Many CSOs assessed had invested in developing their ability to measure the results and impacts of their activities. Good practices identified included:
15% of CSOs assessed felt over-burdened with reporting required of them as a result of: manual processes, no consistent M&E approach, different donor requirements, or having too many indicators.
Most organisations also had processes in place to verify the accuracy of M&E data, although 20% of the organisations felt they were under-resourced in this area.
While programme-level M&E was generally strong, most CSOs had difficulty demonstrating overall organisational impact and a quarter had no process to monitor against organisational objectives. While CSOs of differing levels of complexity and focus clearly face difference challenges, these factors did not appear to correlate to the ability to demonstrate results and impact. Those that were strong in this area tended to have clearly articulated organisational mission and objectives that were actively used in selecting and developing programmes.
Across the sector reviewed there appeared to be a significant commitment to ensuring value for money, and many CSOs had recently undergone a cost reduction programme, largely driven by funding pressures.
Approximately 85% of CSOs assessed had some mechanism for monitoring value for money at an organisational level. In addition, most organisations appeared to have a strong culture of maintaining low costs, although a number did not have formal policies in place to support this.
Despite many good practices, CSOs often found it difficult to articulate their value for money. Comparability is a key challenge for the sector, with numerous approaches to calculating indirect costs making comparison difficult. In addition, widely differing interpretations of what value for money means in the sector add further complications. However, a number of DFID-funded CSOs are working together through organisations such as Bond to develop guidance in this area.
Organisations which could most clearly articulate their value for money tended to be those that were more effective at demonstrating results and impact, and linking them to organisational objectives. Leaders looked beyond the outputs of programmes to consider impacts, key partnerships and opportunities for cross-learning and scalability.
Many of organisations that were assessed had experienced increased pressure on funding since the global recession in 2008-09. This included reductions in overall funding from donors and the public, but also an increasing shift by donors towards restricted funding. A number of organisations were over-reliant on DFID funding, or funding from a small number of donors. Approximately a third of CSOs had identified funding constraints as a key challenge but did not have a completed strategy to address this.
The most serious cases had resulted in unrestricted reserves being significantly depleted, and in some instances going into deficit for a period (which means restricted funds are effectively diverted). This emphasises the value of increasingly rare strategic funding to CSOs, and also the importance of incorporating sufficient indirect costs in restricted grant applications. Without this, important aspects such as M&E are likely to be underfunded and, in some cases, there may be a risk of insolvency.
Effective fundraising strategies tended to be aligned to the ability of organisations to demonstrate their impact and value for money, and to be targeted at diversified but clearly defined donors and public supporters.
Driven by funding pressures and increased focus on value for money, nearly all CSOs had reviewed core administrative costs and/or headcount in the last 18 months.
CSOs that regularly reviewed their financial performance and updated trading and cash flow projections were better able to plan ahead and implement cost saving measures before matters became critical. Several CSOs that had not responded in a timely manner had found themselves with significant financial challenges and had been ‘forced’ to reduce staffing as a result.
Responses to managing costs included:
A number of organisations were also considering mergers to achieve economies of scale and reduce duplication.
The quality of risk management processes was mixed. 10% of CSOs either had no risk register or Management did not consider this as an essential requirement from the organisation’s Board. At the other end of the spectrum, 10% had strong risk registers with risk management strongly embedded within the organisation.
Effective risk strategies included:
A number of organisations did not have policies in place to manage key activities and risks. For example, five organisations working with children or vulnerable adults did not have safeguarding policies in place. 12% of CSOs did not have a Conflict of Interest Policy as recommended by the Charity Commission. In addition, 12% of organisations were unable to demonstrate that policies and procedures were applied outside of the UK.
Although many organisations appeared to have informal processes in place, the formalisation and monitoring of the implementation of these processes is crucial to be able to demonstrate effective management, and, in some cases, to comply with UK legislation.
Strong policies included details of relevant regulatory frameworks, identified responsible individuals and clearly outlined sanctions for breaches. They also included, or were accompanied by, guidance and practical examples, and supported by appropriate and well-communicated reporting and/or whistle-blowing mechanisms.
Over a third of CSOs did not have an Anti-Bribery Policy in place. Several that had policies did not have supporting guidance for staff. Most CSOs that did have policies in place had not updated them for the UK Bribery Act which came into force on 1 July (after most of the due diligence assessments took place).
However, a number of DFID-funded CSOs were working on sector guidance through a Bond working group (which has subsequently been published) and that provides a recommended approach to addressing bribery risks in line with the Act.
Strong anti-bribery policies included:
In general, CSOs appeared to have strong relationships with implementing partners with regular interaction and programme monitoring. Many also actively worked to provide long-term value by helping to build capacity (where appropriate) with the partner.
Although programmatic monitoring was generally considered to be of good quality, a number of CSOs did not have robust systems in place to ensure partners had appropriate policies in place to manage key risks. Some more decentralised CSOs also found it challenging to manage risks in field offices.
Good practice included due diligence and ongoing monitoring that covered a range of governance, financial, systems and operational aspects; several CSOs also provided their own policies and procedures to assist partners and ensure minimum standards are met. As such, those organisations with stronger risk management processes and robust policies in place were better placed to manage risk at the partner level and build capacity.
Some organisations also developed creative ways of building capacity at the partner and field office level with minimal resources including sharing of good practice, peer reviews between field offices and using head office staff to provide financial training.
The ability to demonstrate a strong financial control environment is key to the due diligence process. Examples of good practice were observed at CSOs of all sizes and levels of complexity. Good linkage and communication between the financial and operational aspects of CSOs work tended to be observed at stronger organisations.
Ensuring the following would help to overcome some of the more common weaknesses observed:
As part of DFID’s/KPMG’s lesson learning on due diligence, we are collecting feedback from organisations that have been reviewed. DFID will continue to update and share lessons from its due diligence work with CSO’s. Look out for further updates later this year.
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