Watchdog warns on risks to UK aid spending

9 Aug 16

The UK’s aid watchdog has warned that some aid funds going to conflict-affected areas may be being diverted from their intended purpose and said “urgent attention” is needed to ensure value for money.



In a report, the Independent Commission for Aid Impact criticised the Department for International Development for ineffective monitoring of exposure to fiduciary risks in fragile states and for a lack of clarity on its risk appetite.

Today’s report focused on the management of fiduciary risk in conflict-afflicted countries. Overall performance was good, with the department receiving ICAI’s second highest rating. However, the watchdog warned that this rating would have been lower if DFID had not already recognised the areas it flagged as “concerning”.

“We urge DFID to press ahead as a matter of urgency with addressing the remaining areas of weakness,” ICAI said, noting that effective risk management is key to achieving value for money and ensuring UK aid has maximum impact.

DFID has committed to spending half of its total budget, which equates to 0.7% of the UK’s gross national income, in fragile states in 2016.

ICAI noted these include “extremely challenging operating environments” include Syria, Somalia and Yemen, where DFID’s access is constrained and the risk of fraud or misuse of funds is heightened.

While the agency was found to have performed well at identifying, assessing and mitigating fiduciary risks in its programmes in these states, it is not possible to eliminate any of these risks entirely. Monitoring of residual risks after action had been taken was found to be unsatisfactory, and required improvement if the UK is to make a positive contribution.  

In a number of countries, DFID outsources its monitoring to third parties. Despite ICAI noting it would be easy for them to do so, these third parties are often not tasked with monitoring remaining risks by, for example, checking whether controls remain in place or whether mitigating actions are being followed through.

ICAI also said DFID was too distant from the oversight of the entire delivery chain, usually consisting of a large contractor or international NGO at the top, and a small local partner at the bottom. DFID only works closely with the lead partner, who is then responsible for the rest of the chain.

However when this partner is a multilateral organisation, like the United Nations or the World Bank, ICAI said DFID’s monitoring is of even greater concern.

These kinds of partners will sometimes resist additional oversight from donors, and senior DFID in-country staff said they often do not feel empowered to monitor how they manage fiduciary risks.

Many staff were also confused about DFID’s approach to risk appetite. For example, their methods of reconciling DFID’s claim to have a high-risk appetite and ‘zero tolerance’ approach to fraud and corruption simultaneously were widely inconsistent.

Staff and local partners often said they were unclear about the extent of risk they were carrying or when it had been transferred to another partner, meaning they were uncertain about when monitoring risk was their responsibility.

It was also not clear how quickly multilateral partners had to disclose instances of fraud and corruption.

While most staff in conflict-affected states are doing a good job, the department must “urgently tackle” these weaknesses in its approach, ICAI said. 

A DFID spokesman said: “There are of course challenges to providing lifesaving aid in some of the most difficult and dangerous places in the world, including disasters and warzones, which is precisely why we have such a rigorous system of checks and measures in place.

“ICAI gives us its second highest rating, recognising both the effectiveness of the processes we already have in place and the work continually underway to strengthen these systems further, including on staff understanding.”

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