Britain's aid payouts 'are open to corruption abroad', says NAO

Britain's £461m overseas aid budget for tackling poverty could be open to fraud because of the lack of controls over the way it is spent in some of the poorest countries in the world, the public spending watchdog has warned. The National Audit Office said the Government's switch from project-linked funding to wider "budget support" for countries in an attempt to reduce poverty had led to "significant risks" that that the funds would be "misapplied for political reasons or through corruption".

Calling for more controls to be imposed by the Department for International Development, the report highlighted internationally recognised data showing that the worst countries for corruption included some of the biggest recipients of budget support, including Pakistan (£52.5m), Vietnam (£34.5m), Zambia (£23.3m) and Nepal (£5.4m). "Donors cannot track their own contributions individually once paid to partner governments and instead monitor the government's overall expenditure and progress against its agreed strategy," said the watchdog.

"Evidence on the extent to which budget support has yielded better value for money than other ways of delivering aid, or has had an impact on income poverty, is not conclusive."

Edward Leigh, the Tory MP and chairman of the Committee of Public Accounts, said: "Although the department pays attention to issues of corruption when it risk-assesses countries, it does not know how much UK money is lost through political misuse or corruption. Until this is improved, public confidence in these programmes will not be as good as it should be."

But Max Lawson, the senior policy adviser at Oxfam, defended the system of budget support as "a vital and effective use of UK aid". Douglas Alexander, the International Development Secretary, said: "I welcome the NAO's detailed report, and its recognition of the many benefits that budget support provides.

"Budget support helps governments provide more health and education services for their people, and have more ambitious plans and programmes to reduce poverty... Many of the points made by the NAO, and other evaluations, have been taken on board."

Mr Alexander added: "We assess the risks carefully and have safeguards to prevent the misuse of funds. If things go off track we take action. If necessary we reduce or suspend support or deliver it in a different way."

The shadow International Development secretary, Andrew Mitchell, called for immediate and decisive action to bolster the scrutiny of British aid. "Whenever Britain gives budget support to a poor country, 5 per cent of the total amount should be earmarked for helping parliament, civil society and audit institutions track where the money is going," said the Tory MP.

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