DFID’s approach to managing fiduciary risk in conflict-affected environments

Review

Our review found good achievement on risk identification, mitigation and learning, but weaker performance on monitoring residual risk and decision-making on risk appetite. We awarded a green-amber score and made four recommendations.

Findings

We found that Department for International Development (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, we 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.

The review calls 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.

We awarded 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.

Recommendations

1. DFID should accelerate the timetable for implementing its central guidance on risk appetite and work quickly to articulate its risk-return approach to decision-making.
2. DFID should clarify rules and expectations around risk transfer to fiduciaries, and the residual fiduciary risk responsibilities of senior responsible owners and senior management.
3. DFID should urgently explore ways to improve the transparency and monitoring of fiduciary risk in bilateral programmes implemented by multilateral partners.
4. DFID should implement measures to match appropriate fiduciary risk management skills and expertise with its highest risk countries, partners and programmes.