Executive Summary
This paper was commissioned by the Inter-Agency Standing Committee (IASC) Humanitarian Financing Task Team (HFTT) in an effort to identify and communicate to stakeholders and partners those conditions which pose the greatest challenges, as well as describe positive donor practices, affecting humanitarian financing and the delivery of humanitarian assistance.
The study’s observations and recommendations stem from perspectives and experiences of IASC-member funding recipients.
The Task Team supports the international call to both humanitarian actors and donors to work together in further strengthening the humanitarian system to achieve a more predictable, adequate and efficient humanitarian business model, including the recommendations of the UN Secretary-General’s High Level Panel on Humanitarian Financing and the Secretary General’s Report on the World Humanitarian Summit. The recommendations for improvements in this paper are intended to inform constructive dialogue with donors regarding flexible funding which will enable increased efficiencies by humanitarian organizations.
The most challenging areas identified by recipient organizations were:
1. Administrative and financial conditions including financial restrictions, earmarking and reporting
It is harder for humanitarian organizations to adapt to changing humanitarian priorities, provide timely needs-based responses, and maximise cost efficiencies when they have to internally juggle funding sources to ease the effects of funding gaps and restrictions. The challenges posed by financial restrictions were more pronounced for smaller organizations with limited flexible cash reserves. Some of the restrictions identified by the study included: inflexible scheduling of payments into multiple tranches; delayed payments; the requirement to return unspent balances; very short expenditure eligibility windows, particularly for budgetary surpluses allocated at the end of donor fiscal years; and limited flexibility to negotiate no-cost extensions or re-allocations of funds to adapt to changed humanitarian requirements and operational circumstances.
Un-earmarked funding allows organizations to internally prioritize funding to urgent life-saving activities in countries that are critically underfunded and receive little donor support or media attention. Earmarking of funds reduces the ability of humanitarian organizations to respond to the most urgent needs of affected people, was singled out as having a range of detrimental effects and was felt to be on the increase.
Donor reporting requirements can divert critical time, resources and focus away from humanitarian implementation. In some cases they can be fragmented, duplicative and excessive, with organizations describing examples of spending disproportionate amounts of time customizing reports to multiple donor formats and content requirements.
Recommendations
Significantly increase un-earmarked funding.
Build in much greater flexibility to earmarked funds to enable reallocation of funds in the case of changing needs and to enable no-cost extensions.
Minimize the numbers of disbursements and ensure fast-track disbursements, particularly during rapid onset emergencies and for smaller organizations that may not have pre-financing options.
For end-of-year funding allocations, establish procedures that ensure sufficient time for project implementation.
Use standard reporting templates developed by agencies as much as possible (tailored to the specificities and strengths of each agency).
Commit to a concrete programme of reporting harmonization when the use of agency standard reports is not possible. This includes harmonizing formats and frequency of reporting (e.g. quarterly for consolidated, joint reports; or at most 6 to 12-monthly in cases where individualized reports are needed), particularly when programmes are cofinanced.
Humanitarian organizations should be consulted closely in negotiations to agree optimal reporting formats and frequency.Adapt reporting requirements to the context and length of programs. Adapt the amount of administrative work (lighter, streamlined) for short-term and smaller grants. Consider alternative kinds of reporting, where appropriate (e.g. more verbal updates, field visits, joint review meetings, etc.)
2. Risk management approaches including counter-terrorism measures, due diligence and auditing requirements measures.
Humanitarian organizations remain committed to implementing cost-effective, needs-based operations. As both humanitarian action and counter-terrorism seek the protection of civilian populations from harm, humanitarian organizations fully respect that states have legitimate security concerns and that donor agencies need to observe national and international counterterrorism laws, as well as international laws and principles governing humanitarian action. While humanitarian organizations acknowledge the legitimate security concerns of states, they are of the opinion that efforts to address these should be in compliance with International Humanitarian Law (IHL) and the humanitarian imperative, and also take into account potential impact on partners. Counter-terrorism measures can be in tension with humanitarian principles and present humanitarian actors with dilemmas. Challenging counter-terrorism conditions described by organizations include requests by donors to exclude certain implementing organizations or beneficiary groups from projects; lengthy reviews by the recipient’ legal department; and requirements to apply partner and in some cases beneficiary vetting/screening processes against the UN Security Council Sanctions List and/or national government lists of proscribed actors, which can lead recipient organizations to become more conservative in the choice of partners. For example, selective targeting and vetting/screening processes reduce the ability of humanitarian actors to respond on the basis of needs and can foster perceptions of partiality and reduce trust, which may in turn put staff at risk and limit access.
