ICAI finds FCDO’s management of fraud risk in work with multilaterals is effective, but recommends improvements

22 Mar 2022

• New ICAI review examines the UK’s FCDO’s management of fraud risk in its core funding to multilateral organisations, such as the UN and the World Bank
• The rapid review, which is not scored, finds that FCDO has effective processes in place to identify, assess and monitor multilateral organisations’ fraud risk management frameworks
• However, the review finds that the FCDO does not currently include the European Commission, where it had previously identified weaknesses, in its oversight of fraud risk frameworks across multilateral organisations. The UK will continue to send ODA to the Commission until 2029, totalling £3 billion
• ICAI makes three recommendations designed to strengthen the oversight and management of governance and fraud risk frameworks in multilateral organisations
• This review builds on the ‘Tackling fraud in UK aid review’ conducted by ICAI in 2021, which focused on the UK’s bilateral aid expenditure.

The Foreign, Commonwealth and Development Office’s (FCDO) approach to managing fraud in its work with multilateral organisations is broadly relevant and effective – but more can be done to consolidate learning and strengthen relationships with key organisations.

The findings come in a rapid review published today, Tuesday 22 March, by the Independent Commission for Aid Impact (ICAI), which looks at how the UK’s FCDO ensures the effective management of fraud risks in its core funding to multilateral organisations.

The aid watchdog found that FCDO has effective processes in place to manage fraud risks in the UK’s official development assistance (ODA) expenditure. The review also reports that multilateral organisations see the UK as a leading voice in promoting good counter-fraud practices and that it has worked collaboratively with multilateral organisations to improve their systems.

The main weakness identified by ICAI in the review is that fraud risk is managed on an organisation-by-organisation basis without oversight of risks across the whole multilateral portfolio. ICAI suggests that a portfolio approach could better focus resources and effort on managing overall risk to FCDO and maximising the positive impact on multilateral governance. One working relationship where the ICAI found room for significant improvement was with the European Commission. FCDO’s EU development team no longer has bilateral meetings on audits, evaluations, or fraud and anti-corruption issues with its counterparts since the UK’s departure from the EU.

In addition, in FCDO’s last assessment in 2016, it found fraud risk management by the European Commission to be weak. Despite the UK’s withdrawal from the EU, the European Commission was the largest recipient of UK ODA funding in 2020 and it is expected to remain one of the largest until at least 2027. A key recommendation from ICAI is for FCDO to renew its assessment of the European Commission’s fraud risk management in line with its approach with other multilateral organisations.

ICAI commissioner Tarek Rouchdy, who led the review, said:

“The UK considers the multilateral system to be vital to its interests and to tackling global challenges such as climate change and global health crises. Historically, over half of the UK’s ODA budget has been channelled through multilateral organisations, such as the United Nations and World Bank. In the past, multilaterals have not been as highly prioritised in terms of managing fraud in aid spending, but they represent a very high proportion of overall spend which is why it is important to focus on this area.

“The lack of oversight over the European Commission on tackling fraud in aid is concerning, not just because it is the largest multilateral recipient of UK aid, but also because it is one of the largest and most influential development actors.

“It is important that the EU is treated as part of the wider multilateral portfolio in terms of the UK’s oversight of risks.

The report found that significant learnings and insights were gained both by FCDO teams and multilaterals through day-to-day engagement as well as staff secondments. ICAI impressed the importance of ensuring this learning is not lost during the restructuring of the department and that it can be effectively consolidated and passed on.

ICAI makes three recommendations as a result of its assessment of the UK’s FCDO management of fraud risks in its core funding to multilateral organisations:

• FCDO should establish a risk-based portfolio approach to managing governance risks across funding to all multilateral organisations.
• FCDO should continue to build stronger coalitions with like-minded donors to maintain counter-fraud and good governance as a top priority for multilateral organisations.
• FCDO should renew and document its assessment of the European Commission’s ODA fraud risk management, in line with its processes for all multilateral organisations it funds.