implementation and control. Provide training and capacity-building support to local partners to improve their governance, financial management and monitoring capabilities.
5. Establish a robust community feedback mechanism. Establish a feedback loop for community members to give input, report problems and propose solutions. The community should be regularly updated with actions taken, creating a culture of ongoing improvement and responsiveness.
By empowering community in decision-making, establishing transparency and stronger local engagement, NGOs could execute more strategic risk management and fruitful use of resources with the necessary flexibility required to manage a variety of stakeholders and dialogue interfaces. Implementing these solutions could significantly improve the governance framework, organisational resilience and accountability of World Vision and similar organisations.
Case study 3: IFRC Ebola fraud scandal
Incident overview
The International Federation of Red Cross and Red Crescent Societies (IFRC) faced significant governance challenges during the 2014–2016 Ebola outbreak in West Africa. An internal investigation revealed over US$6 million in aid funds were lost to fraud and corruption in Sierra Leone, Guinea and Liberia.
Fraud included collusion between former IFRC staff and a Sierra Leonean bank, resulting in a potential loss of US$2.39 million. In Guinea, fake billing by a customs clearance service provider led to a loss of US$1.31 million, while in Liberia, inflated prices of relief items and payroll discrepancies amounted to a loss of US$3.03 million.
The IFRC acknowledged the need for improved governance measures and pledged to combat corruption. This included cash spending limits, deploying trained auditors and establishing an internal investigation function. The IFRC’s commitment to publicly disclosing the findings and addressing governance shortcomings demonstrates a willingness to take corrective action.
The scandal of the Ebola fraud case shows the difficulty NGOs have in ensuring they remain accountable and transparent in times of crisis. This requires solid financial controls, a culture of transparency and robust oversight. NGOs should use this lesson to improve their own crisis response, while preserving the trust of their donors and continuing to be responsive to local populations.
Implementing the management team model
The IFRC Ebola fraud scandal illustrates the need for a governance model that emphasises strong oversight, accountability and transparency. The management team model is particularly well suited to address these issues, as it involves a high degree of board involvement in operational and administrative activities, with committees mirroring the organisation’s administrative structure. This model allows the board to work closely with the administration on details about programmes, services and administrative practices, ensuring that the organisation operates effectively and ethically.
This model consists of a board that organises its committees and activities along functional lines, including human resources, fundraising, finance, planning and programmes. By mirroring the organisation’s administrative anatomy, the management team model ensures that boards take on various oversight and support roles, such as financial management and risk mitigation. There are several practical steps that should be taken in order to effectively utilise the management team model, including:
- strengthening financial oversight
- enhancing risk management, and
- promoting accountability and transparency.
Proactive governance solutions
NGOs could execute the above-mentioned principles of the management team model through the following measures.
1. Implement robust financial controls. Work with the finance committee to develop and implement comprehensive financial controls, including segregation of duties, approval hierarchies and regular reconciliations. The finance committee should periodically review these controls and report to the board on whether the financial management practices within the organisation are adequate and transparent.
2. Conduct regular audits. An independent auditor should be hired to perform annual financial audits, which the finance committee will be responsible for managing, as well as reviewing the results. The board should also review the audit findings and recommendations, and work with the administration to implement any necessary changes or improvements.
3. Develop a comprehensive risk management plan. Task the risk management committee with an all-encompassing risk management plan to define risks related to any lines of operation among financial, reputational and programmatic risks. The committee should work with the administration to establish protocols to mitigate identified risks and report back to the board on an ongoing basis as the protocols are implemented.
4. Enhance board training and development. Charge the governance committee with designing an extensive board training and development programme to address financial oversight, risk management and ethical decision-making. Ongoing training helps the board stay informed and solidly positioned to carry out its governance responsibilities in a way that sustains high levels of accountability and transparency.
5. Improve transparency and reporting. Collaborate with the governance committee to design an accountability mechanism with detailed reporting to all stakeholders. This framework should consist of an annual report, financial statements and audit reports, as well as transparent avenues for stakeholders to seek explanation and raise concerns.
By adopting the management team model and implementing these practical solutions, the IFRC could strengthen its governance practices and prevent future instances of fraud or misconduct. The committee structure ensures that the organisation delivers effectively and efficiently, and that it remains accountable and transparent, as well as operating in the most ethical manner possible. This new culture will ensure a balance of forensic financial controls, risk management and transparency in reporting, delivering key fundamentals and providing strong global governance to the IFRC and similar NGOs.
Conclusion
Good governance is key to the proper functioning of NGOs and to achieving their true potential. Improving governance in the nonprofit sector requires a concerted effort from all stakeholders, including NGOs, donors and regulators. Further research is needed to develop more targeted and context-specific governance strategies, particularly for NGOs operating in complex environments or addressing sensitive issues. Donors also have a crucial role to play in supporting NGO governance efforts by providing targeted funding and capacity-building support.
good governance is key to the proper functioning of NGOs and to achieving their true potential
By prioritising governance and implementing the strategies outlined in this paper, NGOs can enhance their effectiveness, efficiency and legitimacy, ultimately amplifying their impact on the communities they serve. With strong governance practices in place, NGOs will be better able to address the complex societal issues and affect meaningful social change.
with strong governance practices in place, NGOs will be better able to address the complex societal issues and affect meaningful social change
Ashley Chan and Ben Siu
Hong Kong Baptist University and The University of Hong Kong