The Department’s 2011 review, which assessed 43 organisations, was a more thorough and comprehensive process than previous assessments. The review was valuable: both for providing accountability to UK taxpayers and for promoting reform in the multilateral organisations themselves. It enabled the Department to show international leadership.  Since the review, other countries have used elements of the Department’s approach to assessing and rating multilateral performance. For example, Australia has used similar methods and the Netherlands has publicly reported its assessments for the first time.

The review rated nine organisations as ‘very good’ value for money for UK aid, 16 as ‘good’, nine as ‘adequate’ and nine as ‘poor’. The Department has already announced funding increases to those it rated as offering better value for money and that it will cease to fund four of those it rated as ‘poor’ value for money for UK aid. Funding to those organisations it rated as ‘good’ or ‘very good’ will increase from 74 per cent of the total in 2010-11 to 77 per cent in 2014-15.

However, international agreements limit the extent to which the Department can change its funding. It is important, therefore, that it has co-ordinated, up-to-date plans on how it will use the review to drive performance improvements in each organisation .

The assessment framework used in the review was logical and covered key factors which are important to value for money.  While the assessment framework compared well with recognized models for assessing value for money in organisations, the guidance to assessors did not always ensure consistency and some organisations found it difficult to fulfil all the evidence requirements. Organisations rated as ‘very good’ did not need to meet a minimum set of standards and their cost-effectiveness was not always compared to alternative delivery methods.

The Department plans to update the review next year and it is important that any changes in the ratings are backed by adequate evidence.

March 2012

Directly providing international aid to the most poor and vulnerable people is showing clear and immediate benefits, according to the National Audit Office.

The Department for International Development is successfully using such transfers to reach particularly impoverished populations in challenging places. The transfers – usually in the form of cash payments, food transfers or agricultural assets, such as livestock – typically reach their recipients more quickly and transparently than more widely prevalent ways of delivering aid. Today’s report points out that transfer programmes are demonstrating important characteristics of good value for money but the Department remains under-informed on some key elements of cost-effectiveness. Therefore, the Department has not optimised value for money.

The transfer of aid to poor households has resulted in clear short-term benefits, for example in relation to improved diet or investment. Of the programmes we examined five out of seven stated objectives showed positive change, the other two were mixed. There is also some evidence for longer-term effects in the form of improved livelihoods, health and education, where measured and where programmes have been running for some time. Where evidence is available, the NAO found that the Department successfully targets transfers on those most in need. 

The Department does not have sufficient analysis of costs of transfer programmes to know whether what it is spending represents the best possible value for money and is under-informed about efficiency. Electronic transfers can be a generally more efficient and reliable way of reaching more isolated people. They are not yet widely used by the Department, although there are plans to extend their use. Nor does the Department consistently compare the cost-effectiveness of transfers with that of other design options. It also does not know whether the amount it transfers is set at the optimal level because its programmes are generally not analysed for different payment levels to assess which might lead to the best results relative to the costs.

The Department has improved its core financial management and has an ambitious programme underway to improve its focus on value for money. It has put important building blocks in place; however its financial management is not yet mature.   The Department cannot yet assess important aspects of the value for money of the aid it has delivered, at an aggregated level.

The Department’s programme budget will grow by £3.3 billion from 2010-11 to 2014-15 (34 per cent in real terms). At the same time, its administration budget is going to reduce by a third. The Department will face significant financial and operational challenges, making sound financial management essential.

The Department has increased the number of finance professionals it employs, but this expertise needs to be used more effectively across the business. In addition, new financial information systems do not yet provide the data needed to support well-founded decisions and forecasts are still an area of weakness.

Having conducted a thorough review, the Department now has a high level plan allocating its resources on the basis of the results it aims to achieve.  Along with actions to strengthen measurement of aid projects, this has the potential to help strengthen the focus on aid results and value for money. But key risks need to be managed and the Department should now develop a coherent, single strategy for doing so.

With greater spending in higher risk locations and more fragile states, the Department must do more to assure itself that it minimises fraud and corruption risks. Although the level of reported fraud is low, it is likely to be under-reported. The NAO has found that the investigation of fraud is reactive and the Department does not attempt to quantify its estimated likely fraud losses.

• Auditing UK programmes overseas – including examples of our work on the Foreign and Commonwealth Office, the Department for International Development and the Ministry of Defence.
• Strengthening accountability and transparency in the European Union – covering the NAO’s work on EU funds within the UK and our work in the wider EU.
• Our broader contribution to managing public funds globally and our capacity building and influencing work – including our work as part of the United Nations Board of Auditors, and examples of projects in Ghana, Slovenia and Uganda.

There is also an appendix with a list of recent VFM reports with an international focus.

The spending cuts made by the Foreign and Commonwealth Office in 2009-10, mainly in response to exchange rate pressures, provided an early experience of the challenges the Department will face in cutting its core expenditure by 10 per cent as a result of the 2010 Spending Review.

The Department rose to the challenge of making the 2009-10 cuts. However, they were a short-term response to the immediate problem of a forecast budget shortfall of £72 million. They were designed to reduce in-year spending quickly, rather than aimed at achieving long-term efficiencies. In contrast, cuts to core expenditure as required by the spending review, if they are not to result in an erosion of service quality, will demand a more strategic approach.

The 2009-10 spending cuts were made with some attention to prioritization. There is evidence of the Department’s seeking to protect its front-line activities and intending to make reductions in spending permanent. In addition, it was also making efficiency savings in response to the 2007 spending review. However, it did not establish any process to ensure that the spending that was cut was not resumed subsequently. The Department could not be sure that all the cuts were implemented as intended or had the least possible impact on its business.

