Ways to improve donor reporting across United Nations system

The United Nations and system organizations should engage with donors in a dialogue at the strategic level for the adoption of donor reporting templates and accommodating the common information needs, demands and requirements of donors and the regulatory frameworks and capacities of the organizations.

This is one of the main recommendations highlighted in a new report by the Joint Inspection Unit (JIU), an independent external oversight body of the United Nations system, reviewing donor reporting requirements across the UN system.

The JIU review focused on the United Nations system organizations that have the highest number of donor reports and on the 16 major donors to the United Nations system, including the European Commission.

According to the report (JIU/REP/2017/7) prepared by Inspectors Mr A. Gopinathan and Mr Gennady Tarasov, the rise in voluntary contributions, most of which have been specified (or earmarked) contributions over the past two decades, has been dramatic, while core contributions have been stagnant or declining in real terms.

The proportion of voluntary contributions to United Nations system organizations amounted to about 70 per cent of all contributions in 2015 (and about 85 per cent exclusive of resources allocated to peacekeeping operations).

United Nations funds and programmes rely solely on voluntary sources. Similarly, some secretariat bodies and other entities such as the Office for the Coordination of Humanitarian Affairs (OCHA) and the Office of the United Nations High Commissioner for Refugees (UNHCR) rely on voluntary sources for more than 90 per cent of their funding.

The report noted that when transferring funds to the United Nations system, donors are increasingly calling on organizations to strengthen their capacity and performance with regard to reporting the results to the governing bodies and sharing with them the evidence compiled by their management, internal oversight offices and other accountability and oversight mechanisms.

Donors desire greater transparency and accountability and information on how these resources are used and on measures being taken to ensure effective and efficient use of their contributions.

They demand more detailed financial and programmatic reporting, in addition to regular assessments of organizations. Often, these reporting requirements vary significantly regarding format, detail and periodicity.

According to the JIU report, the number of individual donor reports prepared and submitted annually varies from one organization to another and depends on a variety of factors, including the volume of earmarked contributions received by the organization, the number and duration of projects, the funding models used (including pooled funding mechanisms, jointly funded programmes and projects, multi-year funding and the bunching of several projects under one programme for funding) and the agreed frequency and periodicity.

The numbers of reports produced by organizations often run into the hundreds and even thousands.

"Many United Nations system organizations are of the view that such voluminous donor reporting requirements pose challenges that demand significant amounts of their management and operational time and other resources, including human and financial resources," the Inspectors noted.

According to the JIU report, as set out by the Charter of the United Nations and the statutes of the United Nations system organizations, reporting to member States and donors is principally done through the organizations' governing bodies.
This includes reporting on regular or core contributions and non-core contributions.

The increase in voluntary contributions and earmarking has contributed to substantive changes in the funding structure of organizations and the ways organizations report back on the funds received. It has resulted in a significant rise in individual donor reports, which are submitted directly to the donors on activities funded by them.

In the United Nations system, voluntary contributions in 2015 amounted to $29.9 billion (of which $25.4 billion were specified) out of a total of $47.9 billion, which corresponds to about 62 per cent of the total revenue (53 per cent for voluntary contributions specified).

The proportion of the voluntary contributions exclusive of assessed resources allocated to peacekeeping operations was higher, standing at about 76 per cent in 2015, with the specified contributions reaching 64 per cent of the total revenue.

Eleven United Nations entities, including OCHA, the United Nations Office on Drugs and Crime (UNODC) and UNHCR rely on voluntary sources for more than 90 per cent of their funding needs, some of which, such as the United Nations funds and programmes, rely solely on voluntary contributions.

Contributions to United Nations system organizations from non-member State donors, such as the European Commission, the World Bank and other multilateral institutions, global vertical funds, and United Nations inter-agency contributions, including those from United Nations pooled funds, foundations and corporations, have become significant. They come with specific reporting formats and requirements.

In 2015, the United Nations system entities received more than $8 billion specified contributions from non- member State donors: the European Commission ($1.72 billion), United Nations inter-agency pooled funds ($2.01 billion), the World Bank and other international financial institutions ($0.25 billion), and global vertical funds, foundations, corporations and civil society ($4.09 billion).

According to the report, the majority of the organizations provide significant numbers of individual donor reports annually. Three of them provided about 3,000 reports, and seven submitted 1,000 to 3,000 donor reports in 2016, including final reports, annual, semi-annual and quarterly reports.

Some organizations had difficulty in providing an exact estimate, said the Inspectors.

The Inspectors noted that there is a correlation between the number of reports and the proportion of voluntary contributions specified, with specialized agencies having on average a lower number than United Nations funds and programmes.

There is also a correlation with the total revenue; that is, higher numbers of reports are seen with increasing revenue. UN-Habitat appears to be an outlier, with a rather high number of reports in comparison to its total funding.

"The situation is exacerbated by organizations having to submit their reports in multiple, often significantly differing, templates responding to specific needs of the donors. Most donors have their own requirements with regard to frequency, format, level of detail and financial or budget structure."

Furthermore, non-government donors such as the European Commission and multilateral development banks have their own reporting modalities (in respect of EC, requirements differ depending on the funding source within EC or the EU Delegation in-country).

