Government investigates scandal with foreign aid budget

08 January 2013 Consultancy.uk

The British government has ordered an emergency audit after The Telegraph revealed that hundreds of millions of foreign aid budget has been spent on expensive consultants. Last year alone more than £500 million was paid to consultants, while the money was intended to be spent on foreign aid programmes in third world countries. Some British media are already speaking of cases of fraud. The International Development Secretary of the government Justine Greening has demanded a ‘line by line’ audit, which should be finalized by the end of January.

Foreign Aid

The UK currently spends 0.6% of its national income (GNP), which amounts to approximately £8 billion, on foreign aid. The budget is managed by the Department for International Development (DfID). In the coming years, DfID’s budget will increase to £12 billion by 2014 following recent changes to legislation.

Parlement

The budget is allocated to humanitarian projects in third world and developing countries such as Afghanistan, Nepal and India. Projects include providing legal services in Bangladesh, tax reform in Afghanistan, investigating mental health issues in southern Africa and opposing child marriage in Ethiopia.

Consulting Firms

Last year £500 million of the £8 billion budget – roughly 7% – was paid directly to consultants. According to government officials and critics the amount is far too high, particular in the light of the excessive payments to a number of consulting firms. The Director of Adam Smith International (ASI), a consulting firm specialized in foreign aid, gave himself a salary of £1.3 million form the DfID budget. In his defence he said the following:

“We have got tax revenues in Afghanistan up from next to nothing to £2 billion. If you want to get a good job done, you have to get people who know what they’re doing. Our profit margins are on the low side for consulting firms”. A closer look at their financial statements reveal that ASI booked a profit of £5 million based on a total turnover of £53.6 million, which can easily be regarded as ‘impressive’.

Another development consultancy firm, Maxwell Stamp, was paid £16.4 million by DfID last year for projects in Bangladesh and Ethiopia. After the contract was signed, the Managing Director decided to double his salary from the year before, amounting £326,000 in 2012.

PwC

The DfID also makes a lot of use of the services of the so-called Big4 firms, PwC, Deloitte, Ernst & Young and KPMG. Between October and December last year PwC was paid an average of £4 million per month to support the execution of “several foreign aid studies and projects”. Other remarkable expenditures include nearly £4 million for facilitating the recent “elections” in Sierra Leone and almost £400,000 for furniture for a DfID office in Delhi.

Discussion

It is not the first time that a national debate has been sparked about the role of consultants in relation to development aid. In 2006, there was a lot of commotion in the UK when a study showed that as many as a quarter of the global budget was spent on consultants.

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