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Overseas aid budget fraud levels do not seem credible, says watchdog

The reported levels of fraud in Britain's overseas aid budget are so "remarkably low" they do not seem credible, the Commons financial watchdog has said.

A probe by the Public Accounts Committee (PAC) questioned official findings on how much the Department for International Development (DFID) has lost to overseas corruption and scams after its budget soared by more than a quarter to nearly £10 billion since 2011.

The Committee also warned counter-fraud activities by the Foreign and Commonwealth Office (FCO) and British Council "do not yet match the risks they face".

The study said: "Reported levels of fraud in DFID, FCO and British Council expenditure do not seem credible, given the risks they face overseas."

Operating in corrupt nations with a bigger budget has presented new challenges for DFID, the report said.

"The significant increase in overseas expenditure coupled with the requirement to spend half of its budget in some of the most corrupt states in the world have changed the risk of fraud.

"But DFID's recorded losses to fraud in 2015-16 were only 0.03% of its budget, significantly lower than other departments operating in the United Kingdom such as the Department for Work and Pensions and HM Revenue and Customs, whose estimated losses to fraud were 0.7% and 3% respectively.

"The FCO (with a budget of £1.9 billion) and the British Council (with income of £1 billion) reported losses to fraud of only £16,000 and £35,000 respectively."

PAC called for the three bodies to report back to MPs within six months on what action they intend to take to provide better estimates of likely fraud.

"To date, the FCO has largely focused on internal fraud risk, in line with how it spent its budget. However, the FCO faces new fraud risks from its rising programme expenditure (up by 22% since 2011).

"The FCO needs to have adequate controls in place to manage these new risks, but it was not clear how it would achieve this.

"The British Council only established its counter-fraud team in June 2015, despite being a body with an annual income of £1 billion and 11,000 employees in 115 countries.

"The FCO and the British Council should learn from DFID's experience in improving its counter-fraud approach by, for example, assessing and prioritising fraud allegations, and including fraud reporting as a mandatory requirement in contracts and grant agreements."

DFID also needs to do more to check the effectiveness of anti-fraud measures taken by its partners in overseas aid, the report said.

"To enhance fraud awareness measures, DFID has assessed the competency of its larger multilateral partners to determine their capability to handle fraud risks.

"However, a large proportion of DFID's fraud cases have occurred in the Non-Governmental Organisations (NGOs), but DFID has not yet undertaken a similar assessment of the competency of its principal NGO partners to tackle fraud."

PAC said the three bodies need to publish more detailed information on their fraud cases for 2016-17, including any sanctions applied for each case.

A Government spokesman said: "The UK has a zero-tolerance approach to fraud - we focus our efforts on stamping out fraud before it occurs and making sure that every penny of spending is achieving value for money. DFID has overhauled its approach to fraud in the last three years, meaning its robust systems are even better at preventing and detecting fraud.

"Where we do not have sufficient confidence in a partner government's public finance system, UK support is channelled through other international partners. We expect all international agencies to have the same zero-tolerance approach to fraud as Britain does."

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