The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"Public confidence in the value of UK aid depends on the Department being able to demonstrate that money is being well spent.
"Last year it spent £3.6 billion, nearly half of its total aid budget, on funding the core activities of multilateral organisations.
"These organisations can play a hugely valuable role in delivering the Department’s objectives, such as promoting governance and security and alleviating global poverty. But the Department must rigorously assess the effectiveness of these organisations, particularly as the aid budget continues to rise significantly.
"The publication of the Multilateral Aid Review in March 2011 was a significant step forward for which the Department deserves credit, but it must now build on that.
"It should use its funding power as a lever to press organisations for better data on costs and results, by making this a requirement for increased funding. This will put the Department in a better position to decide who can best deliver its objectives.
"Linking funding levels to performance provides a strong incentive for organisations to improve. But, so far, despite nine organisations being rated as poor, the Department has withdrawn only £8 million in total from four of them. The Department should use the information on performance provided by its review to set future funding levels and thereby encourage improvement.
"Some organisations working for the Department have reported substantial financial returns. This can undermine public confidence that aid is being put to the best use possible. The Department must develop a better procurement strategy to help it understand the provider market and increase competition between suppliers.
"Although the Department has in place policies and processes to detect fraud in UK aid spent through multilateral and bilateral aid agencies, it has not been able to demonstrate to us the effectiveness of these processes.
"We urge the Department to regularly provide the Committee with figures on detected fraud on a country-by-country basis.”
Multilateral organisations can play a very valuable role in development; they often work in politically sensitive areas, can offer economies of scale, broker international agreements and set international standards. The Department for International Development (the Department) funds a range of these organisations to deliver its objectives. It spends almost half of its total aid budget on core funding for multilateral organisations, amounting to £3.6 billion in 2011-12.
The UK is normally only one of many members of multilateral organisations, each of which have their own governance arrangements, policies and priorities. This obviously constrains the Department’s influence on how the funding it gives is used
The Department is making good progress in assessing the effectiveness of multilateral organisations. The Department published a Multilateral Aid Review (the Review) in March 2011, which assessed the value for money of 43 multilateral organisations in achieving departmental objectives. We welcome this Review, which was more thorough and transparent than previous assessments.
Refinements to the Review process will allow the Department to build on its successes and improve the effectiveness of future Reviews. These include pressing multilateral organisations for better data on costs and results, better assessment of gaps and duplication in their activities, and strengthening the link between a multilateral organisation’s performance and the Department’s funding.
Collaborating with other countries on reform programmes and sharing assessments will help the Department to maximise the impact of the Review process and minimise the administrative burdens on multilateral organisations.
The Department’s overall budget for international aid will increase by 27% in real terms between 2010-11 and 2014-15, reflecting the Government’s commitment to providing funding worth 0.7% of Gross National Income from 2013.
Public confidence in the value of UK aid depends on the Department demonstrating that the funds are well spent. Better comparisons between the cost-effectiveness of bilateral aid and multilateral aid will allow the Department to determine which approach is best placed to deliver its outcomes.
Image: Department for International Development