Aid budget reductions, pandemic and FCDO merger created a more favourable environment for fraud risk 

26 Mar 2024

• Despite having strong programme management processes in place, FCDO discovered just £2.2 million in fraud loss in 2020-21 in UK aid compared to its £9.9 billion spend, ICAI finds.  
• Under-investment in central anti-fraud team leaves staff overseas lacking support.  
• New finance system introduced after departmental merger without proper training caused payment delays and staff having to use offline workarounds, heightening fraud risk.  
• Pandemic restrictions and security fears limited field visits seen as crucial for tackling fraud.  
• Watchdog recommends clearer anti-fraud oversight and accountability by ambassadors and high commissioners overseas of UK-managed programmes, including those not run by FCDO.  

Budget reductions, the COVID-19 pandemic and the departmental merger that created the Foreign, Commonwealth and Development Office (FCDO) led to an environment that increased fraud risk in UK aid, a new report from the watchdog finds today (Tuesday 26 March).   

The latest review from the Independent Commission for Aid Impact (ICAI) looked at how effectively fraud risk is managed at the country level in the UK’s overseas network of embassies and high commissions, including case study visits to Mozambique, Kenya and India. It is the latest in a series of reports from the watchdog on tackling fraud in UK aid.    

ICAI found that the merger of the Department of International Development (DFID) and the Foreign and Commonwealth Office (FCO) to create FCDO in 2020 had an impact on fraud risk, through the introduction of a new finance system called Hera. Staff reported difficulties integrating Hera with the legacy aid management platform used by DFID. Training on the new system was seen as insufficient, and the way in which Hera was implemented led to payment delays, creating the need for offline controls and increasing the risk that fraudsters could take advantage.    

As well as the challenges of the departmental merger, in 2020 FCDO saw the aid budget reduced from 0.7% to 0.5% of UK gross national income. ICAI found that monitoring, evaluation and learning was often cut from programme budgets in order to protect front-line spending, which led to reduced oversight.   

ICAI also noted how COVID-19 travel restrictions over the past few years, on top of a more cautious attitude to security risks, limited the ability of staff to go out to observe projects on the ground, something widely seen as crucial in tackling fraud.   

While ICAI found strong counter-fraud processes in programme management, and impressive pockets of expertise in some areas, missed opportunities to share learning across teams and an under-resourced central and in-country support function meant FCDO was still finding virtually no fraud despite the significant risks it faces.    

It found the UK’s approach to fraud is largely reactive rather than proactive, dealing with cases as they arise rather than attempting to hunt down and tackle corrupt practices down the aid delivery chain.    

FCDO’s central anti-fraud support function (known as the ‘second line of defence’, with the ‘first line’ being those staff directly managing aid programmes) was found to be under-resourced in recent years. ICAI said FCDO risks being left behind as fraudsters become more sophisticated in areas such as cybercrime, artificial intelligence and big data.   

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.”  

FCDO’s network of fraud liaison officers (FLOs) – staff based in countries who encourage fraud reporting, raise awareness and liaise with the central anti-fraud team in the UK – are expected to allocate only an average of 10% of their time to the role, which means being spread too thinly to be effective.    

There was also some confusion around FCDO’s core message of ‘zero tolerance’ to fraud and ICAI found staff would benefit from guidance and training tailored to local contexts, particularly given some of the challenging contexts in which staff work. In Somalia, ranked as the most corrupt country in the world by one index, staff commented that citizens “can get a receipt for anything” and elsewhere, “thank you” payments by recipients of aid to agents distributing it were common.   

While Heads of Missions – FCDO’s ambassadors and high commissioners – have ultimate oversight of policy delivery in their countries, the review found they had a variable understanding of their own responsibilities on fraud risk with regards to programmes managed centrally from the UK and those led by other government departments.   

 The watchdog also noted that the Programme Operating Framework (PrOF) – a document setting the standards for all FCDO programme management – was written with traditional aid programmes in mind and was therefore not easily applicable to capital investment programmes of the kind observed in India, making it unclear how staff should manage fraud risk there.   

ICAI makes the following recommendations to improve the effectiveness, efficiency and coherence of managing of fraud risk at the country level:   

 Recommendation 1: FCDO should take a substantially more robust and proactive approach to anticipating and finding fraud in aid delivery.   

 Recommendation 2: FCDO should strengthen its second line of defence in the top 20 ODA recipient countries, allocating dedicated, well-trained and sufficiently senior resources to manage fraud risks.   

 Recommendation 3: FCDO should develop specific guidance on capital investments within the Programme Operating Framework.   

 Recommendation 4:  FCDO should increase Head of Mission oversight of and accountability for fraud risks relating to centrally managed programmes and other government department programmes that operate in their country.