The same applies to global vertical funds - GAVI, the Global Fund, the Green Climate Fund (GCF) and the Global Environment Facility (GEF), and United Nations inter-agency pooled funds such as multi-partner trust funds (MPTF) and Central Emergency Response Fund (CERF).

Running systems to support a project-based, earmarked contribution model is cost-intensive, the report noted.

Providing a multitude of individual reports, tailored to donor-specific needs, templates and contents, and maintaining the necessary underlying systems, comes with extra transaction costs and is costlier than if structures only provided their corporate performance and annual reports to governing bodies of the organizations.

In addressing the challenges resulting from donor reporting, the JIU report recommended that organizations should engage with donors in a dialogue at the strategic level in line with the UN Secretary-General's proposal for a "funding compact".

In the spirit of partnership, views of both organizations and donors should be taken into account, notably donors' expectations for greater effectiveness, transparency and accountability regarding system-wide results.

One of the critical elements of the dialogue should be the adoption of donor report templates and accommodation of the common information needs and requirements of donors and the regulatory frameworks and capacities of the organizations, said the Inspectors.

Pooled funds or other innovative funding sources should continue to be explored.
Ideally, agreement with all donors would be most advantageous.

However, success even with some key donors has the potential to significantly reduce the reporting burden, they added.

The United Nations System Chief Executives Board for Coordination should provide the platform for the development of such a unified position in the United Nations system, the Inspectors further said.

The JIU report noted that donor reporting requirements are determined by the provisions in the respective contribution agreement and related documents.

Specifying details of the reporting modalities in the donor agreements is important for organizations to recognize their reporting obligations and ensure that donor information needs are met.

Negotiations, therefore, play a key role in clarifying donor reporting requirements and ensuring that donor needs are spelled out in the agreements.

Organizations and donors should discuss, at the outset, and agree on needs and requirements, their feasibility and the attendant resource implications. Similarly, there should be an agreement on ad hoc information and reporting requests such as project site visits, donor meetings and briefings.

Organizations should ensure that the relevant offices, notably finance and legal, are consulted in a timely manner, so that the reporting requirements agreed upon are compliant with rules, regulations and policies.

Clarity on reporting requirements will help avoid protracted discussions, ambiguity and grievances at a later stage, said the Inspectors.

They also noted that a number of organizations do not have a central repository for all contribution agreements signed with donors. This may be the case in particular for decentralized organizations. The situation is exacerbated by the fact that fundraising and reporting activities are increasingly taking place at the regional and country levels.

While legal and finance offices are consulted as part of the internal clearance process, this is not always the case for standard agreements or small contributions. Similarly, several organizations do not have a central repository for individual donor reports, for the same reasons.

"Executive heads should encourage better access to, dissemination and exchange of information concerning donor reporting among the member States, and they should ensure that every organization maintains a corporate repository for all contribution agreements and donor reports," said the Inspectors.

According to the JIU report, many interviewees noted that providing guidance and training to programme managers and staff engaged in donor reporting activities, such as finance and operational support staff, would help improve the quality of reporting and reduce transaction costs.

"Guidance and training on donor reporting should foster compliance with the organization's rules and provisions on donor reporting and assure consistency of reporting conditions accepted across the organization," said the Inspectors.

It helps to adapt to evolving reporting requirements and to address challenges posed by the turnover and rotation of personnel - both within organizations and among donor agencies.

The report said the guidance should cover standard contribution agreement formats, financial and programmatic report templates, results-based project design, common reporting needs, results, outcome and impact reporting, value for money, information on beneficiaries, performance reporting and transparency initiatives.

It should also provide suggestions on avoiding common mistakes and addressing common concerns (such as timeliness, results-based management reporting, level of detail/granularity, comprehensiveness and the alignment of programmatic with financial reports).

The JIU report also said a major concern expressed by organizations regarding individual donor reports was the resources needed for producing those reports and the related transaction costs. The majority indicated that donor reporting was a considerable administrative burden.

Organizations admitted having difficulty in providing estimates for the costs of donor reporting and the related administrative burden. Most do not track the costs separately or quantify them.

The challenges of estimating or measuring the administrative burden and transaction costs related to reporting stem also from the absence of methodologies for computing them.

The inability to estimate the reporting costs impedes organizations from ensuring that all additional reporting costs are included as direct programme costs in line with their established cost recovery policies, said the Inspectors.

Without a realistic estimate, organizations cannot have an informed discussion or dialogue with donors on the reporting costs. Organizations should, therefore, estimate reporting costs and develop methodologies for calculating them.

"There should be a clear understanding at the outset that any extra reporting will have to be paid for by the donor. This should include procedures for ad hoc or informal reporting, which is difficult to plan and quantify and usually ends up being subsidized by the organization."

The report also said that donor reporting on small contributions is proportionately costlier. Defining a minimum threshold for contributions below which only standard reporting would be provided, together with methodologies for calculating reporting costs, would support the principle of full cost recovery and foster consistency within an organization.

Having an adequate level of resources for individual reports will help assure the quality and timeliness of donor reporting, it said.

