Learning Stream on Risk Management in Practice Risk Management and Funding Partnerships

Risk management practices are playing an increasingly important role in partner selection and engagement when NGOs receive funding from UN agencies or government donors. On June 10, ICVA and PHAP organized a webinar, as part of the Learning Series on Risk Management in Practice, where we examined the role of risk management in good funding partnerships as NGOs engage with external funders.

For funders of humanitarian programming of NGOs, risk management is playing an increasing role in both the decision to offer funding and the terms and conditions of partnership once a grant is secured. Funding from UN agencies for NGO partners now includes an assessment of risk management practices in partner selection. Most also use a risk rating system with partners to determine funding limits and levels of required oversight.

Donor governments currently have a wider range of practice, some with extensive risk management systems in place. For NGO partners, there can be major consequences if donor government funding is accepted without a proper risk assessment being carried out. Accounting and compliance requirements for NGOs can be difficult to meet without appropriate training, and there are often serious legal consequences if the terms of funding agreements are not met.

The topics that we have covered so far in the risk management series have primarily focused on internal decision making and the role of risk management. It is important to extend this thinking, however, to external funding relationships. NGOs should be confident that they are basing the decision to accept funding taking into consideration key questions such as:

• Can we meet expectations of the funder?
• What is the likelihood that we can fulfill compliance requirements?
• Which risk controls are missing, or should be strengthened, to help meet expectations and compliance requirements?

As with our other webinars in the series, we were joined by a panel of experts representing both NGO and funder perspectives, followed by a live discussion with participants.

Participant recommendations

During the event, we also asked participants to provide their views on the greatest challenges facing local NGOs regarding funding partnerships and risk management. You can read their responses below.

• Challenge: Inability to discuss with the donor their true reporting needs, to understand why they ask for what they do (that is an option for larger NGO).
  How to address it: Donors - whether UN or WVI - to invest time to engage their potential partners/ sub-implementers and focus on the response outcome and how that can be demonstrated, as the basis for reporting. The Capacity Assessment then looks at the ability to deliver.


• Challenge: In budgeting, local and national orgs drive down real costs of some activities or exclude certain necessary budget lines in fear that the donor will look at this negatively - without even having the discussion with the donor first.
  How to address it: More transparency & independent monitoring of donor agreements - esp. from UN member states.


• Challenge: The major challenge is the sustainability of the humanitarian interventions done by the local actors with the support of foreign organizations because organizations shrink when there is no emergency and there is no sustainability mechanism to strengthen
  How to address it: System strengthening of the local organizations and multiplying funding streams for them to sustain itself and programmes in the long run.


• Challenge: EU and MFA often don’t contract local partners directly.
  How to address it: Governments should allow for different legal set up.
  
  
• Challenge: Project formulation occurs without input from in country partners or local organisations who are in constant interaction with the actual beneficiaries
  How to address it: It's not just about longer-term partnerships but rather, having sustainability initiatives in projects for continuation even after the project close. The support from donors to tailor projects in this way for localised organisations is critical.


• Challenge: Risk management seems to be top down rather than bottom up
  How to address it: Longer term partnership - 3-5 year relationships.


• Challenge: Downward risk transfer is not always the answer; particularly in post conflict or transition countries. Need to start talking about risk-sharing with donors.
  How to address it: Engage, engage, engage - it is a two-way relationship.


• Challenge: Local organizations have a place on the negotiation table. They need to take the space and NOT fear. Negotiate, negotiate, negotiate. You have to keep shaping how things are done on ground.
  How to address it: Local organizations should continue to voice out these challenges. Funding partners are institutions that listen and learn too to adjust their approaches. For instance, in one agency, we convinced one main funder to shift to multiyear funding. keep voicing please!


• Challenge: Local partners are not focused or targeted enough in their partnership quest
  How to address it: Local NGOs should better understand their comparative and competitive advantages and look for suitable partnerships accordingly. Should be more targeted.


• Challenge: The main challenge for local and national NGOs is lack of internal governance. If they can strengthen this they will be able to get any kind of funds.
  How to address it: The local NGOs have to reinforce their internal governance.


• Challenge: Many LNGOs do not meet due diligence requirements of many donors. LNGOs have capacity to deliver projects but fail in due diligence process.
  How to address it: Donors must support LNGOs to strengthen their due diligence and be more flexible.

• It's very rare to be able to change the mindset of donors. When they have set targets to meet and you know that some of those targets need to be adjusted as a local NGO your position is already secondary in that situation.
• For our case in South Sudan, there is a lot of politicization of the in Country funding. Secondly as local NGOs the notion here has always been inadequate capacity to implement the project to the standard of the Donor, which to me is not true.
• Most of the UN organizations are restricting funding to just the biggest INGOs without giving the chances to national NGOs which sometimes are very professional and can be compliant with UN agencies' standards, but just excluded from the 1st phases!
• Push donors to having flexible due diligence rules that allow local partners to implement funds directly.
• Local NGO accountability and delivery of results can be improved to be almost comparable to those of INGOs
• I do not work for a local/national NGO, but would imagine that limited staff resources will be a hurdle in implementing internal structures for a structured approach to risk management.