No smoking gun – DFID and the surge in spending

A picture of the National Audit Office

This blog post first appeared on Views from the Center.

The UK development agency, DFID, was mauled by the famously easy-going British press this weekend after an apparently critical National Audit Office report.

“[I]n Dfid’s imposing new headquarters off Trafalgar Square, the big worry was how to shovel money out of the door,said David Blair in the Telegraph.

“[C]ivil servants are spending vast sums of public money with no assurance of serving either the world’s poorest people or the interests of taxpayers,said The Times.

The Daily Mail characteristically played the man rather than the ball with a savage attack on Mark Lowcock, the exceptionally talented, hard-working, and widely respected senior official in DFID. (Lowcock has, coincidentally, just pulled off an improbable international agreement to change the definition of aid, breaking a deadlock that has lasted 40 years.)

Even the normally reliable Financial Times reported that the NAO report was “raising concerns about how efficiently budgets are being managed in the Department for International Development.

Reading the newspapers, you’d think that the NAO had found evidence that DFID had spent money badly. But they didn’t.

The NAO report is a painstaking examination of the worthy-but-dull question of how DFID managed the increase in its budget in 2013 to meet the government’s target of spending 0.7% of gross national income on official development assistance (ODA), and how it organised the timing of its payments to hit the target exactly.

The aid target is for calendar years (not the April to March financial year used for government budgets), and it is measured as a proportion of national income – estimates of which are often substantially changed during the year. Hitting the aid target exactly is like trying to land a jumbo jet on an aircraft carrier in rough seas.  As the NAO report says (pdf) “The requirement to hit, but not significantly exceed, aid spending equivalent to 0.7 per cent of gross national income every calendar year means the department has to hit a fairly narrow target against a background of considerable uncertainty.”

As the NAO reports, DFID had to spend an extra £1bn in November and December 2013 to hit the aid target.  It is true that in many government departments, a prodigious surge of spending like this at the end of the financial year can be a sign that money is being wasted. The “use it or lose it” mentality in Whitehall does not always encourage wise choices.

But DFID has a well-developed toolkit for hitting the target without taking any chances with value for money. I know, because I used to be the Director for International Finance and Development Effectiveness, and I was responsible for the £2 billion a year budget that was often adjusted to ensure that the target was hit.

The process is very straightforward and not at all scandalous. DFID makes contributions to various multilateral organisations by issuing “promissory notes.”  This promise isn’t cashed until the money has been properly spent – perhaps two years later – but by convention it counts as aid when the promise is made.  DFID has flexibility about when it issues these promissory notes. So as the NAO correctly describes, towards the end of 2013 DFID issued promissory notes to the World Bank and to the Global Fund to Fight AIDS, Tuberculosis and Malaria, in just the right amount to hit the 0.7% target.

Crucially, as the NAO report makes clear (paras 1.24 and 1.33), DFID’s decision to issue more notes to both organisations in 2013 “did not alter the total value of notes it planned to provide them and did not affect the content and timing of the programmes.”  The promissory notes would have been issued in 2014 anyway. So neither organisation got more money than they otherwise would.  Nor was anything changed about their behaviour. Nor is this an example of bad cash-flow management, since the promissory notes are not cash. These are nothing more than an accounting entry shifted from one year to another.  And that is the main way that DFID was able to “spend” £1 billion extra in two months without putting at risk value for money.

I have significant doubts about setting input targets, though I am glad that aid has been increased and I don’t think that would have happened without the UK’s commitment to the international target of 0.7%. But while there are good reasons to be squeamish about spending targets, this isn’t one of them.

The NAO report is an insight into how DFID carefully manages the timing of its payments to meet the government’s various targets, lives within the budget set by Parliament, and ensures that money is spent properly.  The report also describes the “positive steps” that DFID took to manage a substantial year-on-year increase in spending in 2013, and does not identify any shortcomings in how this was approached.

The NAO report offers no evidence whatsoever that DFID’s accounting resulted in taxpayer money being badly spent. Indeed, it says explicitly “We did not assess the value for money of individual changes the Department made to its planned programme in 2013 to meet the target.”

The innuendo in the press suggested that the NAO has caught DFID with its pants down, wasting money in an unnecessarily profligate end-of-year surge. That isn’t true, but it confirms the old aphorism that lies are half way round the world before the truth has got its boots on.  Few people will ever read the full NAO report: but if they did, they’d find that DFID comes out of it pretty well.

There is a cautionary tale here for DFID, but it isn’t about the way it manages its budget. It is that the sharks are circling, and they do not seem to be very interested in the facts.

This blog post first appeared on Views from the Center.

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