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Article posted on The Guadian 20 October 2011
The amount of British aid lost to fraud and corruption could rise because of changes to how the money is targeted, an influential committee of MPs warned today.
The Department for International Development (DfID), whose budget is rising despite massive cuts across Whitehall, is refocusing overseas aid on countries seen as fragile and in conflict, such as Somalia, Burma and Pakistan.
But the cross-party public accounts committee (Pac) cautioned that “operating in high-risk environments means the potential for increased risk of leakage through fraud and corruption”.
“The department intends to focus more on fragile and conflict-affected states which pose higher risks in terms of poor security, delivery capacity, measurement of costs and outcomes, and leakage of funds through fraud and corruption,” it said in a report.
The Pac also warned that increasing spending via multilateral organisations – such as the European Commission and the World Bank – may also mean more British money is lost to fraud and corruption.
“The department plans to increase the proportion of its funding spent via multilaterals but does not have the same visibility over the cost and performance of multilaterals’ programmes as it does over its bilateral programmes,” the Pac said.
“Furthermore, the strategy to increase DfID spend through multilateral programmes appears to have more to do with it being easier for DfID to do this than for it to assess the viability, effectiveness and value for money of bilateral programme proposals.”
The Pac also criticised DfID’s “poor understanding” of the scale and likelihood of aid being lost to fraud. The department was unable to quantify its losses, the committee said. DfID’s reported losses of £1,156,000, or 0.016% of total spending, in 2010/11 were “unbelievably low”.
“The selection of aid projects is not based on a good understanding of the scale and likelihood of fraud in each country, nor how proposed project design mitigates the risks,” the committee added.
DfID and the Department of Health are the only two government departments not facing an overall cut in spending as part of the coalition’s austerity plans to cut the budget deficit. The protection given to DfID spending – due to increase to 0.7% of gross national income by 2013 – is highly controversial, particularly among Tory backbenchers.
Labour MP Margaret Hodge, chairwoman of the Pac, said: “The department is going to be spending more in fragile and conflict-affected countries and the danger to the taxpayer is that there could be an increase in fraud and corruption.
“However, the department could not even give us information as to the expected levels of fraud and corruption and the action they were taking to mitigate it.
“The department’s ability to make informed spending decisions is undermined by its poor understanding of levels of fraud and corruption.”
The international development secretary, Andrew Mitchell, said the coalition had transformed DfID’s financial management and took a “zero-tolerance” approach to fraud.
“Although accurately reflecting the position under Labour, the report appears to take little account of the huge changes the coalition has made since taking office,” he said.
“We have transformed the way the department manages its finances, so spending is attached to tangible results on the ground, which are rigorously scrutinised by the new independent aid watchdog.
“This government takes a zero-tolerance approach to corruption. British aid saves lives and we clamp down ruthlessly on any misuse of funds.
“DfID’s counter-fraud unit tackles corruption head-on, recovering 92% of known losses this year.”
Save the Children said donors should not be deterred from providing aid to the most troubled countries.
The director of advocacy and policy for the group, Brendan Cox, said: “The UK government has led the world in making aid more transparent and accountable.
“The public accounts committee’s report provides more evidence of why that is so necessary and why the government’s increasing focus on this area is needed.
“Nevertheless, we must not let the difficulty of delivering aid in war zones and in fragile states lead to donors choosing the easy option of focusing on the most stable countries.
“Many of the children most in need of help are in the most difficult to reach places. Risk should be managed, not avoided.”