Cash is no Riskier than Other Forms of Aid. So Why Do We Still Treat In-kind like the Safer Option?
The first in a new series of blogs on cash and voucher assistance and risk, this article from CaLP’s Stefan Bumbacher debunks some common myths around the risk of misappropriation and fraud in CVA.
When we talk about risk in humanitarian programming, we can mean a number of things: the risk of harm to recipients, the risk that the programme will not achieve its intended objective, or the risk that funds or materials will be misappropriated or lost, and not reach their intended recipients. This blog is the first of a series on cash and voucher assistance (CVA) and risk. Before looking into potential risks for recipients of cash or vouchers, we kick this series off with some myth-busting: the risk of misappropriation and fraud in CVA.
For the last two decades, cash and voucher assistance (CVA) has been plagued by the misperception that it is at higher risk of misappropriation and fraud than in-kind. This myth has inhibited efforts to scale up CVA so it can be used whenever it is the most suitable response option.
As confirmed by the CHS Alliance’s humanitarian accountability report, it was already clear by 2005 that CVA can be used to effectively meet humanitarian needs. But it took the sector another ten years to start to fully take advantage of the opportunities of multisector CVA, partially because of the focus on the perceived risks associated with the transfer modality. According to CaLP’s 2018 State of the World’s Cash Report, the perception that cash is an inherently risky modality is today still the biggest barrier to more effective and extensive use of CVA.
Humanitarians know that any aid programme carries risk, no matter what transfer modality is used. There is no evidence of cash being more prone to diversion than other modalities. Some studies even suggest that losses from or diversion of cash transfers are around 2% on average, compared with up to 50% for some in-kind assistance. But while donors may be able to tolerate diversion of a modest proportion of in-kind aid, they can be much more sensitive to the diversion of cash. However, because CVA involves fewer intermediaries, in high-risk environments it can be an effective tool to avoid diversion.
Most cases of fraud are not attributable to the modality of assistance, but occur around procurement, registration and identification which are essential parts of most humanitarian programmes. CaLP’s research on the use of CVA in the high-risk contexts of Mali and Yemen has shown that programmatic risks are mostly context-specific (not only country-specific, but often region- or locality-specific). Risks can, however, manifest themselves differently depending on the modality. They should therefore be assessed on a case-by-case basis and re-evaluated when the context changes. 
Meanwhile, the safeguards associated with CVA can make it easier to detect leakage and misappropriation. E-payments can significantly cut the risks of leakage with financial assistance. Using mobile-phone-based money, ATM cards and other digital channels and new technologies, it is easier to ensure that the money goes straight to the people intended, but also trace its progress and avoid the need to transport aid to recipients. 
Financial risks and compliance in high-risks environments
An increasingly low risk tolerance is one of the biggest challenges to all types of humanitarian assistance in conflict zones: The Humanitarian Policy Group (HPG) has produced research in Somalia, Yemen and Syria into bank de-risking – “where banks, fearful of regulatory penalties for breaching money-laundering or terrorist financing legislation, shed NGO customers or block financial transactions.” Their research has shown that this reaction has significantly reduced the cash available to the NGO community – in Syria by at least 35%. This combined with increasing risk-aversion among humanitarian agencies means that people in need in the most remote and high-risk areas are in danger of being ignored.
While de-risking concerns all humanitarian organisations and all financial transactions (e.g. to pay staff, rent or to buy in-kind commodities), CVA implementers operating in high-risk environments, where misappropriated funds could be channelled to armed groups, are increasingly restricted by counter-terrorism legislations and face being sanctioned by donors. This should be avoided by establishing clear guidance and tools for implementers. CaLP is currently undertaking a scoping study on CVA and risk in financial management and compliance to understand how CaLP should support stakeholders with guidance, tools, and other learning to manage CVA-specific finance and compliance risks and mitigate the risks.
