Select Committee on International Development Fifth Report

DEPARTMENT FOR INTERNATIONAL DEVELOPMENT: 1998 DEPARTMENTAL REPORT

INTRODUCTION

1. The Department for International Development (DFID) was established just over one year ago, and published its first Departmental Report in April 1998. The circumstances in which we discuss the first Departmental Report of the Department are unique in two ways. First, we do not intend on this occasion to discuss matters of policy. The first Development White Paper[1] to be published for 22 years was produced by the new Department shortly after its establishment, following a period of consultation with non-governmental organisations (NGOs). We conducted a short inquiry and produced a Report[2] in which we welcomed the publication of the White Paper, the emphasis on poverty eradication as an overarching aim, and the Government's commitment to the international development targets, and discussed the policy framework presented in the White Paper in some detail. Secondly, at the time of the publication of the Departmental Report, the Comprehensive Spending Review was under way across Whitehall, which resulted in Departmental Reports containing figures for planned expenditure only for the current financial year (1998-99), whereas under normal circumstances we would expect to see planned expenditure for the next three years. This means that we have been unable to scrutinise in detail the expenditure plans of the Department beyond the current financial year.

2. We have therefore used this inquiry as an opportunity to consider the format and content of the information presented by the Department to Parliament and to the public. The Department for International Development has a budget in excess of £2.3 billion for 1998-99, and this is set to increase significantly over the next three years, to £3.2 billion in 2001-02.[3] The Department must be accountable for this expenditure, and in this Report we discuss the information available and the information we consider to be necessary to ensure accountability. Mr John Vereker, Permanent Secretary of the Department for International Development, told the Committee "we do as a Department think it is very important that we have a shared understanding with the Committee about what we ought to be showing you. This is not something we want to dream up on our own and bang in to the Committee in an annual report once a year and have you tick it off. We should be delighted to be sure that what we are producing is what the Committee would find helpful.".[4] We welcome the open approach of the Department to the questions of what information should be provided in the Departmental Report and how it should be presented.

3. We are grateful to Mr John Vereker, Permanent Secretary, Mr Richard Manning, Director-General (Resources), and Mr Graham Stegmann, Head, Aid Policy and Resources Department, of the Department for International Development, for giving written and oral evidence to the Committee which was extremely useful during our deliberations.

PRESENTATION OF ESTIMATES AND EXPENDITURE

4. The main function of the Departmental Report is to present formally the Department's Estimates. In addition to this broad function, the Treasury has issued a set of core requirements to all Departments outlining the information which should be included in departmental reports. The core requirements relating to expenditure are that each departmental report must include:

(a)  summary cash plans (where appropriate) and main cash plans, cash plans and Estimates reconciliation, running costs and staffing. The commentary for these tables should:

 "(i)    include a factual introduction explaining the importance and context of the cash plans;


(ii)    explain any differences between plan and forecast outturn for the current year;


(iii)  explain any changes in plans from those published in previous departmental reports, referring to the Department's stated priorities, and summarising the likely effects on outputs of agreed changes in planned spending;


(iv)  explain the expenditure contained in each individual section (line) of the Estimates tables (there should be a cross-reference in the introductory note in each Vote to the relevant paragraph(s) and/or tables in the departmental report);


(v)    explain any significant recent changes in the classification or allocation of spending, describing trends for important areas of spending which may be masked by such changes of treatment;"[5]

(b)  certain explanatory tables, including tables showing long-term capital projects costing more than an amount specified by the Department, depending on the scale of its operations;


(c)  summary information (including administration costs) on non-departmental public bodies (for example, the Commonwealth Development Corporation). The departmental report should avoid excessive duplication of material contained in reports published by non-departmental public bodies, to which there should be a cross-reference, with information on how to obtain the document.

5. We are disappointed to note, however, that some of the requirements are not fulfilled. The Departmental Report does not:

(a)  contain a factual introduction explaining the importance and context of the cash plans;


(b)  explain discrepancies in planned and forecast expenditure for 1997-98, for example the total expenditure recorded in the Departmental Report is £63 million less than the planned figure given in the 1997 Departmental Report of the FCO,[6] a variation for which no explanation is given;


(c)  explain changes in plans from those of previous Departmental Reports, for example the Departmental Report fails to explain why the provision for Africa increases from £344m to £440m between two Departmental Reports;[7] or


(d)  provide tables showing long-term capital projects, which were provided in the 1997

Departmental Report of the Foreign and Commonwealth Office.[8]

6. We have a number of criticisms of the minimalist approach to information in the Departmental Report, which prevents Parliament from holding the Department properly to account for its expenditure. Our key criticisms are threefold:

(a)  the information on expenditure provided in the Departmental Report is divided into categories which are far too broad to be meaningful;


(b)  there is a lack of explanation of the figures; and


(c)  the Report only gives detailed statistics up to 31 March 1997.

