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Shaping policy for development

An overview of Lagoro IDP camp in Kitgum District, northern Uganda, 20 May 2007. Manoocher Deghati/IRIN
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Tackling corruption - reflections on the ICAI first report on UK aid

23 November 2011
Edward Hedger
The Independent Commission on Aid Impact (ICAI) yesterday published its first set of reports on UK aid. Not surprisingly, the report that grabbed the headlines was on the corruption risk to UK aid spent through country programmes. ICAI’s overall assessment was ‘amber-red’, in terms of how effectively the UK Department for International Development (DFID) manages the risk of fraud and corruption. Cue the negative media coverage. But what should we make of the detailed findings and recommendations, and how much longer can we avoid difficult questions around risk?

The report was part evidence-based assessment and part extrapolation to future risks. It examined four country programmes (Bangladesh, Nepal, Nigeria and Zambia) and reviewed current organisation-wide policies and procedures. Yet the overall assessment was ‘strongly influenced’ by future scenarios of scaled-up aid volumes and rising allocations to fragile and conflict-affected states. The recommendations fell short of specific measures to address risk in these more challenging contexts, and were silent on the question of differentiation of approach in fragile states. This was a missed opportunity to engage with the new thinking on fragility that emerged from the 2011 World Development Report and the positions being developed by the g7+ grouping of fragile states on new donor approaches in those contexts (the so-called ‘New Deal for Fragile States’ to be proposed at the High Level Forum on Aid Effectiveness in Busan next week). A major policy thrust in this new thinking is for risk to be considered in a much broader sense: the risks and future costs of non-engagement and of avoiding support to build up national institutions, against the more immediate fiduciary risks of funds being misused. There are no easy answers, but there does need to be the recognition in aid delivery that not all contexts and objectives are equivalent.

Buried in the context section of the report was a strong nod to the importance of strengthening national institutions to facilitate country-led development. It expressed clearly the real tension between minimising corruption in the short term and delivering longer-term development goals which are the raison d’être for UK development assistance. Again, however, ICAI missed an opportunity to explore the implications of those competing concerns. The recommendations tackled the short-term dimension through five sensible and evidenced proposals. What it lacked was a credible narrative for DFID or the wider public gallery on how to keep an eye also to the expected development ‘return’ and the tolerance levels for risk in pursuing that return. The risk of misused funds must be considered in tandem with the risk of acting so cautiously to minimise any misuse that little real impact is achieved. Much of the future ICAI effort will be on assessing whether DFID has achieved precisely that type of development impact. The ICAI approach to ‘effectiveness and value for money’ published in parallel with the anti-corruption report will offer clues about how ICAI will walk this line.

A major theme of the report was strengthening domestic accountability institutions and oversight mechanisms. Auditors-General, Parliamentary Committees and Anti-Corruption Commissions were all name-checked repeatedly. These have been a long-standing focus of DFID technical assistance, especially in the era of budget support and the increased reliance on governments’ own accountability systems. More significant perhaps was the emphasis ICAI chose to place in its recommendations for strengthening the accountability domain. In tune with the background papers to the 2011 WDR and current thinking on public financial management (PFM) reform, ICAI rightly emphasised that changes to ‘formal’ institutions alone (such as Anti-Corruption Commissions and Supreme Audit Institutions) have tended not to yield strong gains in the integrity and efficiency of public resource management. Their effectiveness can be subverted and their contribution marginalised by stronger political actors who may enjoy powers of appointment and funding, and by parliaments and judiciaries which are themselves disinclined to enforce a strong line on anti-corruption. Lessons from PFM research suggest greater gains from dealing also with the ‘functional’ elements of PFM so that underlying processes and controls support the formal laws and organisational mandates. And, despite some preconceptions about the weakness of PFM systems in fragile states, strong progress can be achieved even in these most challenging contexts. ICAI usefully highlights also the importance of greater budget transparency in reducing the scope for corruption. More innovatively, it suggests harnessing social media more fully to promote domestic accountability. Formative work in Tanzania and Uganda using mobile phone technology may point the way ahead.

Personally, the most striking line in the report was the clear message about budget support:

‘Where there are good grounds for believing that directing UK funds through the national budget is the most effective form of aid, we would not like to see the option taken off the table merely because the extent of corruption losses cannot be precisely measured.’

This is a pragmatic approach, which recognises both the very real challenges of estimating corruption losses and the need for judgements by professionals – at country level and in dialogue with partner governments – about the array and severity of different risks associated with aid delivery in poor and fragile countries. In a context of intense public pressure in the UK over aid budgets and the wavering of DFID over budget support, this sends an important signal that the choice of instruments should be driven by objectives of assistance – not constrained vice versa. This position also augurs well for ICAI more generally. If it continues to combine evidence and pragmatism in this way, ICAI will do a valuable service to public discussion of aid and development.

This post features the author's personal view and does not represent the view of ODI.

Centre for Aid and Public Expenditure