‘Guarantees lacking’ that aid system fraud-free

While almost all other departments are cutting spending, the Department for International Development is increasing spending by 27 per cent over the next three years.

Chair of the public accounts committee Margaret Hodge said Dfid had not been “able to demonstrate the effectiveness” of anti-fraud policies, and urged it to provide regular updates on fraud it uncovers overseas.

Last year International Development Secretary Justine Greening ordered an “emergency audit” 
after revelations that firms working on Third World programmes were making millions in consultancy fees from the foreign aid budget.

Nearly £500m is paid each year to companies which work on projects such as developing the tax system, free market and education, with the managing director of one consultancy, Adam Smith International, receiving a salary and dividends totalling almost £1.3m in 2010.

Mrs Hodge said organisations working for the department had reported “substantial” financial returns, adding: “This can undermine public confidence that aid is being put to the best use possible.”

She said linking performance to funding provided a “strong” incentive to improve. But only four organisations out of nine rated as “poor” have had funding withdrawn from them – and that only amounted to £8m.

Mrs Hodge said: “Public confidence in the value of UK aid depends on the Department being able to demonstrate that money is being well spent.

“Last year it spent £3.6bn, nearly half of its total aid budget, on funding the core activities of multilateral organisations.

“These organisations can play a hugely valuable role in delivering the Department’s objectives, such as promoting governance and security and alleviating global poverty.

“But the Department must rigorously assess the effectiveness of these organisations.”

Comment: Page 10.