Coordinating to mitigate risks
Both of CaLP’s recent case studies on risk in challenging contexts emphasize that there is need to better coordinate and share knowledge around risks and mitigation. While many organisations are doing risk analysis (specifically on CVA where donor demands are traditionally higher), this information is rarely shared with other implementers. In Yemen, for example, some sharing of analysis on CTP-specific risks took place through coordination groups on exchange rates, market monitoring and the value of food baskets, as well as wider context risk assessment on security and access. However, humanitarian agencies do not appear to take a consistent, shared approach to risk identification and analysis. Coordination and knowledge sharing about risk should be increased between implementers, and between implementers and donors. All risks should be addressed through an open dialogue between donors and implementing partners around mitigation.
Operating in high-risk environments comes at a cost, and so donors must work with implementing partners to ensure they have appropriate risk mitigation mechanisms in place. Donors can also promote a pragmatic and open dialogue with implementing partners about acceptable risks and how they should be managed.
CaLP will be continuing to strengthen the understanding of CVA-related risks and coordinate risk-related initiatives among partner organisations. CaLP, together with WFP, is co-leading the Grand Bargain sub-workstream on risk and has set up, together with its members, a Working Group on CVA and risk. More activities are planned for 2019. For more information, resources and tools about CVA and risk, visit CaLP’s thematic page and the list of key resources.
Up next in this mini-series on CVA and risk: Data responsibility. The ICRC notes that “the humanitarian sector’s growing use of digital and mobile technologies creates records that can be accessed and misused by third parties, potentially putting people receiving aid at risk.” While this is a risk which needs to be mitigated by the whole sector, some considerations are CVA-specific – namely, that the increased uptake of joint programming approaches demands an exchange of information between organisations. This includes an increasing reliance on the private sector and financial service providers, such as banks, mobile operators or hawala agents, and the exchange of data with local, regional and national authorities. Guidance such as ICRC’s Handbook on Data Protection in Humanitarian Action is crucial, but there is a need to translate existing guidance on data responsibility in CVA into clear and actionable steps which can be applied during programme design and implementation. To fill this gap, CaLP is working together with partners on developing a road map for action for data responsibility in CVA, starting with a workshop in early April which brings together CVA experts and Data Protection focal points. Stay tuned.
 CaLP, ‘The State of the World’s Cash Report’ (CaLP, February 2018) http://www.cashlearning.org/downloads/calp-sowc-report-web.pdf
 Doocy & Tappis, ‘Cash-based approaches in humanitarian emergencies. A systematic review’ (3ie, April 2016) http://www.3ieimpact.org/sites/default/files/2019-01/sr28-qa-sr-report-cash-based-approaches.pdf
 Gettleman & MacFarquhar, ‘Somalia Food Aid Bypasses Need, U.N. study says’ (NYT, March 2010) https://www.nytimes.com/2010/03/10/world/africa/10somalia.html
 Kaul, ‘Household Response to Food Subsidies: Evidence from India’ (University of Maryland, January 2014) http://cega.berkeley.edu/assets/cega_events/61/1D_Food_and_Agriculture_3.4.pdf
 CaLP, ‘CTP in Challenging Contexts: Case Study on CTP and risks in Northern Mali’ (CaLP, September 2018) http://www.cashlearning.org/downloads/160818calp-mali-case-studyfinalenweb.pdf
 CaLP, ‘CTP in Challenging Contexts: Case Study on CTP and risks in Yemen 2015 – 2018’ (CaLP, October 2018) http://www.cashlearning.org/downloads/user-submitted-resources/2018/10/1540822102.CaLP%20Yemen%20CTP%20Case%20Study.pdf
 CaLP, ‘The Power of Financial Aid – Overseas Taxpayers’ (CaLP) http://www.power-of-financial-aid.org/overseas-taxpayers/
 DfID, ‘Transferring cash and assets to the poor’ (UK Department for International Development, November 2011) https://www.nao.org.uk/wp-content/uploads/2011/11/10121587.pdf
 ALNAP, ‘The State of the Humanitarian System’ (December 2018) https://www.alnap.org/system/files/content/resource/files/main/SOHS%202018%20full%20report%20online%20_0.pdf
 ICRC, ‘Digital trails could endanger people receiving humanitarian aid, ICRC and Privacy International Find’ (ICRC, December 2018) https://www.icrc.org/en/document/digital-trails-could-endanger-people-receiving-humanitarian-aid-icrc-and-privacy
Main image: Petterik Wiggers – Oxfam Novib