Enhanced Due Diligence and Grant and Contribution Programs

In a 2016 article entitled “It’s time to talk about fraud in aid agencies” published by the Guardian’s, Oliver May (who was the former head of counter-fraud for Oxfam GB) argues that aid agencies need a comprehensive anti-fraud regime in place. Specifically he states that a managed fraud framework provides agencies with flexibility, builds trust, enhances program quality and reduces waste. He recommends “Due diligence, timely auditing and local implementing partners” as measures to help prevent fraud.

The Canadian Government, through various Treasury Board Policies have implemented anti-fraud frameworks that are comprehensive with respect to risk assessment and auditing. Where departments may need a little help is in the area of enhanced due diligence.

EDD is not new in government, variations exist in policy and in legislation. Regulations implemented by the Financial Transactions and Reports Analysis Centre (FINTRAC) require that any organization that handles financial transactions must conduct risk assessments of the counter-parties; and some crown corporations must comply with those regulations.

Under the Treasury Board Standard on Security Screening, departments are required to conduct Open Source (i.e. OSINT) research on individuals and organizations where an enhanced screening is required.

The tools and knowledge exist within Government, but is enhanced due diligence appropriately applied to the awards of grant and contributions? How does a government agency properly manage the risk of fraud in a transfer payment while still respecting the priorities of government and the objectives of the program?

Part of the issue may be that organizations don’t believe that information exists in the public domain that may be of use. Putting aside for a minute information that is published on someone’s social media profile or in a court record, there are industry specific sanctions lists that are available.

In 2013 the Toronto Star[1] published an expose on fraud in research grants. The article argued that the names of research scientists that were found to have committed fraud in their research projects should be published, as is the practice of the United States Office of Research Integrity.  In fact, the USORI publishes findings on its Twitter feed. Consulting the USORI lists would be of interest for any agency considering funding a scientific or technological project if the individual or company is based in the United States.

Other organizations publish records of sanctioned individuals and companies who have found to violate transfer payment, loan or contracting rules. The World Bank publishes information about consultants and firms that violate their procurement policies.

Consulting industry specific sources is a start, but it isn’t sufficient. In order to comprehensively assess the risk of a recipient, departments must consider business interests, affiliations, whether or not personal or corporate particulars are verifiable, litigation risk, reputation risk and other factors. The inquiries need not necessarily be expensive, but they do need to be through and consider a variety of resources. Furthermore, grants and contributions may not be refused based on the findings of the EDD inquiry, but the terms of the agreement may be modified to account for the findings, and higher risk recipients may be paid closer scrutiny. The knowledge the department gains does not have to be applied in a one-size fits all manner.

For more information on our Enhanced Due Diligence research products and training for your department’s funding or compliance section; or for information on how your organization can stand-up an enhanced due diligence function, please contact us.

[1] Robinson, M. “Agency keeps dodgy researchers’ names secret; Star finds dozens of cases of misconduct have been shielded by federal privacy laws” Toronto Star, July 12, 2016.