Unspent Funds Will Impede Poverty Goals

funding governance development MDGs
Tuesday, 4 December, 2012 - 10:20

The failure by United Nations agencies, private foundations, non-governmental organisations, companies’ corporate social investment departments and municipalities hinders progress on meeting the Millennium Development Goals

Development money sits in bank accounts around the world, including South Africa, tagged as unallocated, undistributed, under-spent and unspent or as earmarked funds that cannot be touched. It runs into billions of dollars.

Africa remains the poorest region in the world according to the World Bank yet through inept planning, poor grant management, lack of donor consultation and administrative blunders funds for development remain stuck in treacle.

We are led to believe that the root cause of poverty in Africa is not necessarily inequality in economic freedom but corrupt political leadership, lack of educational opportunities, limited health services and even climate change that perpetuates the cycle of poverty. ‘Goof ups’, ‘foul ups’ and ‘mess ups’ are never mentioned as contributing factors to grinding poverty triggered by the very same machinery empowered to address the tragedy. 

A disproportionate number of an estimated one billion people, those living in poverty and despair, living on less than US$1 per day, are in sub-Saharan Africa.

A recent study on financial flows in the United Nations (UN) shows that UN agencies are carrying a build-up of unspent funds. The study examines five different UN agencies to which Norway, the funder of this study, is one of the most important donors. The agencies are the UN’s Development Programme (UNDP), the UN’s Children’s Fund (UNICEF), the UN’s Population Fund (UNFPA), and the humanitarian agencies, UN High Commissioner for Refugees (UNHCR) and the UN’s World Food Programme (WFP).

The study covers the period 2000-2010 where selected UN agencies have experienced a steady increase in financial contributions from donor countries to the tune of US$100 billion (R800 billion) most of which is linked to Millennium Development Goals (MDGs).

By the end of 2009 unspent funds including mandatory reserves at these agencies are estimated to have exceeded US$12 billion (R96 billion). The report states that aside from mandatory reserves, much of these balances are from non-core earmarked funds received in advance under signed legal agreements for specific projects/programmes whose implementation extends beyond one financial year and roll-over from one year to the next year. These funds could be sanctioned for other purposes or returned to donors for reallocation.

This is a critical issue yet not delegated to key people to resolve; how can the overarching mission to reduce poverty by half be achieved if the drivers and implementers of the 2015 MDGs act complacent and content with the status quo? 

The United Nations is not alone in this act of complacency.  Some private foundations do not fully utilise their allocations to good works claiming all sorts of reasons for not awarding grants such as a lack of proposals from credible organisations. A local trust fund with a mission to address poverty has consistently under-spent for five years an amount of R50 million as unallocated funds. We all agree on responsible grantmaking but this example is nothing but miserly execution.

More than R2 5 billion of accumulated amounts sit in the trust fund of the National Lottery Distribution Trust Fund (Source: NLB Annual Report April 2011 to March 2012) before a call for proposal is made. Thirty-four percent of ticket sales are transferred each week after the lottery draw and invested directly into the trust fund. Accumulated monies during a particular financial year are available for distribution in the following year. For example funds accumulated in 2011/2012 are available for distribution in the 2012/2013 year and so on. Although prudent financial management is good this model is painfully slow, so much so that the 2011 adjudication process took nearly 15 months. The accumulation of monies to be approved or disapproved is at the mercy of Mandarins, people who pray God with no sense of urgency.

The Lottery distributed an amount of R1.69 billion to 2 667 nonprofit organisations after the 2011 call for applications - during this ‘call’ more than 8 000 applications were submitted to the National Lottery Distribution Trust Fund (NLDTF) requesting R32 billion for project or programme funds. And this desperation for support from the NLDTF only represents 10 percent of the total number of nonprofit organisations registered in the country.

The closing balance of the NLDTF as of April 2012 was R2.1 billion but there are operational expenses to be considered - this is not to be confused with the amount allocated to good causes for the 2012/2013 period.

A large company with a strong African footprint has its headquarters in South Africa; they allocate one percent of net profit after tax (NPAT) each year to a corporate social investment (CSI) budget. The company enjoys record profits each year and is able to make multi-year commitments. In 2011, the CSI budget was R25 million but only dispensed 70 percent of the total citing a lack of internal capacity as the problem. The unused R7.5 million could have gone a long way in helping poor communities. We need to ask the question. Why did the management fail to motivate for more CSI staff to cope with project oversight?

Although a majority of CSI budgets are fully exhausted each year some stall tranches when grantees do not comply with agreed terms of a grant; causing delays or redirection of the monies to other projects. This is often reflected as undistributed funds and factored into the next years’ budget.

Nonprofits are also not blameless, they too like to play banker-banker and re-direct what they perceive to be their money without consulting donors. A super-size non-government organisation (NGO) received R4 million of designated funds for a project. They underutilised the money on the project by 22 percent. They then reapplied for an increased amount to the same donor for the same project the following year without reporting on the surplus amount remaining. There was no sense of answerability; they have since lost the trust of the donor.  Squirreling money away that has been awarded for specific work is unethical and possibly illegal.

The Gauteng Department of Social Development neglected to spend R54 million of its welfare budget in the past financial year; R35 million of the money had been budgeted for childcare services and R13 million for old age homes. A newspaper reported that R18.9 million of the money should have been spent on NGOs working in the field of HIV and AIDS prevention and R12.8 million in support of vulnerable families. A spokesperson told the media at the time that under-spending had been caused by ‘cash flow problems’ at the health department. A number of nonprofit organisations (NPOs) are now forced to cease services and shut their doors.

Municipalities left R2.27 billion of the municipal infrastructure grant unspent in the past financial year - delaying delivery of services such as water, sanitation, roads and electricity - even while anger spread over local government failures and underprivileged communities protested violently nothing seems to have changed or even added a sense of urgency to the matter.

The national government awarded R4 billion to hospital revitalization in 2011 yet only 79 percent of the amount was used-up. Five provinces underspent on public hospital infrastructure to the tune of about R800 million. Health Minister, Aaron Motsoaledi, explained to Parliament that the underspending was caused by delays as a result of poor quality work by contractors, poor management of build programmes and land allocation problems. This reckless awarding of tenders to amateur construction companies and poor planning risks lives and jeopardises patient health.

As citizens and members of civil society we must make it our business to halt unthinking, uncaring, incompetent responses to poverty is risking the lives of future generations. Unspent funds is nothing more than incompetence and complacency, it is a crime against humanity, no more excuses.

“To those people in the huts and villages of half the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves, for whatever period is required - not because the communists may be doing it, not because we seek their votes, but because it is right.  If a free society cannot help the many who are poor, it cannot save the few who are rich.” JF Kennedy

Reference UN report: www.norad.no/en/about-norad/news/study

- Ann Bown of Charisma Consulting, Johannesburg.  Cell: 083 271 0572.  Ann is a financial sustainability advisor to the non-profit sector and has been in development for over 25 years.

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