Bilateral Expenditure

7. Given that detailed figures for expenditure in 1996-97 are published in British Aid Statistics,[9] duplication of this information as a basis for the Departmental Report is of limited use. We would expect the 1998 Departmental Report to provide figures for expenditure in 1996-97 to the extent that they provide a context for spending during 1997-98 and the current financial year. We are disappointed to note, however, that the greater part of expenditure detailed in the Departmental Report relates to that of 1996-97. We find this completely unacceptable.

8. The only details of estimated outturn during 1997-8 are provided in the Cash Plans tables[10] - which are divided into extremely broad categories. For bilateral aid, expenditure is shown by region; for multilateral contributions, expenditure is shown by institution. This vagueness does not constitute adequate reporting to Parliament. We recommend that future Departmental Reports include much more detailed information on expenditure during the most recent financial year. In future Departmental Reports, we expect all bilateral expenditure to be broken down into:

(a)  country;

(b)  sector;

(c)  the objectives of the Department; and

(d)  method of delivery.

9. The introduction of resource accounting and budgeting procedures over the next three years[11] will enable Departments to produce much more detailed figures than are currently available for the most recent financial year. Theoretically, this should be possible from the day the financial year ends. This arises from the fact that transactions should enter the accounts on an accruals basis, rather than when cash is actually received or paid out. Clearly, accounts will be subject to auditing, which may cause a short delay in the availability of accurate figures; however, we expect that resource accounting methods will enable DFID to ensure that future Departmental Reports show provisional outturn for the most recent financial year in much greater detail than has been the case in the 1998 Departmental Report.

Bilateral Expenditure by Country

10. Given that DFID itself proclaims its flexibility of approach according to the individual circumstances of recipient countries,[12] and given the nature of geographical regions within which there can be countries with dramatically differing political, economic and developmental circumstances, the relevance of displaying bilateral expenditure only by region in the cash plans table in the Departmental Report is highly questionable. A failure on the part of the Department to provide details of expenditure in individual countries in the last and current financial years has several implications.

11. First, it makes it difficult for observers to establish how DFID's policy of partnerships is being pursued in practice. The Comprehensive Spending Review states that "Those governments who share the UK's commitment to eradicate poverty, and which are following sound economic policies will receive more assistance, those which do not will receive less."[13] The lack of detail of expenditure by country in 1997-98 and 1998-99 in the Departmental Report makes it impossible to ascertain the level of DFID's involvement in countries with unscrupulous regimes or inappropriate policies. Since an emphasis on country partnerships is now regarded as a cornerstone of DFID's programme, the Departmental Report should afford proper scrutiny of such an emphasis in practice.

12. Secondly, displaying expenditure by region rather than country prevents the Committee examining the economic or developmental status of recipient countries, more important than ever given the new poverty focus of DFID's programme — which one would expect to be associated with a geographical shift in expenditure towards least-developed rather than middle-income countries. We were grateful to the Department for providing, at the request of the Committee, a list of all recipient countries with their various classifications,[14] and a breakdown of expenditure by income group.[15] This showed that in 1996-97, £130 million, 9.6 per cent of DFID's country-specific aid, was spent in countries classified as other than low-income. Only 35.6 per cent of country-specific expenditure, £264 million, went to least-developed countries. Because the classifications overlap, comparisons such as this are problematic; however, it is certainly relevant and interesting information. British Aid Statistics includes tables showing expenditure by country[16] and by income group[17] for 1996-97. The Departmental Report could fulfill a valuable role in providing estimated figures for the last, current and future financial years. We recommend that a table be included in future Departmental Reports showing expenditure — including expenditure during the last three years, estimated outturn for the most recent financial year and planned expenditure for the next three years — in:

(a)  all recipient countries;


(b)  developing countries;


(c)  high-income countries;


(d)  lower- and upper-middle income countries;


(e)  low-income countries; and


(f)  least-developed countries.

13. We requested DFID to provide a breakdown by country of expenditure during 1997-98, and were extremely concerned to note that this request was refused, on the basis that "we plan at departmental rather than country level".[18] We received a letter on 1 July from DFID, which claimed that even three months into 1998-99, the latest available figures for expenditure through NGOs in Indonesia were those for 1996-97.[19] We find this lack of information unacceptable, and the excuses incredible. Estimated outturn figures for the most recent financial year are not a question of planning, but of maintaining an adequate record of expenditure.

