Appendix 2: Government Response
Tackling Fraud
[Paragraph 24] We are concerned that DFID may
not yet be taking the threat of fraud as seriously as it should.
Indeed, there seems to be an over-reliance on staff reporting
cases of fraud rather than DFID taking action to mitigate such
risks before they arise. We recommend that, in response to this
Report, DFID provide us with more information on the steps it
is taking to ensure that it has a robust, consistent and strategic
approach to fraud in all its country programmes and in all sectors
in which it works.
DFID is working actively to combat fraud and corruption
both internally and with our partners. All allegations involving
DFID funds must be reported to DFID's Internal Audit Department
for investigation. DFID takes a robust approach with confirmed
cases, including through disciplinary sanctions, criminal prosecutions
and the suspension of aid where appropriate. Since substantial
amounts of aid are channelled through multilaterals, we have oversight
of their counter-fraud systems through our representation on their
management boards and audit committees. We also work closely with
the audit and integrity functions of our major partners to investigate
allegations relating to UK funding. We also review and monitor
the controls that DFID's other partners have in place, in particular
the financial management capacity of civil society organisations.
DFID applies a range of controls and procedures to
prevent fraud and corruption. We carry out Fiduciary Risk Assessments
which include an explicit assessment of corruption risk. These
are conducted against international benchmarks and are subject
to independent scrutiny. DFID provides financial aid only where
there is a credible programme to address weaknesses in public
financial management (PFM). Where financial systems of partner
governments are improving but do not yet represent best practice,
we attach high priority to strengthening them, for example by
improving effectiveness of budget planning, financial management
information systems, and countries' supreme audit institutions.
Public expenditure tracking surveys and extra short-term safeguards
are used while PFM systems are being strengthened.
DFID also undertakes wider risk assessments of its
country programmes and of individual projects in all sectors.
Project management systems have a wide range of controls to prevent
risks materialising including payment authorisation and procurement
requirements, project monitoring, performance reviews and independent
evaluations. These processes draw on expert sectoral advice, including
on PFM and counter-fraud. All organisations in receipt of funding
from DFID are required to provide audited financial statements
to give independent assurance that funds are used for intended
purposes.
DFID's Directors oversee corporate risk management
processes and report on their effective operation to DFID's Accounting
Officer (the Permanent Secretary), who is accountable to Parliament.
The Permanent Secretary's Statement on Internal Control, provided
alongside DFID's annual accounts, gives assurance on these systems.
The National Audit Office also scrutinises DFID's accounts and
financial management systems and conducts specific value for money
studies. DFID's Internal Audit Department (IAD) reviews and provides
assurance on the effectiveness of DFID's controls, risk management
and governance systems. IAD's work is overseen by an independent
Audit Committee.
Procurement
[Paragraph 29] We welcome DFID's change of approach
to procurement in that all its programme expenditure is now subject
to proper procurement procedures rather than just the small part
of the budget which direct procurement represents. DFID has indicated
that improving these procedures is a work in progress. We would
expect our successor committee to review progress on procurement
practice when it looks at the next DFID Annual Report.
DFID is continuing to make good progress with its
Procurement Transformation programme; a new Operating Model and
organisation structure is now in place in the procurement team
and there is now a strong focus on enhancing commercial capability
across the organisation. DFID recently completed its OGC 'Wave
2' Procurement Capability Review self-assessment, including a
Peer Review by the Commercial Director of the Home Office, which
provided positive feedback of the progress made while also usefully
highlighting some of the key challenges ahead to maintain progress.
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