1. Many of the Civil Society Organisations (CSOs) assessed have invested in developing their ability to measure the results and impacts of their activities. Good practices identified included:
2. Fifteen per cent (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.
3. More recently (second half 2012), organisations have generally been aware of the need to question the accuracy of the financial and operational data they themselves captured and that which they received from their partners. Nine-six per cent (96%) of organisations working through partners intended to enhance the assurance they received through regular reporting with monitoring visits, internal assurance and external audits. In response to financial pressure, and the need for more timely analysis, a number of organisations developed innovative assurance techniques which ensured low cost, regular review:
The strength of assurance relies on the quality of reporting, the frequency and depth of review, the robustness of the methodology and the level of independence of the reviewers.
1. Across the sector 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.
Organisations which can most clearly articulate their value for money have clearly defined objectives towards control of underlying costs and delivering maximum, sustainable change through programmes. When working through partners, this is enhanced by having agreed common priorities and approach to value for money.
2. Despite the many good practices outlined below, CSOs often find 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 add further complications. However, a number of DFID-funded CSOs are working together through organisations such as Bond and New Philanthropy Capital (NPC) to develop guidance in this area.
1. 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 reliant on 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 clear strategy to address this.
2. During recent due diligence assessments, almost every organisation identified income growth as a short term objective and diversification of income streams and access to new income sources as a medium term objective. Accessing funding continues to be a key challenge for organisations, with over 50% reliant on a small number of donors. In some cases, organisations had depleted their unrestricted reserves or gone into deficit for a period (which means restricted funds are effectively diverted). This emphasises the value of increasingly rare strategic funding to CSOs and 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.
3. Success in accessing and diversifying funding streams was most clearly evidenced where an organisation had adapted its way of working in response to a targeted fundraising strategy aimed at a clearly defined donor. The organisation was then able to monitor and report on its actions and the impact of this work.
4. Targeting institutional donors saw partnerships established with more experienced organisations or the enhancement of internal skills through targeted recruitment. Strategies to raise public awareness and funding often involve innovative use of social media. Corporate partnerships were extended by accessing pro-bono gifts and services alongside cash grants.
1. 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.
2. Responses to managing costs included:
3. A number of organisations were also considering mergers to achieve economies of scale and reduce duplication.
1. The quality of risk management strategies 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.
2. Effective risk strategies included:
1. 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 the UK.
2. Although many organisations appear 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.
1. 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 assessed during the 6 months to July 2011 did not have policies in place or had not updated them for the UK Bribery Act which came into force on 1 September 2011 (after most of the due diligence assessments took place). In the 6 months to September 2012, significantly more organisations had revised their policies in response to the UK Bribery Act. However; several failed to address facilitation fees in addition to bribes through their guidance.
2. A number of DFID-funded CSOs have developed and published sector guidance through a Bond working group which provides a recommended approach to addressing bribery risks in line with the Act.
Strong anti-bribery policies included:
1. In general, CSOs appear 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.
2. 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.
3. Good practice included due diligence and on-going 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.
1. 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.
2. Ensuring the following would help to overcome some of the more common weaknesses observed:
1. In most recent rounds, organisations were able to show how organisational level strategies embedded at all levels of the organisation could be used to drive operational improvements aimed at delivering the organisation’s overall strategy. However, 10% of CSOs did not have a defined set of Key Performance Indicators (KPIs) against which to monitor progress across the organisation towards its objectives.
2. Nearly all CSOs had clear KPIs in place to monitor the DFID grant but many of these were KPIs adopted specifically for the programme and were not unified metrics within the organisation.
3. KPIs were most effective when one metric met the needs of multiple stakeholders; beneficiary (impact delivered), donor (grant performance), management (programme/staff/partner effectiveness) and the board (organisational strategy). Often KPIs were chosen to meet the donor’s needs but fell short of metrics for benchmarking between programmes or reporting back on the effectiveness of the programme to beneficiaries. Organisations feeling overburdened by reporting often failed to adopt unified metrics between programmes. This meant that in many cases organisations were reverting to project based methodologies which delivered pockets of data which did not facilitate good management or strategic planning.
1. CSOs are coming under more financial, operational and reputational pressure in a sector which sees competition for funds and changing donor demands. An effective board must understand the context in which the organisation works and have the mix of expertise, experience and opinion to address the organisation’s changing business needs and provide appropriate challenge to the executive team.
2. Evidence of board effectiveness has been mixed. Many organisations had established boards that provided adequate challenge to the senior management team. However in recent rounds of due diligence, 20% of CSOs had identified key deficiencies in the board skills set.
3. Examples of effective strategies to manage board effectiveness included:
In smaller organisations there was often the challenge of maintaining board independence. Trustees, who had often helped establish the organisation, remained heavily involved in day to day operations. As they grow, boards must be able to adapt their operating style and governance arrangements to remain effective.
1. CSOs are challenged to manage both their foreign exchange exposure and funds flow to ensure that at any one time they do not over commit resources and minimise their exposure to foreign exchange fluctuations.
2. The short term nature of funding (funding is largely spent within six months of being received) means many organisations manage cash management through budgeting controls and payment authorisations. Where cash flow became tight, payment authorisation levels were reduced to require more senior approval, effectively holding back cash payments pending donor cash receipts. This is a very reactive methodology and exposes the organisation to poor credit risk ratings to which suppliers might respond by requesting more stringent payment terms.
3. Good cash management was more clearly demonstrated where organisations had identified where cash shortfalls existed through cash flow projections and were directing unrestricted funds as a working capital buffer to provide short term resources. This was most effectively managed where cash was held and managed centrally rather than within country programmes or at partners. During due diligence reviews carried out in 2012 it was noted that few CSOs actively managed their foreign exchange exposure and 25% had no documented policy. However a number of organisations provide example of good cash management including;
As part of DFID’s/KPMG’s lesson learning on due diligence, we are continuing to collect feedback from organisations that have been assessed. DFID will continue to update and share lessons from its due diligence work with CSOs. Further updates will follow.
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