DfID Financial Management - Public Accounts Committee Contents

2  The Department's strategic direction and focus on value for money

13. The Department told us it was due to close a third of its overseas offices and focus on a smaller number of countries where the challenge was greatest.[30] The Department was also focussing on sectors in which it has relatively less experience, including private sector finance and climate change. The Department intends to focus more on fragile and conflict-affected states which pose higher risks in terms of poor security, delivery capacity, measurement of costs and outcomes, and leakage of funds through fraud and corruption.[31]

14. At the time of the hearing, the Department was identifying and designing many of the projects and programmes needed to reach the 0.7% target.[32] Given the challenge of developing a large "pipeline" of new projects, we were concerned that, in order to hit its target, the Department would simply increase its funding to multilateral organisations (who determine how and where to spend funds) and to overseas governments through budget support. These mechanisms are both ways to provide large amounts of money for comparatively small amounts of administrative cost and time, when compared with the resources required to manage the Department's bilateral programme.[33]

15. The Department lacked certainty about the future split between bilateral funding and the funding it gives to multilateral organisations. But on its current plans, the proportion of its funding spent via multilaterals is due to increase from 37% of its budget in 2009-10 to approximately 45% by 2014-15.[34] When the Committee took evidence from Suma Chakrabarti in 2002, two Permanent Secretaries ago, he agreed that the Department could not ensure that the aid it provided through multilateral organisations was best applied to reduce poverty, as it had little direct control over how multilateral development organisations use funds.[35] The Department still has limited input into the financial management of multilaterals at an operational level.[36] As such, we were concerned that the increased funding going to multilaterals could increase the level of the Department's spending which is lost to fraud and corruption.[37]

16. The Department admitted that it had previously had concerns over a number of multilateral organisations which did not have a strong enough record in fiduciary risk management.[38] The Department said it was putting money where it could maximise value for money and had stopped funding a number of multilateral organisations that it thought were poor value for money.[39]

17. The Department channels funding through complex delivery chains, and most of it is spent two or three steps removed from the Department's control.[40] The Department has a corporate target to reduce its running costs to 2.09% by 2014-15, but partner organisations and multilaterals add further layers of running costs, which are often much higher. The Department cited the example of UN organisations which have running costs of 13%, although this was not strictly comparable to the Department's own definition of running costs. Total running costs for the delivery chain as a whole were not known.[41]

18. Despite previous recommendations from this Committee, the Department still has insufficient data to make informed investment decisions based on value for money. The Department's Bilateral Aid Review was supported by only limited data, and relied on people's experiences of what they could deliver with the resources available.[42] The Department also had insufficient data on its projects and programmes, including a lack of timely data and information on unit costs.[43] We reminded the witnesses of our November 2010 hearing on primary education where we found a lack of measurement on whether the Department's programmes were actually keeping children in school and leading to an improvement in standards and outcomes. The Department told us that it has made progress in collecting data on primary education in developing countries and would provide a progress report in autumn 2011.[44] The Department gave examples of how it was improving its evidence base more generally, including through external research, sharing lessons internally, through its new business case approach and by working with countries to access and generate better data.[45]

19. The Department's financial and management information system, ARIES, does not provide integrated performance and financial data to support well-founded decisions.[46] The Department told us that its priority was to collect the data it needed; integrating all of the results and unit cost data into a single IT system was not, in its view, an urgent priority.[47] The Department was not clear about whether it needed to generate more data, or whether the data existed but needed to be better collated.[48]

20. We questioned whether the culture within the Department was sufficiently focussed on value for money. On entering office, the Secretary of State said "The flipside of having the privilege of a protected budget is you have to strain every sinew to get every possible pound to work as hard as it can", and the Department told us that there was a clearer understanding of top level corporate priorities.[49] While the Department had increased its focus on value for money, it acknowledged that it had not yet maximised value for money in everything it was doing and could do more.[50]

21. We were unconvinced that value for money was at the heart of all the Department's decisions, as staff did not have the information or incentives to demonstrate unequivocally that they allocate resources on the basis of value for money. Departmental staff told the National Audit Office in 2010 that forecasts had been compromised by a reluctance to forecast underspends, because of concerns that unspent funds would be withdrawn.[51] The Department admitted that country offices had been protective over their own budgets, as they wanted to hold on to all the resource they could in order to deal with the problems within their own countries. The Department agreed that where projects in one country were not delivering value for money, it should reallocate funding to other projects or to other countries.[52]

30   Q 17, C&AG's Report, paragraph 1.9, page 15 Back

31   Q 17 Back

32   Q 127; C&AG's Report, paragraph 3.16, page 30 Back

33   Qq 18, 127 Back

34   Qq 19-21, 108; Based on the Department's current plans, bilateral aid is also expected to be 45%.Around 10% of the budget is as yet unallocated. Back

35   Q 31; The Committee of Public Accounts, Department for international Development: Performance Management - Helping to Reduce World Poverty, Forty-Eighth Report of Session 2001-02, HC 793, paragraph 3, bullet 1 Back

36   C&AG's Report, para 5, page 4 Back

37   Qq 39-40, 60 Back

38   Q 40 Back

39   Q 18 Back

40   Q 35 Back

41   Qq 102-106 Back

42   Qq 14, 17 Back

43   Qq 130, 132 Back

44   Q 4 Back

45   Q 16, 17, 132 Back

46   C&AG's Report, paragraph 10, page 6 Back

47   Q 132 Back

48   Qq 17, 132-135 Back

49   Qq 71-74 Back

50   Q 17 Back

51   Q 75; C&AG's Report para 2.32, page 26 Back

52   Q 75 Back

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Prepared 20 October 2011