Most of the FCO’s spending reduction resulted from its doing less – either slimming down budgets or stopping activities altogether. The NAO also estimates that about 10 per cent of cuts were achieved through simple deferral: postponing activities such as non-essential maintenance to a later year. In addition, although the Department had assessed the risks of making spending cuts, at the time the cuts were made it did not have measures in place to assess the impact of the cuts on the achievement of its objectives.

In February 2010 the Department had started to develop contingency plans in case further cuts were required in 2010-11. However, it did not conduct a formal evaluation of its spending reduction activities in 2009-10 and therefore missed a valuable opportunity to learn.

• a brief explanation of the rationale for CDC and an introduction to CDC’s investment approach as it was operating in 2008;
• a summary of the main findings of the C&AG’s 2008 report. The report examined whether DFID had set an appropriate framework of policies, objectives and incentives for CDC, and how CDC had performed against those objectives. It also examined how effectively DFID had monitored CDC to secure an appropriate contribution to economic development and poverty reduction,
• an overview of key reported developments affecting DFID’s oversight of CDC, and CDC’s investment approach, since 2008.

March 2011

The Department for International Development has successfully supported developing countries in progress against goals of universal enrolment in primary education and improved educational prospects for girls, according to a report published today by the National Audit Office. However, quality of education and levels of attainment remain low and pupil and teacher absenteeism is still too high. The report concludes that, given tight resources for education in developing countries, a greater emphasis on quality and cost-effectiveness to achieve good value for money is especially important.

DFID’s 22 priority countries have made significant progress towards universal enrolment: from typically 50 per cent of children or lower in the mid-1990s to 70 per cent to 90 per cent now. But pupil drop-out is high; typical drop-out rates are 10 per cent to 15 per cent in year one and completion of primary education is low, ranging from 57 per cent of children in Nepal to 17 per cent in Malawi. Because pupil and teacher attendance is poor, there are insufficient teaching hours. And, although pupil attainment has been poorly measured, the information that is available shows low levels of literacy and numeracy.

Since 2001 DFID, along with other donors and recipient governments, has focused on enrolment more than the quality of education. It has started to redress this imbalance but needs to focus more on key factors like teacher and pupil attendance, quality and attainment in its interventions.

Typically, salaries – mostly those of teachers – consume 90 per cent of education budgets in developing countries, yet pay is not routinely monitored. Wage-bills have reached levels which limit the affordability of educational expansion in DFID priority countries. There are other opportunities to work with governments to help raise cost-effectiveness: non-formal education initiatives designed to reach remote or migrant communities have features which could be applied successfully in formal schools.

There has been a detectable improvement over recent years in the financial management of European funds across the European Union, the National Audit Office has reported. However, there remain seemingly intractable problems with reducing the high levels of error in some significant areas of EU spending.

For the second successive year, in November 2009 the European Court of Auditors provided a positive Statement of Assurance, without qualification, on the reliability of the European Union’s accounts. However, for the fifteenth successive year, the Court did not provide a positive Statement of Assurance on whether the underlying transactions conformed to applicable laws and regulations. Material error was found in categories making up some 53 per cent of total expenditure, including Cohesion Policy funds, which are still associated with the highest level of error in the EU budget, and Rural Development. The value of irregularities, including fraud, reported by Member States decreased by 24 per cent in 2008 while the number of cases reported increased by 9 per cent.

The NAO points out that, while controls can be tightened and administration improved, many of these high levels of error are in part down to the sheer complexity of administering the programmes in question. Some changes have been introduced for programmes in the 2007-2013 period, but it is too early to judge their impact.

Weaknesses in the administration of European programmes in the UK continue to have an impact on the taxpayer. During 2008-09, the Commission confirmed £140 million of disallowances of expenditure and UK departments have made provisions for some £350 million of further disallowances and reported the potential for liabilities beyond that.

The FCO’s strategy for managing its estate is high-level and the underpinning detail is scant. It does not lay out the requirements for the estate, whether the estate meets the requirements and how it will address the gaps.  Without a clear framework to assess the estate’s performance, it is difficult to evaluate the Department’s progress.  The Department has recognised this and has recently appointed an estates specialist as Director of Estates and Security who is developing a new strategy.  These steps have the potential to help secure improved value for money in the future. 

The FCO does not have adequate financial and management information about the estate.  The lack of robust information on the cost and use of the estate hampers good decision making on efficient use of space and the identification of surplus assets for potential sale.  The management of projects to improve the estate could be better: a third of the projects that the NAO analysed exceeded their initial approved budget by over 10 per cent and two-thirds were delivered late.  The total cost overrun since 2002 is approximately £57 million, against a total spent on capital projects of £250 million. 

There are several factors, such as changing political issues, security restrictions and exchange rate pressures, which add to the complexity of managing the global estate.  The NAO found examples of good practice and innovation across the estate, and noted that the FCO had done well to respond to changing security threats, including a three-fold increase in the number of countries operating with a critical or severe terrorist threat rating. 

The FCO does not always use space in its posts efficiently.  Over half of the posts that responded to the NAO’s survey have unused office space or staff accommodation.  Posts could make better use of accommodation by sharing with other UK government organisations, but there are several barriers to this including the FCO’s lack of authority to drive co-ordinated cross-government action and a mismatch of estate needs.  However, the FCO could do more to promote actively the use of its overseas estate by others where feasible.