Low level of UK foreign aid fraud 'not credible'

26 April 2017

The low amount of fraud reported to affect UK government overseas aid spending stretches credibility, says a parliamentary watchdog.

Reported levels of fraud in expenditure by the Department for International Development (DFID), Foreign and Commonwealth Office (FCO) and British Council do not seem credible, especially as aid is directed towards some of the world’s most corrupt states, said the Public Accounts Committee.

The report comes as prime minister Theresa May rules out reducing overseas aid spending, despite calls to do so from right wing political commentators. In 2015 the government spent £12.133bn on foreign aid.

MPs warned counter-fraud activities by the FCO and British Council fail to “match the risks they face”, with the FCO in particular lacking adequate controls.

In its report Tackling Overseas Expenditure the PAC said the risks these departments faced of corruption in the countries where aid was spent made claims that only tiny percentages of budgets were lost to overseas fraud hard to believe.

DFID’s recorded losses to fraud in 2015–16 were only 0.03% of its budget. This was significantly less than departments the Department for Work and Pensions and HM Revenue and Customs – which face far less risk from overseas corruption.

Meanwhile, the FCO, which has a budget of £1.9bn, and the British Council, with a budget of £1bn, reported losses to fraud of only £16,000 and £35,000 respectively.

The committee recommended that all three organisations report back within six months on what measures they will take to provide better estimates of likely levels of fraud.

Techniques to better analyse risks of fraud in different areas of their spending, such as data analytics in the banking and visa application systems of the countries in which DFID operates, should be introduced.

The low figures came against a backdrop of rising fraud risk in the government’s overseas expenditure, with DFID’s budget rising by more than a quarter since 2011 to nearly £10bn.

There is also a requirement to spend half of this budget in “fragile” countries, which are among the world’s most corrupt states.

And 55% of the budget is spent through “multilateral partners”, the larger of which are assessed for their capacity to handle fraud risk.

However, a large proportion of fraud cases in the agency have occurred in NGOs and no similar assessment of these organisations’ capacity to handle fraud risk has been carried out. The PAC recommended DFID carry out such an assessment.

MPs said DFID had adapted well to manage its rising fraud case load, especially via work to raise fraud awareness among staff and partners.

But this had created a fourfold increase in the number of allegations of fraud, to 429 in 2015-16, and DFID needed to better prioritise fraud allegations to focus on the areas of greater financial and reputational risks.

The report said the FCO “has largely focused on internal fraud risk” but faced new risks from rising programme expenditure, which is up 11% since 2011.

And the British Council had only set up its counter fraud team in June 2015, despite having an income of £1bn and 11,000 employees in 115 countries.

The FCO and the British Council should explain how they will improve their counter-fraud activities, said the PAC.

“Although there are potential legal and cultural sensitivities in reporting extensively on specific fraud allegations, general information on fraud cases and sanctions applied would build public confidence in how well overseas expenditure is being managed,” MPs concluded.

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