The Department for International Development must be more consistent in its efforts to stop UK aid being diverted from its intended purposes, according to the official aid watchdog.
A new report by the Independent Commission for Aid Impact looks at development spending in fragile and conflict-afflicted states, which include Syria, Somalia and Yemen. Last year, the UK government vowed to allocate 50% of DfID's spending to such states.
ICAI looks specifically at DfID's approach to risk management in these "extremely challenging" operating environments, where it says the department's access is "constrained" and "the risk of fraud or misuse of funds may be heightened".
Mark Lowcock interview: the Department for International Development perm sec on the new Aid Strategy, civil service pay restraint – and why life "has got a lot better for most people on the planet"
How an award-winning DfID team put evidence at the heart of policy-making
DfID perm sec Mark Lowcock: poverty reduction won’t lose out as rest of Whitehall takes on aid spending
DfID has a decentralised management structure, with guidelines known as the "Smart Rules" introduced in 2014 – used by individual country offices and their senior responsible owners to assess risk in each area.
ICAI says that DfID's senior staff in country offices are "given the autonomy to make management decisions in a flexible manner, subject to certain overarching principles, rules and guidance".
While that approach comes in for some praise, with the watchdog finding "high awareness and understanding of fiduciary risks among staff" and "strong consideration of fiduciary risks in programme design and implementation", ICAI also expresses some concern that it could be leading to an inconsistent approach to risk management in different countries.
"Country offices in our sample consistently include fiduciary risks in their risk registers, but use different categorisations and rating systems," the watchdog says.
"We found this makes it difficult for senior management to assess whether risk management practices are adequate and in line with corporate objectives.
"At the programme level, we found that staff lack a common understanding of when risk is transferred to partners and to what degree."
ICAI also finds that information on the past performance of charities and partners used by DfID to deliver aid on the ground – available in their annual reports – is "not systematically used for analysing fiduciary risk".
And it says DfID "does not currently have systems in place to ensure that appropriately skilled programme management staff are matched to higher risk programmes and countries".
"In DFID’s early response to the Syria crisis, for example, there was a shortage of senior programme management staff with experience of fiduciary risk issues in high-risk environments," ICAI says.
"Multilateral partners resisted DfID oversight"
The report also expresses particular concern about DfID's ability to check up on the risk management procedures of multilateral organisations it works with, including the United Nations.
And it points out that the department has "no automatic right" to delve into their operations – sometimes leading to disputes over jurisdiction.
"In our sample countries, there were instances where multilateral partners resisted DfID oversight," ICAI finds.
"For example, in Sudan, the United Nations Environment Programme (UNEP) resisted the inclusion of provisions for early reporting of fraud to DFiD in its memorandum of understanding with DFiD as this was considered inconsistent with the central United Nations’ Office of International Oversight Services procedures for reporting and investigating allegations of fraud.
"In the Democratic Republic of the Congo, the United Nations Office for Project Services (UNOPS) was reluctant to share information on fiduciary risks and resisted DFID pressure for an independent programme audit, due to the United Nations single audit principle.
The report adds: "Senior responsible owners informed us that, while they remain responsible for overseeing how multilateral implementers manage fiduciary risk, they do not feel empowered to do so."
Overall, the watchdog gives DfID an "Amber/Green" rating, saying that while its approach to risk management in conflict-afflicted states is "satisfactory in most areas", it requires "urgent attention in others".
Launching the report, ICAI's chief commissioner Dr Alison Evans said: "DfID takes managing fiduciary risk seriously, and its country office staff are doing a good job of identifying and mitigating risks in challenging circumstances, including some examples of effective, innovative practice.
"However, DfID needs to do more to ensure its decision-making on risk appetite is clear, and the central systems are in place to enable staff to confidently classify, rate, escalate, and monitor these risks.
She added: "To its credit, the department is aware of these challenges and is putting in place reforms – we urge it to press ahead with these swiftly."
Responding to the report, a DFID spokesman said: “There are of course challenges to providing lifesaving aid in some of the most difficult and dangerous places in the world, including disasters and warzones, which is precisely why we have such a rigorous system of checks and measures in place.
They added: “ICAI gives us its second highest rating, recognising both the effectiveness of the processes we already have in place and the work continually underway to strengthen these systems further, including on staff understanding.”