Blazing a Funding Transparency Trail

In the world of global philanthropy, financial transparency is the holy grail. When Pathfinder International heard about a solution that would allow tracking of donor funds from initial receipt down to in-country usage at the click of a button, it was a no-brainer. Linda DeNicola, CFO at Pathfinder International, explains.

As a non-governmental organisation (NGO) that receives funding of circa $100m plus every year, we are always looking for smarter ways to work. Ensuring that we are using donor funds to efficiently and effectively serve people in the communities where we work is paramount - especially since future funding is never guaranteed. 

The more we can do to demonstrate to donors that we operate in a fully transparent manner, and that an extremely high proportion of donor funds go directly to services in some of the world’s poorest countries, the more likelihood there is of repeat donations. The theory is often easier than the practice, however. 

Working in 19 countries, we have 60 field offices and transact with over 14,000 local vendors across Africa, Asia, South America and the Middle East. Like many other NGOs, we face challenges with hand-offs of funds across multiple parties, we work in higher-risk geographies where many participants do not have bank accounts, and where vetting of vendors can be time-consuming. 

The level of technological infrastructure in some countries also makes tracking of payments challenging. At the same time, controls and administration of cross-border payments can be costly. 

Donor needs

Although Pathfinder International has very advanced internal controls and works to the highest standards of financial accountability, providing complete transparency in such an environment is not easy. Donor funds typically come in as a bucket of dollars and are then distributed to various projects and down to individual field offices, or straight to vendors. 

While the allocated funds are monitored using a Microsoft Dynamics-project based transactional accounting system, it can be challenging to maintain full visibility. Furthermore, the donor has no simple, efficient way to see how their funds have been put to use – and the level of visibility we are able to provide isn’t quite as granular as donors would perhaps like.

Seeing the light

When a colleague approached me about piloting a new platform that would allow my team, donors, and vendors, to simply log in to a platform and track funds all the way down from the donor to the final recipient, I was excited at the prospect. After all, one of our main goals is to ensure that the donors’ money is being used for its intended purpose – and that is precisely what the Sunlight Payments platform sets out to achieve. 

In brief, Sunlight Payments is a cloud-based, end-to-end digital payments solution that provides NGOs with a secure, private, and fully-traceable service for delivering aid to low to middle income countries. It is backed by Microsoft’s Bill Gates, and Bank of America Merrill Lynch’s Global Transaction Services business provides banking services to assist Sunlight in sending funds to the end recipients. 

The bank also performs any necessary currency exchange on behalf of the NGO, so that funds no longer have to be converted by an in-country bank at the point of receipt, but can be converted prior to being sent. This centralised workflow is more cost-effective, since foreign exchange and bank fees can be reduced.

As well as allowing for end-to-end payment tracking, and efficient cross-currency payments, the platform also contains controls designed to efficiently deliver financial resources to the intended recipient; and reduce the opportunities for misappropriation and other hidden costs that can undermine the effectiveness of humanitarian efforts. These features include the prevention and detection of fraud across an extensive library of over 40 procurement fraud schemes and attributes, as well as tools for identifying trusted, reliable vendors.

Getting started

We were delighted to be approached by Sunlight Payments to pilot the solution and it was very much a win-win arrangement. Sunlight chose Pathfinder because we have been in the business for over 60 years and are well-versed in overcoming the evolving challenges facing NGOs. We are also known as a leader in payments and controls, including a number of mobile wallet initiatives. 

Moreover, we operate in a number of different geographies, and have great local relationships with vendors, which was key to really testing the system. From our point of view, the pilot was an ideal opportunity to get in at the ground level of a truly innovative solution – and to shape its future development. 

Kick-off on the project began with an information gathering workshop at Pathfinder’s office in Watertown, Massachusetts. The Sunlight team brought their developers and Bank of America Merrill Lynch into the discussions, which lasted several days. It was an ideal opportunity for us to outline Pathfinder’s needs and expectations.

In addition to the clear and intended benefits that the system provides, including the enhanced transparency, vetting of vendors, fraud detection, and visibility for donors, Pathfinder requested that the Sunlight solution be easy to use and easy to train others on. It was also important to have compatibility with multiple currencies, and that the system should integrate with our current accounting software to avoid duplication of work for our staff.

As an NGO operating in remote locations, it was also vital that the solution should work in areas with poor internet connection. It must also link directly to bank accounts, offer favourable exchange rates (at least as good as our current rates), involve minimal transaction fees to use the system, and offer the ability to generate reports.

