House of Commons - Public Accounts

Select Committee on Public Accounts Eighteenth Report

4 Improving value for money

21. DFID uses annual reporting and project evaluations to assess the effectiveness of its funding to CSOs. These enable it to demonstrate development benefits—the NAO found that 80% of the projects it reviewed had largely met their objectives.[52] But current monitoring and results measurement arrangements provide little information on the cost-effectiveness of its funding.[53] DFID has checks and balances which it believes provide assurance that it achieves value for money for individual projects. These include its logical frameworks which define inputs and outputs.[54] But DFID seldom uses tools like benchmarking procurement activity or unit cost analysis to question whether the same outcome could have been achieved more cheaply. In many cases a lack of baseline data on, for example, how much it should cost to build a classroom, constrained analysis of impact and cost-effectiveness.

22. Achieving cost-effective outcomes relies on working with CSOs with satisfactory organisational capacity and governance arrangements. DFID assesses the adequacy of governance arrangements before providing funding. Although the governance of charities is the responsibility of trustees, DFID's review helps it to gain assurance that its funds will be safeguarded from corruption.[55]This assurance is particularly important for the Partnership Programme Agreements where DFID's oversight of expenditure is more limited. The NAO found that partner governance arrangements were largely satisfactory but there was room for improvement. For example, over a quarter of Boards reviewed by the NAO had not formally reviewed their organisational performance within the last 12 months and almost half said that they had not formally assessed their own performance measurement during that time.[56]

23. To date DFID has not been as active in reviewing other aspects of organisational effectiveness such as procurement and employment policies and financial structures. The Department plans to improve its assessment of communications capacity when funding CSOs dealing with global advocacy. It also intends to ask larger agencies holding Partnership Programme Agreements to provide data on the ratio of administrative to programme costs.[57]If properly implemented these areas will help DFID judge whether organisations have the capacity to spend DFID funding effectively.[58]

Competition

24. One way to achieve value for money is to specify the development outcomes required and then allow CSOs to compete to deliver those outcomes at the lowest cost. The Challenge Fund and Partnership Programme Agreement schemes are partly competitive. CSOs submit applications for project support according to general criteria, but in respect of substantively different projects so DFID cannot readily compare the cost-effectiveness of different bids.[59] Thus the incentives for bidders to minimise costs are weak. To compensate DFID intends to make greater use of more detailed cost analysis of individual proposals. DFID also plans to develop benchmarks which would help to assess the cost-effectiveness of bids received for both the Partnership Programme Agreements and the Challenge Fund.[60]