DFID’s approach to managing fiduciary risk in conflict-affected environments
Effective management of fiduciary risk is key to achieving value for money and ensuring that UK aid makes maximum impact.
DFID has committed to spending at least half of its budget in fragile states and regions. These include extremely challenging operating environments, such as Syria, Somalia and Yemen, where DFID’s access is constrained and the risk of fraud or misuse of funds may be heightened. ICAI examined how well DFID manages fiduciary risk in these challenging environments.
The review found that DFID staff in conflict-affected countries are doing a good job of identifying, assessing and mitigating fiduciary risk – the risk that aid entrusted to partners is not used for its intended purposes – for example by withholding payments where necessary and encouraging beneficiaries to report discrepancies in the delivery of cash or services.
It also showed there was strong consideration of fiduciary risks in programme design and implementation and that managing risk effectively was recognised as a key driver of value for money at programme level. The report’s findings confirm that key steps are being taken to protect UK funds in these environments.
However, ICAI found it concerning that DFID had not clearly articulated its approach to risk appetite, leaving many staff confused and unsure about what statements like ‘zero tolerance’ and ‘high risk appetite’ mean in practice.
ICAI has called for action to clarify rules and expectations on fiduciary risk transfer between DFID and its partners, particularly given a number of instances where local partners were unclear about the extent of risk they were carrying and cases where multilateral partners had been slow to disclose instances of fraud and corruption.
The review gave DFID a ‘Green-Amber’ rating, concluding that the department’s fiduciary risk management was satisfactory in most areas, but required urgent attention in others.
The score took into account that DFID is currently in the process of implementing a comprehensive risk management system. Had it not been for this ongoing work the rating would have been lower.