14. We asked the Permanent Secretary in oral evidence to provide a breakdown of DFID's planned expenditure for 1998-99 by country, and were again concerned to note his response: "I am sorry to disappoint you but the answer to that is going to be no, the reason being that the allocation we make in the current year is not country by country, it is more aggregated; it is regional or department depending who the budget controller is".[20]

15. No doubt formal budget allocation is aggregated, but planning is certainly more detailed. We do not believe that no expenditure plans exist at a country level for the current year, of which one month had already passed at the time of the oral evidence session. If there are no such plans, we have serious concerns. The argument put forward by Mr Vereker is in direct contradiction to the emphasis on country partnerships which permeates the White Paper.[21] The essence of these partnerships with developing countries is to establish long-term commitments to a development strategy. This must surely involve some element of financial commitment. The Kenya Country Strategy Paper, for example, published in May 1998, provides details of DFID's planned programme from 1998-2002, including planned expenditure, broken down into binding commitments, current firm plans, and other proposals. If Country Strategy Papers are to be published for all countries with which DFID establishes a partnership, we see no reason why planned expenditure for these countries should not be published in the Departmental Report.

16. Mr Stegmann, Head of Aid Policy and Resources, told us: "although we share a contingency reserve of about £50 million, actually something like £150 million moves between programmes in-year. It would be misleading to give forecasts and then try to explain exactly why a planning figure was not precisely met in a particular country".[22] We fail to see why DFID's explanations should be misleading. We fully understand that the needs and circumstances of recipient countries may change over time, and that alterations to plans may occur as a result. Accountability is precisely about explaining such changes. We expect DFID to publish its planned expenditure by country, and to justify changes in those plans, and view this as an essential element of the information on the basis of which the expenditure of the Department is scrutinised.

Bilateral Expenditure by Sector

17. An analysis of expenditure by sector is important for two reasons. First, some of the international development targets to which DFID is committed relate closely to sectors, in particular health and education. This makes details of sectoral expenditure directly relevant to the overarching objectives of the Department, and therefore essential instruments of accountability. Secondly, DFID claims to be "placing an increasing emphasis on work at the sector level - e.g. health, education, agriculture - to improve the allocation and use of resources both of developing country governments and of donors".[23] If such a change in emphasis has taken place, we would expect it to be demonstrated in the Departmental Report.

18. The Departmental Report does include various charts displaying PIMS-marked expenditure[24] for 1996-97, and a table showing planned expenditure on sectoral programmes in 1998-99 is also included.[25] But the value of this information is limited since the statistics are only provided for one financial year, do not appear in a consolidated table, and do not constitute a full sectoral analysis of expenditure. British Aid Statistics includes a table showing bilateral expenditure (excluding programme aid, emergency aid and debt relief) for 1992-93 to 1996-97.[26] This information could also usefully be included in the Departmental Report, with the addition of plans for current and future financial years.

19. When we asked for an estimated breakdown of DFID's total budget by sector, Mr Vereker suggested it was "probably not worth it"[27] because of definitional problems. We acknowledge these difficulties. But an attempt at a sectoral breakdown is very definitely worth it if the Department is to be accountable to Parliament for its expenditure. We recommend that in future Departmental Reports, a sectoral analysis of all DFID's expenditure, both bilateral and multilateral, be included, with statistics for the past three years, the current financial year, and future years.

Bilateral Expenditure by Departmental Objective

20. DFID already has a mechanism for analysing expenditure in relation to the aims and objectives of the Department: the Policy Information Marker System (PIMS). PIMS is currently under review,[28] an exercise which will aim to ensure that it fully reflects the policies of the new Government. The Permanent Secretary explained that PIMS, along with other markers, will "enable us to generate a time-series of information which will show how we are using the resources we are given in relation to our objectives, but - and it is a big but - it is what I would describe as input information. It describes what we are committing and what we are spending: it does not say much about the impact".[29] If PIMS is complemented by adequate output and performance evaluation mechanisms, which we discuss below, this is not necessarily a serious disadvantage. It is, however, important that the input-focused nature of PIMS be taken into account in discussing its application as a tool for expenditure interpretation and scrutiny.

21. A further limitation of PIMS is its complexity, which is pointed out in the Departmental Report itself. PIMS scores, which relate individual projects to the objectives of the Department, tend to sum to more than 100 per cent of the bilateral expenditure to which they relate, because some projects relate to more than one objective. For example, a project relating primarily to improvements in access to education may have a secondary impact on gender equality or health. This overlap means that PIMS cannot be used to show precisely the amount of expenditure relating to each objective, because the total given by PIMS would not correspond to the amount spent in total. DFID identifies this as a "major issue to be addressed".[30] We look forward to progress being made and trust that any advances will be explained in the 1999 Departmental Report.