Over the following months, we worked with Sunlight’s expert team – consisting of payment, fraud detection and distributed systems experts from KPMG, Deloitte, and Amazon, among others – to get the platform as close to all of these goals as possible. Then, it was time for the pilot to begin in earnest.

On the ground

Tanzania and Uganda were chosen as the two countries in which to test the solution for the first time. These nations have generally good connectivity, making them ideal for a trial run of the concept. As a first step, the Watertown office was set up with an account on the Sunlight Payments platform. The Tanzania and Uganda offices were then added as users. 

Next, the two country offices picked vendors, who they worked with regularly and who had bank accounts (a basic requirement of the solution for now), to participate in the pilot. The vendors were also set up with accounts on the platform. But as much as the objective of the pilot had been explained to the staff in the field offices, and the vendors, in remote sessions via Skype, it was clear that an on-the-ground demonstration of the solution was required in order to secure complete buy-in.

A team from Sunlight and Pathfinder flew to Africa, landing first in Uganda. Local Pathfinder staff were shown how they could receive money from Pathfinder’s Watertown office and how to ‘off-ramp’ those funds into a bank account. They were also shown how to pay actual invoices to vendors using the platform. All this took just less than a day. The following days the team worked with two separate vendors in Uganda, showing them how to receive funds from the Pathfinder local office, and how to ‘off-ramp’ those to their local bank account. The same process then took place in Tanzania with three different vendors.

Understandably, there were a few minor teething troubles. One of the vendors, for example, had a slow wireless connection, which made it difficult to set the platform up. But the Sunlight team simply connected to their local hotspot and got the vendor up and running. And once the solution is localised and a user is logged in, there is very little latency, meaning that it can be used with a low bandwidth.

With the creases ironed out, the vendors quickly saw the benefits of using the system and provided positive feedback to the Sunlight team. It was clear to them that by increasing transparency along the chain, all the way from the donor (who is invited to access the platform after awarding a grant) to the vendor, Pathfinder will have a greater opportunity to attract more donors, which should ultimately result in more business for the vendors. 

Over and above

But the benefits don’t stop there. For Pathfinder, the fraud prevention tools that are built into the Sunlight system are invaluable.  Much of the fraud prevention work that we do now could instead be handled by the platform, such as appropriating screening vendors according to official excluded parties lists and sanctions lists. Furthermore, the system monitors payment behaviours and will flag any suspicious transactions, such as an uncharacteristically large payment to a vendor. This is an invaluable tool in the fight against fraud.

Reducing the total burden of processing cross-border payments has also been a significant achievement. Savings were crystallised through the platform’s unique approach to payment transfers and through the cross-currency payment products delivered by Bank of America Merrill Lynch, which allowed Pathfinder to centralise its cross-currency transactions, whilst enabling vendors to receive payment in a currency of their choice.

In addition, the platform has the potential to assist in benchmarking costs by country. By gathering all of our purchase data together, and perhaps drawing on other NGOs’ aggregated data in the future, the platform will offer the ability to check the price of purchasing goods, such as a car in-country and can be used to benchmark whether we are paying a fair price. 

Despite the obvious benefits, there are areas where the platform could further develop to minimise back-office operations. The most important, for Pathfinder at least, is the integration with existing systems and accounting software. Currently, our staff make payments via the traditional route and are required to re-key information into the Sunlight platform. For many NGOs, this will be similar to the data entry an accounting team has to perform with a wire or ACH payment if they don’t have an ERP-to-bank integration.

The team at Sunlight Payments have this in their product roadmap, but with so many different types of transactional accounting systems available, the challenge is building a solution that will work for everyone. Initially, that may involve a flat file and an upload, moving towards a more integrated solution further down the road. Either way, I believe that the Sunlight team will get there in due course. 

Another development for the Sunlight team to consider is integrating the rise of mobile payments into the platform. With the rise of M-Pesa in Kenya and Tanzania, we see a number of other African nations trending towards mobile money transfer and it would be great for the Sunlight Payments platform to reflect this in its functionality.

A new path

After two successful pilots, we will continue to work with Sunlight Payments and contribute to the evolution of the platform. In this industry, it’s not often that you get to be part of something truly innovative which will not only deliver business benefits, but also provide visibility, detailed information, and peace of mind to donors, as well as vendors. Ultimately this platform will help organisations like ours better fulfil our missions to support people around the world. 

I am proud that we have achieved something ground-breaking, not only in terms of how Pathfinder delivers transparency to its donors, but for global philanthropy as a whole. Once the Sunlight Payments solution is fully fledged, I have no doubt that donors will start to require philanthropic organisations to use this platform before funds are granted. After all, we live in an age of on-demand information, where trust is gained through complete transparency.