Humanitarian organizations strive to be cost-conscious, yet due diligence processes and requirements can lead to inefficiencies, particularly impacting Non-Governmental Organizations (NGOs). Poorly coordinated and duplicative partner capacity assessments place a disproportionate burden of work on partners and may, in some cases, deter organizations from seeking funding from particular donors. Exacting due diligence processes and requirements can significantly delay implementation, sometimes placing greater emphasis on financial accountability rather than programme quality to the disadvantage of local and national NGOs that may have strong local knowledge but little international exposure. In addition, incremental levels of controls linked to partner risk ratings place the greatest burden on those organizations with the least capacity. Efficient management of humanitarian funds can also be hampered by the financial resources and time needed to comply with auditing requirements. NGOs are often subjected to multiple audits, which can be overlapping and poorly coordinated. United Nations Organizations (UNO), while benefitting from the ‘single-audit principle’, are often exposed to extensive ‘audit-like’ processes such as verification exercises, assessments and due diligence processes which are often not coordinated in neither time nor content terms.
Recommendations
Ensure that existing and future counter terrorism measures are compatible with International Humanitarian Law (IHL), International Human Rights Law (IHRL), International Refugee Law (IRL) and humanitarian principles.
Ensure that risk management measures, including counter terrorism measures, do not undermine the role played by national and local humanitarian actors and take into account the specificities of individual interventions and situations.
Refrain from policies that inhibit humanitarian actors’ engagement with armed groups, including those designated as terrorist, controlling territory or access to affected populations.
Donors should rely on the UN Consolidated Sanctions List.
In situations of extreme humanitarian need, due diligence processes should be fasttracked and lightened.
Graduate due diligence requirements and criteria according to capacity (e.g. due diligence processes for small local NGOs should be less exigent than those for large UNOs) and make greater use of proxy.
Audit requirements could be made much more efficient if donors were to accept the single audit principle for all UNOs and if the number and scope of audits required of NGO partners were reduced in accordance with evidence of strong past performance and the strength of internal control frameworks.
Donors should commit to reducing the overall number of audits by sharing planning, audit methodologies and findings of audit exercises, assessments and due diligence processes, as well as by accepting assurances at the level of organizations and not requesting them at the level of their own funding.
3. Funding predictability
Effective planning is the cornerstone of humanitarian organizations’ cost efficient and effective implementations, yet limited funding predictability restricts this, leading to a short-term programming focus, start-stop operations with sub-optimal execution, and higher transaction costs. Unpredictable funding also forces organizations to lay off staff; curtail or cancel partner agreements; and, makes it difficult to attract, hire and retain the most qualified staff.
While risk mitigation actions limit the financial exposure of agencies using internal advance facilities, limited predictability exacerbates the risks. In addition, significant resources are spent preparing appeals, revising plans, re-calculating budgets, and securing new funding on a yearly basis even though the situation may require a multi-year approach.
Recommendations
Donors are strongly encouraged to provide predictable multi-year humanitarian funding.
Emerging donors in particular are encouraged to avoid large fluctuations in aid volumes.
Donors are strongly discouraged from cancelling existing multi-year commitments.
Donors are encouraged to consider measures that will protect the predictability of levels of humanitarian funding due to the volatility/fluctuations in exchange rates.
4. Disclosure requirements
Staff and partner safety is paramount, and humanitarian organizations place an enormous importance on reducing exposure to risk, yet certain transparency requirements can ultimately be detrimental to the conduct of humanitarian operations.
Recommendations
- Donors accept and allow that under certain situations, humanitarian organizations may not be able to fully disclose information (e.g. project proposals and agreements, or names of implementing partners whose security may be compromised if made public).