22. PIMS is, within the parameters of these limitations, a useful indicator of expenditure related to the aims of the Department. In the Departmental Report, however, DFID fails to fulfill this potential, since PIMS-marked expenditure is shown (a) only for 1996-97, and (b) only by aim with no breakdown by country or region. In the 1997 Departmental Report of the FCO, PIMS-marked expenditure is shown by aim and region.[31] In future Departmental Reports, we expect these deficiencies to be rectified, and references to be made to British Aid Statistics where further analysis of PIMS-marked expenditure is published.

23. Throughout the Departmental Report, tables appear showing "significant" and "principal" PIMS marked expenditure, yet no explanation of the difference between these two types of expenditure is provided. A further complicating factor is that the labels on these charts do not always correspond clearly with the associated text. For example, the chart at the beginning of Section Three of the Departmental Report, "Better Education, Health and Opportunities for Poor People" shows PIMS marked expenditure in "human development education", "human development health", and "human development children by choice".[32] These labels are not explained and do not relate clearly to the text which follows. We trust that the current review of PIMS will modify indicators to relate them more explicitly to DFID's key policy areas. This will enable the full potential of PIMS as a tool for scrutiny of the Department's expenditure to be achieved, both providing a better indication of how DFID spends its budget, and providing an opportunity for the production of a clearer Departmental Report.

24. The introduction of resource accounting and budgeting procedures which is taking place across Whitehall will mean that departments will have to present their expenditure plans in a new format based explicitly on the Department's objectives. We see this as a positive step towards increased transparency. We look forward to full implementation of resource accounting and budgeting methods by DFID, which is scheduled to be completed by 2001/2002.[33]

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1  The White Paper on International Development, "Eliminating World Poverty: A Challenge for the 21^st Century", Cm. 3789 [henceforth referred to as "the White Paper"]. Back

2  Second Report from the International Development Committee: The Development White Paper. Session 1997-98, HC 330. Back

3  "Modern Public Services for Britain, Investing in Reform": Comprehensive Spending Review: New Public Spending Plans 1999-2002: Session 1997-98, CM 4011, p. 75. Back

4  Q. 9. Back

5  :"The 1998 Departmental Reports: The Core Requirements": Letter from Treasury Officer of Accounts to the Clerk of the Treasury Committee, 1 August 1997. Back

6  Foreign and Commonwealth Office, 1997 Departmental Report, Session 1996-97, CM 3603, p. 78. Back

7  Foreign and Commonwealth Office, 1997 Departmental Report, Session 1996-97, CM 3603 p. 78, and Departmental Report, p. 12. Back

8  Foreign and Commonwealth Office, 1997 Departmental Report, Session 1996-97, CM 3603, p. 154. Back

9  British Aid Statistics, 1997 Edition, Department for International Development, December 1997. Back

10  Departmental Report, pp. 11-12. Back

11  See Fourth Report from the Treasury and Civil Service Committee: Simplified Estimates and Resource Accounting, HC212, Session 1994-95; Second Report from the Procedure Committee: Resource Accounting and Budgeting, HC438, Session 1997-98; First Special Report from the Procedure Committee: Resource Accounting and Budgeting: Government Response to the Second Report from the Committee, HC773, Session 1997-98. Back

12  Departmental Report, p. 14. Back

13  Comprehensive Spending Review: New Public Spending Plans 1999-2002: Modern Public Services for Britain, Investing in Reform. Session 1997-98, CM 4011, p. 75 Back

14  Evidence pp. 30-32. Back

15  Evidence p. 33. Back

16  British Aid Statistics, pp. 33-69. Back

17  British Aid Statistics, pp. 21-22. Back

18  Evidence p. 21. Back

19  Q.80: Note by witness. Back

20  Q. 111. Back

21  White Paper, pp. 37-41. Back

22  Q. 111. Back

23  Departmental Report, p. 14. Back

24  See paragraphs 20-23. Back

25  Departmental Report, p. 66. Back

26  British Aid Statistics, pp. 74-77. Back

27  Q. 107. Back

28  Departmental Report, p. 10. Back

29  Q. 35. Back

30  Departmental Report, p. 86. Back

31  FCO, 1997 Departmental Report, Cm. 3603, p. 104. Back

32  Departmental Report, p. 23. Back

33  Evidence, p. 37. Back

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Prepared 28 July 1998