Risk management in development cooperation

Risk anticipation and management are integral to implementing development cooperation. In conflict areas and countries with a fragile administration, the need for assistance is great but so are the risks.

Risk management aims to ensure the effectiveness and impact of development cooperation activities. Its general objectives, principles and responsibilities are defined in the Foreign Ministry’s risk management policy, which is complemented by a separate risk management policy for development cooperation. Practical information and instructions on the prevention and elimination of sexual exploitation, abuse and harassment (SEAH) are available in the Guidance Note and Policy on the subject.

There are various types and varying degrees of risks associated with development cooperation, for example ones related to sudden changes in the operating environment: conflicts, natural disasters or fluctuations in international development funding. In addition, shortcomings in planning, in the competence of people and in systems may delay or limit results. Corruption and misuse of funds may also endanger the achievement of results.

All parties involved in development cooperation — both the Ministry and the operators receiving funding – have responsibility for risk management. At the Ministry for Foreign Affairs, the responsibility for risk management is with public officials together with the Development Policy Steering Group, which issues strategic recommendations, and the Quality Assurance Group for Development Cooperation, which ensures the consistency of risk management. A special risk management group supports the development of risk management and the Unit for Internal Audit assesses the appropriateness and sufficiency of oversight and risk management.

Risk management belongs to all phases

The five phases of implementing development cooperation help to understand what risk management is about.

1. As part of strategic planning, the Ministry considers what risks it is willing to take in relation to the intended results. This involves steps such as surveying risks and becoming aware of the typical risks associated with the form of funding and the country in question. The Ministry decides, at its discretion, on the type of funding that will be prepared.
2. At the preparation phase, varying degrees of risks are identified and analysed and an assessment is made of how these risks affect the feasibility of funding and the achievement of results. The aim is to reduce or eliminate the identified risks. However, the fact is that not all risks can be eliminated or managed. Based on the assessment, the Ministry draws up risk management plans that cover key risks and the measures to control them.
3. The funding proposal must pass the Ministry’s internal quality assurance procedure before funding and government grant decisions can be made. The procedure involves an assessment of aspects such as the sufficiency and coverage of risk management plans. The responsibilities and obligations related to monitoring and oversight are recorded in the terms of agreements and decisions.
4. At the implementation phase, the monitoring and oversight measures vary depending on the form of funding. Monitoring and oversight are carried out in accordance with the Foreign Ministry’ internal guidelines (link to the guidelines on monitoring and oversight). Risks are monitored and controlled using measures set out in the agreements: progress and financial reports, audits and performance audits, and mid-term reviews . Oversight may also include participation in steering groups, site visits and annual negotiations. Specific audits or reports are commissioned where necessary. All suspicions of misuse are investigated in accordance with the Ministry’s internal guidelines. Any misused funds will be recovered.
5. The results and impacts achieved and risks to operation are assessed from the risk management perspective. This involves internal analyses, external evaluations, assessments and audits. The conclusions are used to guide the activities and development work.

Oversight of multilateral cooperation

UN organisations and international financial institutions carry out a majority of Finland’s development cooperation activities. Finland requires that they manage risks comprehensively, which includes controlling political and economic risks and risks related to social, economic, environmental and human responsibility, and taking measures to prevent sexual abuse and harassment.

The oversight and audit activities of UN organisations and development finance institutions include systems for reporting misuse of funds and the protection of whistleblowers, risk-based audit planning and independent units specialising in corruption and countering misuse. 

Member States, including Finland, influence the use of funding and practices by participating in the work of the executive boards, which exercise the highest decision-making power. The practices and responsibilities concerning the oversight and risk management in projects and programmes implemented by UN development finance institutions are specified in detail in funding agreements.

International cooperation to prevent corruption

Risk management and the oversight of development cooperation are part of national and international cooperation aiming to prevent corruption, money laundering, illicit financial flows and terrorist financing. Finland has acceded to several international anti-corruption conventions. In addition, development cooperation is guided by the OECD’s 2016 Recommendation of the Council for Development Co-operation Actors on Managing the Risk of Corruption.

Development cooperation supports the prevention of corruption. Good governance can be promoted by strengthening the supervisory role of national parliaments and public authorities and by improving the availability of public information and people’s opportunities to request information about the resources of development programmes and their results.

Internal Audit Unit oversees development cooperation

The Foreign Ministry’s Unit for Internal Audit conducts inspections of the Ministry's operative units and Finland's diplomatic and consular missions abroad. Internal audits of development cooperation are used to examine whether projects and programmes have been subject to sufficient and effective controls.

In addition, it will be assessed whether the procedures ensure that the funds are used for the intended purpose. On the basis of its assessments, the Unit for Internal Audit makes recommendations for improving oversight and risk management and monitors the implementation of its recommendations.