ICRC: Payments on the Front Line
The ICRC is part of the Red Cross & Red Crescent Movement comprised of the International Committee of the Red Cross (ICRC), the International Federation of the Red Cross & Red Crescent (IFRC) as well as National Red Cross/Red Crescent societies present in each country. Interventions in the wake of natural disasters – something the Red Cross is widely known for and that often features in the media – are conducted by IFRC and National Societies. The ICRC (in line with their charter) focuses on assistance in war-torn zones or areas with political unrest or military conflicts.
The ICRC is headed by the Assembly, its supreme governing body. This is a committee made up of up to 25 members who are not paid for their services. The committee elects a President who in turn appoints a General Director. The latter appoints various sub-directors for specific portfolios.
Fundraising, project planning and how this affects treasury
The ICRC strategies are defined by the governing board and set the tone for the work of the treasury department. The ICRC is neither a for-profit business nor a financial organisation which aims to maximise year-end profit. It is a non-profit organisation which offers protection to those most in need, affected by conflicts. The balance sheet only reveals restricted and/or unrestricted positions, and there is no shareholders’ equity. Financial organisation starts with a budget created for ICRC activities in conflict situations. It contains the required spending, for example in connection with food or medications. These plans are created by local units – so-called Operations or Delegations.
Once all data has been collated, the Fund Raising Division takes over and approaches potential sponsors in order to raise the necessary funds. The lion’s share of donations comes from state governments – but also from a small but growing number of private donors. Since 2012, ICRC has been focusing more on these private sponsors, and they currently account for around 5% of ICRC’s total budget. With potential donors pledging funds, ICRC distinguishes between ‘hard’ and ‘soft’ commitments. Only if there’s a binding (hard) commitment can funds actually be recognised as revenue. This happens when funds are committed (even before any money is received) and leads to foreign exchange exposure. The ‘soft’ commitments neither have a specific date nor do they guarantee a specific sum. Such a vague commitment cannot be recognised as revenue but is part of the income forecast. Funds are integrated into the plan before the actual cash transaction. The foreign exchange risk exposure mitigation is where the treasury becomes active: its job is to hedge this exposure and to check when donations have been paid. This mechanism based on pledged funds (and not incoming payments) means that the ICRC pre-finances operational activities, as the money is often needed and used straightaway, before the donation has actually come in.
The art of managing earmarked donations
Incoming cash flows and outgoing cash flows can be far apart, and there is no direct correlation between receiving funds and expenses, i.e., the treasury function is not project-oriented. All donations go through ICRC headquarters in Geneva. In general, 80% of funds are allocated to the around 80 different Operations. They serve to provide humanitarian assistance in war-torn countries around the world, while 20% are used to keep the overall global organisation running. This covers for example HR spending, including employees abroad whose salaries are paid from Geneva but who work in the field (so-called ‘mobile’ resources), ICRC’s central warehouse in Geneva where medical items, orthopaedic instruments, IT equipment, etc. are purchased centrally and stored until they’re needed.
The treasury duty of care
The repercussions of the financial crisis and the current geopolitical environment have a more and more drastic impact on the ICRC and on how the organisation delivers its services. More stringent financial regulations, an increase in bank (and other) compliance requirements as well as higher currency and financial volatility directly impact the work of the treasury department. Since the ICRC makes transactions in more than 100 currencies (where it is either long or short), it is very susceptible to foreign exchange rate fluctuations which directly influence the budget and with it the treasury department.
While the treasury department is not directly in contact with beneficiaries, its work is a valuable and important contribution to ICRC humanitarian action by ensuring funds provided by donors are made available for those in need of protection. The treasury mandate is to ensure that funds are available for operations in an increasingly complex and unpredictable environment through transparent and robust treasury processes. Along the corridors at headquarters, this is illustrated by the many pictures. Everyone is aware of the consequences their work has, fostering identification with the motivation and fundamental principles behind the Red Cross and Red Crescent Movement. This knowledge also accompanies every step the treasury department takes, down to the smallest detail. The team draws motivation from ICRC’s mission and the fact that they’re one vital piece in an international jigsaw. So even though their work essentially doesn’t differ much from that of other treasury departments – they are truly special.
In some cases, donations can be made for a specific (i.e., earmarked) purpose, e.g., to be used in a specific country where ICRC runs a refugee camp or for freshwater supply. The ICRC is then obliged to ensure full compliance with the donor’s expectations. Conversely, some donations are provided ‘without restrictions’ (i.e., are not earmarked), and the ICRC decides where to allocate these funds. This flexibility is highly valued by the ICRC. For example, some donors provide funding for an entire continent (say Africa), leaving the final allocation to the ICRC.