Corporate report

FCDO response to ICAI recommendations on UK's approach to tackling fraud in UK aid through multilateral organisations

Published 3 May 2022

The Government welcomes the Independent Commission for Aid Impact’s (ICAI) rapid review on Tackling fraud in UK aid through multilateral organisations. The review assessed the extent to which the UK government ensures the effective management of fraud risk in its core funding to multilateral organisations.

Multilaterals play an essential role in the delivery of UK aid. They support action to tackle global challenges that the UK cannot address alone and supply specialist technical expertise to deliver aid on a global scale.

The UK Government has a zero-tolerance approach to fraud, including a robust due diligence process for all implementing partners. When FCDO provides core funding to a multilateral organisation, this due diligence is undertaken through a Central Assurance Assessment (CAA). This is a periodic strategic assessment that evaluates the multilateral organisation and give assurance over the central capacity and capability of the organisation including their ability to manage fraud risks.

We are pleased that this review recognised that the FCDO has effective processes in place to assess and manage potential fraud risk in the multilateral organisations we work with; and that the UK is a leading voice on tackling fraud and promoting good counter-fraud practices in our engagement with our multilateral partners and other donors.

Recommendation 1

FCDO should establish a risk-based portfolio approach to managing governance risks across funding to all multilateral organisations.

Response: partially accept

Taking an organisation-by-organisation approach will always be an important part of our due diligence process for multilaterals. It is important to retain enough flexibility in the process to ensure that we can appropriately assess the capabilities and risks of working through different multilateral partners (a Multilateral Development Bank operates very differently to a UN humanitarian agency). This review recognises that the FCDO has effective processes in place to assess and manage potential fraud risk with our multilateral partners and that Central Assurance Assessments (CAAs) are generally conducted to a high standard.

We recognise that CAAs are a rich source of information on our multilateral partners, and we will seek opportunities to better share and analyse multilateral risks across our multilateral portfolio. We are strengthening internal guidance and training on our approach to due diligence on multilateral organisations, which will better embed shared learning and peer review as part of the CAA process. We are also working to build capability and expertise in engaging with and positively influencing multilateral organisations across the FCDO network and agree that learning from multilateral secondments can play a useful role in this.

Recommendation 2

FCDO should continue to build stronger coalitions with like-minded donors to maintain counter-fraud and good governance as a top priority for multilateral organisations.

Response: accept

The Government welcomes the review’s finding that multilateral organisations see the UK as being among the leading donors pushing for strong counter-fraud measures. The UK has long been at the forefront of efforts to improve the efficiency and effectiveness of the multilateral system. We remain a major partner with the UN, Multilateral Development Banks and other multilaterals and will continue to work closely with other donors and use our voice in board meetings, committees, and other multilateral fora to hold multilateral institutions to account, ensure we have access to reporting on fraud and governance issues, and to secure improvements where needed. Our Fraud Investigation Team also have strong links and good working relationships with their multilateral investigation counterparts and have information sharing agreements in place.

As a founding member of the Multilateral Organisation Performance Assessment Network (MOPAN), the UK is part of a coalition of donors that support objective, independent assessment of the effectiveness of multilateral organisations that receive Official Development Assistance (ODA). We will continue to seek opportunities to work effectively with our allies, other donors and partners to push for value for money and to promote counter-fraud and good governance to maximise results and ensure that aid reaches the intended beneficiaries. We will seek to develop improved ways of sharing information between donors to improve efficiency and demonstrate collaborative working and sharing of best practice.

Recommendation 3

FCDO should renew and document its assessment of the European Commission’s ODA fraud risk management, in line with its processes for all multilateral organisations it funds.

Response: partially accept

The FCDO agrees with the need to retain oversight and financial due diligence of UK ODA through the EU. We believe we currently have sufficient oversight of EU fraud risk management without the need for a new central assurance assessment at this point in time.

The UK’s residual ODA obligations, rights, equity, and liabilities are stipulated in the EU-UK Withdrawal Agreement (WA). Under the terms of the WA, FCDO and HMT have access to all EU reporting on legacy programmes that the UK continues to contribute to, including reports from the Commission, the EU Anti-Fraud Office (OLAF) and the EU Court of Auditors (CoA). The FCDO EU Development Unit considers risk as part of annual reviews of the UK’s ODA through the EU (the European Development Fund and the Heading IV ODA Attribution programmes). The EU Development Unit also regularly updates a risk register which includes the UK’s relationship and residual funding with the EU, including the Commission and the European Investment Bank (EIB).

There have not been any changes to Commission, OLAF or CoA audit or anti-fraud management systems since the UK left in January 2020. FCDO will continue to monitor, review and report on any changes in the Commission’s fraud management, if and when that happens, and will conduct appropriate fiduciary risk assessments for any new funding through the EU in line with FCDO programme and finance rules.