According to the Inspectors, most organizations supported the idea of a common template for donor reporting, especially financial reporting. Many donors also welcomed efforts towards such standardization.

Both organizations and donors regarded that as an effective means to better utilize reporting and allow for comparison among organizations.

The Inspectors suggested that a common template should accommodate most of the donor requirements. At the same time, it should be flexible enough to be adapted by different entities and to the varying requirements of individual donors.

Several organizations have developed common report templates for government donors and for non- governmental donors, or a donor-specific template that is negotiated between the organization and one donor.

The report noted that some efforts have been made towards harmonising and standardising donor reporting among multiple organisations and donors, including common standard reporting of pooled funds, reporting on thematic or loosely earmarked multi-donor funded projects/programmes, and the United Nations template for inter-agency funding.

The most notable effort exploring a possible common report template across the United Nations system for use by donors has been developing the "10+3" common report template, refined to the "8+3" common template, in the wake of the Grand Bargain following the 2016 World Humanitarian Summit.

Based on an analysis of the templates of 19 government donors on humanitarian funding, a template was developed consisting of 10 core and 3 additional questions covering about 77 per cent of the information commonly requested.

Such a baseline commonality suggests that a common template would be feasible.
The "8+3" common template is currently being piloted in three countries (Myanmar, Iraq and Somalia) and, depending on the outcome, its use would be suggested to organizations and donors.

Harmonizing the questions asked or categories of information requested would reduce the complexity and multiplicity of the reports, without necessarily reducing the information requested (streamlining the number and scope of information requests may also yield time savings).

An immediate step would be to harmonize final (and interim) report templates, which have significant commonalities among them.

Attempts should be made, based on the work done, to develop a "minimum core" report format that is agreeable to all organizations and covers their key common information/reporting needs, and flexible enough that it can be adapted to the varying requirements of donors and entities, said the report.

It also said that managing project-based and hard-earmarked funding requires policies and systems that support such operations, including donor reporting.

To this end, and with a view to improving the quality and timeliness of donor reporting, organizations should ensure that their policies for the management of voluntary contributions are adequate, that they possess robust project management systems, and that their enterprise resource planning system and other management information systems possess the necessary functionalities for such work.

The risks related to donor reporting need to be mitigated, and quality assurance processes for donor reports should be strengthened.

Organizations should ensure, during the due diligence and clearance process of accepting contributions and signing donor agreements, that the contributions and project results framework are aligned to their corporate strategic and results framework.

Organizations should treat donor reporting as an effective tool for resource mobilization and should put in place measures for strengthening partnerships so that reporting is perceived as a continuous process of building lasting relationships with partners.

Robust and adequate oversight functions and reports have the potential to enhance donor confidence and reduce assurance needs that donors seek from organizations through project-specific, detailed and comprehensive reports, said the Inspectors.

Formal recommendations

The JIU report makes seven formal recommendations, of which two are addressed to the governing bodies and five to the executive heads.

The formal recommendations are complemented by 15 informal or "soft" recommendations in the form of additional suggestions to both the organizations and the donors for effecting improvements.

The formal recommendations are as follows:

Recommendation 1: The governing bodies of the United Nations system organizations should encourage the Secretary-General and executive heads of other organizations, in the framework of the United Nations System Chief Executives Board for Coordination, to develop a common position and pursue a high-level strategic dialogue with donors, in order to address the challenges posed by the current funding models and practices and the impact of strict earmarking of voluntary contributions and reporting to donors.

Recommendation 2: The executive heads of the United Nations system organizations that have not yet done so should put in place measures for ensuring that partnership agreements, concluded at the corporate level with the donors and at the corporate and field levels for individual programmes and projects, spell out the needs and requirements of the donors and the mutual commitments of the organizations and the donors, with respect to the details of reporting on the use of funds provided.

Recommendation 3: The executive heads of the United Nations system organizations should encourage better access to, and dissemination and exchange of, information concerning donor reporting among the member States and should ensure that every organization maintains a corporate repository for all contribution agreements and donor reports.

Recommendation 4: The executive heads of the United Nations system organizations that have not yet done so should regularly update guidance on donor reporting and put in place measures for the professional skills development and training needed to improve reporting to donors, for personnel at headquarters and in the field.

Recommendation 5: The executive heads of the United Nations system organizations that have not yet done so should work systematically with donors to include in donor agreements the costs associated with preparing donor reports.

Recommendation 6: The Secretary-General and executive heads of other United Nations system organizations should, preferably within the framework of the United Nations System Chief Executives Board for Coordination, develop and adopt a common report template accommodating the information needs and requirements of donors and the regulatory frameworks and capacities of the organizations, as a basis for negotiations with donors.

Recommendation 7: The governing bodies of the United Nations system organizations should request the executive heads to task, and adequately support, the internal audit and evaluation offices of their respective organizations with ensuring that the relevant oversight reports provide the required levels of assurance that would help minimize reporting to individual donors on the use of their earmarked contributions.

By Kanaga Raja.

Source: SUNS - South North Development Monitor, #8643 Monday 16 March 2018.