SINGAPORE: Despite billions given to charities and aid, the poor remained mired in deep poverty. But some charities have large, air conditioned offices with a fleet of new four-wheel drive vehicles and staff with comfortable allowances, perks and benefits. There are many reasons and in this article I will describe one primary reason why the poor do not benefit from the generosity of donors. A charity is simply a vehicle that transforms donations into goods and services for the poor. In a similar way, it is like a government collecting taxes and giving grants to charities in the country to look after the homeless, old and the sick. In Singapore, we have the National Council of Social Services (NCSS) which dispenses grants to charities in Singapore. However, these are charities where the beneficiaries are in Singapore and NCSS sends it staff to monitor and evaluate the programs run by the charities. It is easy to monitor these charities as their work is in Singapore. What I am referring to are charities where the beneficiaries are NOT in the country where the donations are raised. I would like to focus on HOW the donations are transformed into goods and services for the poor. Let us assume there is a fictitious charity called NO MORE HUNGER. It is registered as a charity in USA and has a fund raising office in Singapore. It raises money from Singapore and sends 80 percent to America. It removes 20 percent for its fund raising and other costs. The home office in America takes another 30 percent and send the balance of 56 percent to its country office in Kenya. The office in Kenya takes 30 percent and the balance of 39per cent is given to a local charity in Kenya to distribute some food parcels. The Kenyan office does not do the actual distribution but gives money to one or more local charities to do the distribution. Assuming the local charity takes 40 percent leaving only 23 percent, this is actually an optimistic scenario where 23 percent of the donation actually reaches the beneficiaries. If the Kenya Office takes 60 percent and the local charity takes 60per cent, then only nine per cent reaches the beneficiaries. The charity food chain is Singapore to USA to Kenya to local charities to beneficiaries. There are four bites to the pie before it reaches the poor for whom the donations are intended. In developing countries, salaries are low and the temptation to commit fraud is very high. Since most developing countries are cash-based economies, it is very hard to detect and prevent fraud. What makes it worse is there are no procedures at all to detect fraud. I have traveled around and visited many orphanages in various countries and have never seen an orphanage with a weighing scale in the kitchen! In Cambodia, our Hope Village Prey Veng orphanage cooks 14,400 meals a month! That is a lot of food that we buy each day from the market. Yet without weighing how much fish, pork and vegetables that the staff buy, how are we to know that the staff did not cheat us? If the staff says she spent $100, how are we to know that she did not pocket some of it? If the weight of the food she bought is unknown, there is no means of checking whether she is honest or not. If the weight is known and the amount paid is given, we can compute the cost per kilogram and compare that cost with the market pricing. Many orphanages simply record the amount spent without knowing the weight of the food. The information (amount of money) is useless and cannot be used to detect fraud. If a staff earns $80 a month and she is given $100 EVERYDAY to go to the market to buy food , the temptation to cheat is impossibly high! If there are no checks and the food is not weighed, then we are inviting to the staff to cheat. She starts to cheat $5 a day and no one notices. After a month, it creeps up to $10 a day and by the end of the year perhaps as much as 50 percent of the food budget has been siphoned off! Running operations in a developing country where cash is used for most transactions is a minefield when it comes to accountability. Many charities base their observations on paper records and invoices, which are hardly worth the paper they are written on! Other charities may know there is widespread fraud but what can be done? Better some aid than no aid. Remember that the more money they raise the more money goes into “administration". There is hence little incentive to be strict as this could result in a situation where the charity ends up with more money that it can give away (with proper accountability) or it ends up with less money it needs for its expenses. Charities are evaluated on the ratio of overheads to expenses. Let us assume this is 15 percent. If a charity needs $10 million to run its office in USA and it takes 30per cent, then it needs to spend $33.3 million. The more money it dispenses, the more income it receives. There is this insane situation where the charity needs to spend more money and at the same time, it has to ensure the funds are properly used. The more donations you get, the more projects you need to fund, the harder it is to monitor and track. Let assume an executive from No More Hunger visits Kenya and inspects 20 local charities. He sees that the local charities have 60per cent of unaccounted expenses. What can he do? He cannot sack the staff, he cannot take disciplinary action and worse, he cannot stop funding all the 20 local charities. He needs their photos and sad stories to tell his donors. He definitely cannot tell his donors that they have decided to stop funding all projects in Kenya because of accountability issues. It is a all or nothing scenario. If he stops the funding, there will be a lot of explanations to do from both management and donors. The easiest solution is to continue as usual since no one except himself and the country manager are aware of the situation. OHF has a solution to this all or nothing scenario. We run the operations ourselves. In the No More Hunger case, it means that the country office in Kenya will run the operations rather than the local charities. If any staff in the Kenya office is dishonest, he can be dismissed. Thus they can gradually clean up the operations, install more procedures and accountability starts to improve. OHF operates Hope Village Prey Veng in Cambodia like a subsidiary. The head office in Singapore approves all expenses, salaries and bonuses. The head office also sends staff regularly to monitor and assists in the programs. We are directly involved with the execution of the overseas projects. Today we have many multinational companies like McDonalds and Starbucks, which operate in over a hundred countries and yet able to maintain the quality of their hamburgers and coffee. It is possible to control operations in many countries. All that is needed is a change in mindset at the top management and for donors to ask the hard questions of how their money is being spent! Charities have to focus more on execution rather than fund raising and disbursing funds. About Operation Hope Foundation Since 1992, Robert has been involved in philanthropic work in Philippines, Cambodia and Nepal. He is the founder of The Operation Hope Foundation (OHF) Ltd, a Singapore-registered charity that helps the poor in developing countries. Started in 2001, OHF has a 120-children orphanage and training cum livelihood centre in Cambodia, as well as a 40-children orphanage in Kathmandu, Nepal. A unique feature of OHF's operating philosophy is the BOM Model—Build, Operate and Manage. Rather than provide grants and financial support to local charities in Cambodia, Thailand and Nepal, OHF manages its operations directly. This provides a much higher degree of accountability and ability to manage projects according to its expectations.
