Report on cases of financial irregularities in 2018

• The annual report
• Zero tolerance of financial irregularities in practice
• Guidelines for dealing with suspected financial irregularities

(The report in pdf-format)

1. Introduction

The Foreign Service Control Unit deals with cases involving breaches of Foreign Service rules, unless responsibility for following up a specific type of irregularity has been assigned to a different unit in the Ministry of Foreign Affairs. The Foreign Service Control Unit also oversees cases involving breaches of rules in subordinate agencies.

2. Zero tolerance

The Ministry practises zero tolerance of financial irregularities and other misuse of Ministry funds. This principle must be observed by all Foreign Service employees, suppliers of goods and services, and organisations and others that manage funds allocated by the Ministry. For more details, see the policy memorandum Zero tolerance of financial irregularities in practice, which was updated in December 2018.

As a general rule, misused funds must be repaid to the Ministry. The same applies in cases where it cannot be documented that funds have been used in accordance with an agreement. The Ministry will consider reporting cases of this kind to the police if it is likely that a criminal offence has been committed.

3. Dealing with cases of suspected financial irregularities

In connection with the revision of the policy memorandum Zero tolerance of financial irregularities in practice, the Guidelines for dealing with suspected financial irregularities in the Foreign Service were also updated (see annexes). 

Most of the cases dealt with by the Foreign Service Control Unit have to do with possible misuse of grant funds. Suspected financial irregularities are normally reported to the Foreign Service Control Unit by the relevant unit in the Foreign Service or by the organisation that has received the funds. If the Foreign Service Control Unit finds reason to investigate the matter more closely, it is registered as a case of suspected financial irregularities.
As a rule, further disbursements to the recipient will be suspended until the case has been investigated and adequate risk-reducing measures have been implemented.

Investigations are usually carried out by the Foreign Service Control Unit, in close cooperation with the affected units in the Foreign Service. In some cases, external experts are engaged to investigate a case or perform a forensic audit. The Ministry of Foreign Affairs has framework agreements with five different companies that provide such services. In addition, the Foreign Service Control Unit engages external legal experts to follow up legally complex cases. If the organisation that has received the grant funds initiates its own investigation, the Foreign Service Control Unit usually waits until the results of this are available before considering its response.
In most cases of financial irregularities, the grant recipient agrees to repay the misused funds. If, however, the Foreign Service Control Unit’s claim for repayment is contested, legal proceedings may be initiated to recover the funds.

A case will be closed if the investigation concludes that a response from the Ministry is not required. In cases where the Ministry claims repayment, the case will not be closed until the funds have been repaid.
Information on cases that have required a response from the Ministry before being closed is published on a quarterly basis on the Government website (in Norwegian only).

4. Trends in the number of cases

Since the Foreign Service Control Unit was established in 2007, it has registered 1087 cases of financial irregularities and closed 975 cases. A response was required in 381 of the closed cases – most often a claim for the repayment of funds. A total of NOK 115.2 million has been repaid during this period. In addition to funds managed by the Ministry, the figures also include cases involving funds managed by Norad and Norec. ^[1]

 The number of new cases rose steadily until 2015, but has fallen somewhat since then. This is probably partly because the Foreign Service Control Unit has introduced more stringent criteria for registering a case as a case of suspected financial irregularities: clearer indications that there has been a financial irregularity are now required before a case is registered. In addition, there is naturally some variation in the number of cases from year to year. It is therefore not possible to draw any conclusions regarding other reasons for the decline in the number of new cases.

5. Cases dealt with in 2018

In 2018, the Foreign Service Control Unit registered 97 new cases. In the same period, 124 cases were closed. A response was required in 62 of these cases, all of which fell under programme area 03 – international development assistance. In 2018, a total of NOK 18.7 million was repaid. In addition to funds managed by the Ministry, the figures also include cases involving funds managed by Norad and Norec. 

Norad responded in a much higher proportion of cases than the Ministry. This is probably largely because Norad and the Ministry have had different practices for registering suspected cases of financial irregularities. The Ministry has tended to register most cases as they are received, whereas Norad conducts some preliminary investigations before registering a case.

5.1 Types of irregularities

In 2018, 24 of the 62 cases in which a response was required involved embezzlement, while 10 involved corruption and 6 involved theft. The category ‘other’ includes inadequate reporting and funds used for purposes other than those covered by the agreement in question. There were 22 cases of this kind in 2018.

It should be noted that the figure shows the number of cases of the various types of irregularities that were brought to light and in which a response was required. However, this is not necessarily a true reflection of the relative prevalence of the various types of irregularities. This is partly because some types of irregularities are easier to detect than others.

5.2 Type of organisation/grant recipient (agreement partner)

In 2018, 50 of the 62 cases in which a response was required involved Norwegian non-governmental organisations (NGOs). In most of these cases, the NGO’s local partner was responsible for the irregularities, but in a few cases, the local employees of the Norwegian NGO were involved.

It cannot be concluded from these figures that Norwegian NGOs are more susceptible to financial irregularities than others. Experience has shown that the Norwegian NGOs have good systems for detecting and reporting possible irregularities. The quality of the systems used by other recipients of Norwegian support is more variable. When carrying out controls in the time ahead, it will be important to pay greater attention to these recipients.

In 2018, none of the cases that required a response before being closed involved multilateral organisations. Support channelled through multilateral organisations is provided largely in the form of general contributions or softly earmarked thematic funding under Norway’s high-priority, long-term plans. These organisations have independent internal audit systems or investigative units, and the Foreign Service Control Unit will only register cases of irregularities if they involve projects funded by Norway. In the governing bodies of UN agencies, Norway has worked to promote the independence, transparency and capacity of the agencies’ internal audit systems, including their capacity for dealing with financial irregularities. The major UN agencies publish information about financial irregularities and this information is included in reports to the governing bodies.

5.3 Geographical distribution

In 2018, Syria, Uganda and Malawi were the countries with the largest number of cases in which a response was required. The fact that there were a relatively large number of cases in Syria is a new development. Uganda and Malawi have been among the countries with many cases registered by the Foreign Service Control Unit in previous years. An overview of the countries in which a response was required in two or more cases in 2018 is given below.

The differences between the countries may be due to a number of factors, such as differences in crime levels and other forms of risk. The extent of Norwegian support and the way it is provided is probably also relevant in this context. The degree to which it is possible to control the use of funds is another important factor. It may be particularly difficult to detect financial irregularities in countries affected by crisis and war.
For more information (in Norwegian only) on individual cases in 2018 that required a response before they were closed, see the quarterly reports on the Government website (regjeringen.no). Rapporter om økonomiske mislighetssaker - regjeringen.no

[1] Up until 2017, the figures also included cases involving funds managed by Norfund.