Risk of UK aid fraud rose after budget cut, Covid and FCDO merger, watchdog says

The risk of fraud in UK aid has been heightened by budget cuts, the pandemic and a departmental reorganisation, a watchdog has warned.

The Independent Commission for Aid Impact (ICAI) criticised the Foreign, Commonwealth and Development Office (FCDO) for largely reacting to fraud rather than proactively seeking to prevent it.

The department discovered just £2.2 million in fraud loss in 2020-21 in UK aid, representing a tiny proportion of its £9.9 billion spend, the ICAI found.

The watchdog said a new finance system was introduced after the departmental merger that created the FCDO in 2020 without proper training.

This caused payment delays and staff having to use offline workarounds, potentially allowing fraudsters to take advantage.

The UK’s target to spend 0.7% of gross national income on official developmental assistance (ODA) on aid was slashed to 0.5% in 2021.

The ICAI said this meant monitoring, evaluation and learning was often cut from programme budgets in order to protect front-line spending, leading to reduced oversight.

The FCDO’s central anti-fraud support function was found to be under-resourced in recent years, meaning the department is left exposed as fraudsters become more sophisticated in using cybercrime, artificial intelligence and big data.

On top of this, Covid-19 travel restrictions restricted the ability of staff to go out and observe projects in the field, which is widely seen as crucial for tackling fraud, the report said.

ICAI commissioner Tarek Rouchdy, who led the review, said: “We are pleased to see that FCDO has strong fraud risk management processes in place and that staff apply them diligently.

“However, the department is still largely just reacting to these risks, rather than proactively seeking out fraud and corruption in an effort to root it out wherever it is hidden.

“Our review suggests that proper investment in anti-fraud capability and support at the centre, and ensuring there is enough senior oversight of aid programmes in countries, would help the UK to better safeguard taxpayers’ money and ensure our aid is not being diverted away from the people who need it.”

The FCDO’s fraud liaison officers, who are based in countries and are tasked with reporting cases and liaising with the central anti-fraud team in the UK, are expected to allocate only around 10% of their time to the role, not enough to be effective, according to the watchdog.

Commons International Development Committee chairwoman and Labour MP Sarah Champion said: “The FCDO has a duty to ensure that UK aid spending is protected from fraud and corruption and goes towards tackling poverty.

“This ICAI report shows that it is not doing enough.

“Sadly, as with so much of the UK’s aid programme, it seems that fraud detection and oversight have been diminished by cuts to ODA and the merger of Dfid (Department of International Development) and the FCO (Foreign and Commonwealth Office).

“The Government needs to invest properly in its anti-fraud capability to ensure our aid budget, already much reduced in recent years, is not being diverted away from people who need it.”

An FCDO spokesperson said: “We welcome ICAI’s review and are committed to stamping out fraud before it occurs and making sure every penny of development spending is achieving value for money.

“Programmes are delivered by trusted partners with proven expertise and robust due diligence checks are carried out before entering into any agreements.

“We conduct regular performance reviews of direct partners.”