By Nick Mann | 14 June 2013

The UK Foreign and Commonwealth Office’s financial management systems are not fit for purpose and are hampering its ability to effectively deliver aid programmes, an independent watchdog warned today.

The criticism by the Independent Commission for Aid Impact came in an otherwise largely positive assessment of the department’s response to the Arab Spring, the wave of political unrest in the Middle East and North Africa in late 2010.

The ICAI rated the department’s work in helping countries in the region to make the transition to democracy and introduce economic reforms as ‘green-amber’. This means the programme performs relatively well against its criteria for effectiveness and value for money. The ICAI assessment also covers the work of the British Council, which is part-funded by the FCO.

It hailed the ‘sound strategy and good delivery capacity’ of the £40m Arab Partnership Participation Fund, the largest programme run by the FCO in the Middle East and North Africa. The initiative was set up during the Arab Spring to provide grants for non-governmental organisations which support the democratic transition through electoral processes, institutional reform and media development. It has principally worked in Algeria, Egypt, Tunisia, Jordan, Morocco and Libya.

‘APPF shows some promising early signs of impact,’ the watchdog said. ‘It has supported some key transition processes, including elections, constitution-making and media reform.’

The British Council’s response to the Arab Spring, which included it receiving APPF grants, has complemented the FCO’s work, the report noted.

However, it found that the FCO’s financial management system, Prism, was limiting the effectiveness of its work and that its grant-making processes were ‘not well suited’ to supporting the kind of young civil society organisations that sprang up during the Arab Spring.

‘FCO financial systems were not designed for managing programmes and are a constraint on effective delivery on the ground,’ the watchdog said.

Prism is a receipting system mainly designed for procuring items for the department’s own use, and as such it has limited programme management and project accounting capacity, it explained.

Programme managers have to enter receipts from projects individually, which means the relationship between FCO staff and their implementing partners tends to be dominated by the need to chase financial reports and receipts, it found.

A spokeswoman for the FCO said the department had already begun to address many of the issues raised by the watchdog.

‘We welcome the ICAI report and are pleased the report highlights the good work we have done, and are continuing to do, in response to the Arab Spring. 

‘We note the suggestions for improvement on measurement, financial systems and procedures. We believe our systems are robust and have been working to improve in many of these areas already. We look forward to co-operating with the ICAI to make further improvements.’