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Managing the Fiduciary Risk Associated with Social Cash Transfer Programmes: DFID How To Note

Author: DFID
Date: 2006
Size: 14 pages (192 kB)

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Summary

What fiduciary risks do social cash transfer programmes, like pensions or household allowances, carry? How can international donors limit the diversion of these funds away from their intended beneficiaries? This paper from the Department for International Development outlines methods for appraising, minimising and monitoring the fiduciary risk of a cash transfer initiative. It argues that, while such losses are almost impossible to eliminate, they can be reduced by assessing and recording the risks, designing programmes to mitigate these risk and regular monitoring and evaluations to ensure the objectives of the programme are being met.

It argues that, while such losses are almost impossible to eliminate, they can be reduced by assessing and recording the risks, designing programmes to mitigate these risk and regular monitoring and evaluations to ensure the objectives of the programme are being met.

Social cash transfers are regular, predictable payments to vulnerable and poor individuals or households, such as old-age or disability pensions, child support grants or household allowances. They may be unconditional, and based on certain eligibility criteria, or conditional on specific requirements, such as children's school attendance. Cash transfers may be funded by donors as part of general or earmarked budget support or as support to individual programmes.

Fiduciary risk is the risk that funds are used for unintended purposes, do not achieve value for money or are not adequately accounted for.

The key messages of the guidance are:

• cash transfer programmes have inherent fiduciary risk, which can be mitigated most effectively at the design phase of programmes;
• the greatest risk of loss from error or fraud through cash transfer programmes arises from complexity in the eligibility criteria and operations;
• no standard design for cash transfer programmes will mitigate all risks, but programmes should be designed to be as simple as they can be, while still meeting their objectives (there may be a trade-off between the simplicity of a programme and how well it targets the poorest);
• controls to mitigate fiduciary risk have a cost, both to the administration of the scheme, and sometimes to beneficiaries. There is therefore a balance to be struck in ensuring effective control while meeting policy objectives;
• appropriate monitoring and evaluation of programmes will help to identify any failure in controls;
• separate fiduciary risk assessments are mandatory for all cash transfer programmes provided from general or earmarked budget support, and should be carried out periodically over the lifetime of a programme.

Access full text: available online

Source: Department for International Development, 2006, 'Managing the fiduciary risk associated with social cash transfer programmes: DFID How To Note', A DFID Practice Paper, DFID, London