New ICAI review: Tackling fraud in UK aid

8 Apr 2021

  • New ICAI review examines fraud prevention measures in five biggest aid-spending departments
  • Rapid review, which is not scored, finds that risk of external fraud in UK aid is managed well, with systems working as designed and most fraud losses recovered
  • ICAI made four recommendations designed to strengthen processes and identify more cases of fraud.

The government’s approach to managing fraud in the aid programme is broadly relevant and effective – but more can be done to find fraud cases by improving oversight and intelligence sharing across aid-spending departments, and streamlining whistleblowing systems.

The findings come in a rapid review published today, Thursday 8 April, by the Independent Commission for Aid Impact (ICAI), which looked at how the five biggest aid-spending UK government departments manage, detect and prevent fraud in their external delivery chains.

ICAI noted that although up to 5% of all public spending is estimated to be lost to fraud each year, less than 0.05% of losses are detected – a pattern also seen across the five biggest aid-spending departments, which between 2016 and 2020 recorded gross fraud losses of £25.7 million out of a total aid spend of £54 billion. However, ICAI also noted that most fraud losses are later recovered, with net losses in the aid spend of the five departments over this period standing at £2.63 million, less than 1p in every £100.

The aid watchdog said that weaknesses in departments’ fraud controls meant that more could be done to identify and tackle external fraud in the aid programme, and it made four recommendations to the government.

ICAI commissioner Tarek Rouchdy, who led the review, said: “Departments have good processes and capable people managing the risks of fraud, and we were particularly encouraged to note that the government had already made improvements in response to earlier scrutiny by ICAI.

“But with the huge pressure on public finances, every penny counts. It is even more important that aid-spending departments proactively identify and tackle more cases of fraud, and overcome the disincentives to report fraud that currently exist. The measures we have recommended are designed to help them do just that, while ensuring that UK aid reaches those who need it most.”

ICAI looked at the fraud controls used by the five departments that were allocated more than £100 million of aid last year – the former Department for International Development (DFID) and former Foreign and Commonwealth Office (FCO), since merged to form the Foreign, Commonwealth and Development Office (FCDO); the Department for Business, Energy and Industrial Strategy (BEIS); the Home Office; and the Department of Health and Social Care (DHSC).

The review – which focused on fraud involving or affecting external parties rather than internal fraud by UK government employees, and builds on earlier work by both ICAI and the National Audit Office (NAO) – found that across government, fraud is considered a serious issue and the systems used by departments to tackle it were broadly adequate. Measures to prevent and investigate fraud across the external delivery chain were working as designed, and there was a good spirit of learning across most aid-spending departments. ICAI also noted that in response to its previous scrutiny, DFID had made improvements to how it tackles fraud, including raising awareness among delivery partners and staff.

But ICAI also identified a number of weaknesses. It said that while a Counter Fraud Function and Centre of Expertise set up by the Cabinet Office in 2018 had strengthened anti-fraud capability across government, it acted only in an advisory capacity and did not have a specific focus on aid spending, nor were there adequate data-sharing processes in place between departments. As a result, the watchdog recommended that the government should consider establishing a centralised counter-fraud function dedicated to aid in order to ensure consistency and good practice across departments.

ICAI also found that outsourcing of aid programmes was likely to be one of the biggest areas of fraud risk, but procurement, grant-making practices and data were not being routinely reviewed by counter-fraud teams, creating a gap in how fraud risks in outsourcing were being managed. It called for an increase in independent oversight and for more scrutiny of procurement including, for example, of failed contracts.

A further recommendation was for aid-spending departments to consider streamlining and enhancing their whistleblowing and complaints procedures, after ICAI found that existing systems varied in their accessibility and anonymity across departments, programmes and countries, and that this was creating disincentives that could be contributing to under-reporting. ICAI also recommended that the government should collect and analyse more data on fraud, whistleblowing and outsourcing trends in order to improve understanding and learning.

ICAI intends to carry out a separate review looking at fraud prevention measures within multilateral aid contributions – which are subject to different accountability mechanisms – with work starting later this year.

Read the full report here

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