Conclusions and Recommendations
1. SOME OF
PIDG'S INVESTMENTS
RAISE QUESTIONS
OVER ITS
DECISION MAKING
AND THE
DEPARTMENT'S
OVERSIGHT. We recognise that PIDG
operates in countries where standards of governance can be challenging.
Concerns were raised with us about the complex corporate structures
that PIDG's partners have sometimes established, making it difficult
to be certain about the ownership of companies and creating a
risk that those involved may have criminal connections. When investing,
PIDG must be constantly vigilant to mitigate such risks. They
must take into account the possible risks to taxpayers' money
and to the reputation of its donors from its investments. PIDG's
procedures do not require the Department to be notified of all
proposed investments, but the Department should do more to make
sure PIDG takes a robust approach to the assessment and management
of these risks. The Department was not well briefed on the specifics
of individual investments which had attracted public concern.
RECOMMENDATION:
THE DEPARTMENT
MUST ENSURE
THAT PIDG HAS
A ROBUST
AND APPROPRIATE
APPROACH TO
DUE DILIGENCE
IN GENERAL
AND THAT
IT RECEIVES
DETAILED BRIEFING
WHEN CONCERNS
ARE RAISED
ABOUT SPECIFIC
INVESTMENTS.
2. THE DEPARTMENT'S
WEAK OVERSIGHT
OF PIDG MEANS
THAT SOME
OF PIDG'S
OPERATIONAL DECISIONS
ARE AT
ODDS WITH
THE DEPARTMENT'S
OBJECTIVES. The Department's aspiration
is to support countries to build their tax base to support their
own development. However, for historical reasons, some of PIDG's
investments pay taxes in Mauritius where the effective rate of
tax is below 5%. The Department's oversight of PIDG's governance
was not sufficiently strong to prevent board members booking expensive
flights.
RECOMMENDATION:
THE DEPARTMENT
SHOULD REVIEW
ITS OVERSIGHT
MECHANISMS FOR
PIDG TO MAKE
SURE IT
HAS AN
APPROPRIATE LEVEL
OF VISIBILITY
OF OPERATIONAL
MATTERS, AND
THAT SOUND
FINANCIAL CONTROLS
ARE IN
PLACE AND
THAT MONEY
IS APPROPRIATELY
SPENT.
3. THE DEPARTMENT'S
POOR OVERSIGHT
OF PIDG ALLOWED
MONEY TO
SIT IDLE
IN A
BANK ACCOUNT
RATHER THAN
FUNDING PROJECTS.
Between January 2012 and February 2014, an average of £27
million of the Department's money which could have been used to
fund projects was left sitting in PIDG's bank accounts managed
by SG Hambros. As a consequence, SG Hambros had the opportunity
to earn interest on the cash balances it held on PIDG's behalf.
At our prompting, the Department has asked SG Hambros to make
a donation to a charity working in West Africa on the Ebola virus
from any returns it made from the Department's cash holdings.
RECOMMENDATION:
THE DEPARTMENT
SHOULD SET
OUT WHAT
ACTION IT
HAS TAKEN
TO MAKE
SURE FUNDS
IT PASSES
TO THIRD
PARTIES ARE
USED PROMPTLY.
IT SHOULD
REPORT BACK
TO THE
COMMITTEE ON
THE OUTCOME
OF ITS
REQUEST FOR
A DONATION
TO CHARITY
FROM SG HAMBROS.
4. THE DEPARTMENT
IS NOT
USING ITS
POSITION AS
THE DOMINANT
FUNDER TO
DRIVE IMPROVEMENTS
IN PIDG'S
PERFORMANCE. In 2012 and 2013,
the Department contributed 88% of PIDG's total funding. However,
despite being the majority funder, the Department has the same
voting rights as other countries which contribute far less. The
Department seems unwilling to explore how it might use its dominant
position to influence performance. For example, it has plans to
extend its funding of PIDG by two years, bringing its potential
total contribution to £860 million since 2002. However, the
Department has not attached conditions, such as improved governance,
to this funding.
RECOMMENDATION:
THE DEPARTMENT
SHOULD, WHEN
CONSIDERING INCREASING
ITS INVESTMENT
IN PIDG, IDENTIFY
THE OPERATIONAL
CHANGES IT
WOULD LIKE
TO SEE
ALONGSIDE THE
DEVELOPMENT IMPACT
IT IS
LOOKING TO
SECURE. THE
DEPARTMENT SHOULD
USE ITS
2015 MULTILATERAL
AID REVIEW
TO DEVELOP
A PROPORTIONATE
AND RISKBASED
APPROACH TO
HOW IT
FUNDS AND
OVERSEES MULTILATERALS,
WITH A
CLEAR FOCUS
ON WHETHER
ITS LEVEL
OF INFLUENCE
IN MULTILATERALS
IS COMMENSURATE
WITH ITS
LEVEL OF
FUNDING, BOTH
IN ABSOLUTE
TERMS AND
RELATIVE TO
OTHER DONORS.
5. PUBLIC CONFIDENCE
ON SPENDING
ON OVERSEAS
AID THROUGH
PIDG REQUIRES ROBUST
AND INDEPENDENT
INFORMATION ON
THE IMPACTS
ACHIEVED, WHICH
IS CURRENTLY
LACKING. There is a reasonable
overlap between those countries the Department consider to be
a priority and those in which PIDG has invested. However, many
of the development impacts claimed by PIDG are accounted for by
a small number of projects. For example, one project supporting
satellite telecommunications for 50 million people to receive
new services accounted for 45% of all additional people served
by PIDG's portfolio of projects. While the Department has commissioned
some independent evaluation of PIDG's performance, it is too reliant
on information from PIDG itself in making judgements about performance.
RECOMMENDATION:
THE DEPARTMENT
SHOULD PUSH
PIDG TO HAVE
A ROBUST
SYSTEM TO
MONITOR AND
EVALUATE IMPACTS
USING THE
DEPARTMENT'S
OWN EXPERTISE
TO GAIN
ASSURANCE OVER
THE ADEQUACY
OF PIDG'S
APPROACH.
6. The Department has failed to draw sufficiently
on the insight of its country teams to influence the investment
decisions PIDG is making. PIDG represents a major investment by
the Department. The Department's country teams have indepth
knowledge of some of the countries in which PIDG invests. We heard
examples of how the Department's network of country teams had
helped to identify reductions in costs, demonstrating the benefit
that might accrue from their involvement in investment decisions.
For example, the Department managed to reduce the cost of one
of PIDG's projects by almost 60%. However, over half of the Department's
country teams were concerned that their activities and those of
PIDG were not sufficiently coordinated, creating a potential separation
between the Department's and PIDG's priorities.
RECOMMENDATION:
IN ITS
RESPONSE TO
THIS REPORT,
THE DEPARTMENT
SHOULD SET
OUT HOW
IT WILL
APPLY THE
EXPERTISE OF
ITS COUNTRY
TEAMS TO
IMPROVE THE
VALUE FOR
MONEY OF
INFRASTRUCTURE INVESTMENTS
MADE BY
PIDG AND OTHER
MULTILATERAL BODIES.
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