The Australian aid program

1. The objective of Australia's aid program (the aid program) is ‘to assist developing countries to reduce poverty and achieve sustainable development, in line with Australia's national interest'.¹ In 2008–09 the Australian Government provided an estimated $3.8 billion in overseas aid.

2. The aid program has increased in size by 42 per cent since 2004–05.² Strong growth will continue to be required in order to meet the Australian Government's commitment to increase official development assistance (ODA) from 0.33 per cent of gross national income (GNI) in 2008–09, to 0.50 per cent in 2015–16.

3. The Australian Agency for International Development (AusAID) is the main Australian Government agency responsible for managing the aid program. In 2008–09 AusAID was accountable for $3.2 billion, or 83 per cent of ODA. Other government agencies are responsible for smaller amounts of aid in areas such as defence, policing and trade.

4. Since 2000–01, the main source of growth in ODA has been bilateral programs of assistance (known as country program aid) planned and coordinated by AusAID. The agency is expected to remain predominant in the design and implementation of increased aid investments in the coming years.

5. AusAID provides advice and support to the Minister for Foreign Affairs and the Parliamentary Secretary for International Development Assistance on development policy. Australian aid policy aims to accelerate progress towards the Millennium Development Goals (MDGs),³ and places emphasis on supporting the Asia-Pacific region. Australian Government strategies to improve aid effectiveness include a focus on partnerships with recipient country governments,⁴ and publication of comprehensive information about the aid program.

6. The Australia Government is a signatory to the international aid effectiveness agenda, as articulated in the 2005 Paris Declaration on Aid Effectiveness and the 2008 Accra Agenda for Action. Under these agreements, Australia has made commitments to strengthen and use partner country institutions and systems (including financial systems) to deliver aid; to reduce aid fragmentation and proliferation⁵ - which have imposed high transaction costs on partner governments and made aid difficult to manage; and to increase the predictability of aid flows, thereby supporting budget planning of partner governments.

7. In early 2007, in response to an aid program White Paper,⁶ AusAID instigated internal reforms to deliver a considerably expanded and more effective aid program. These reforms included increasing program management responsibilities of country offices (known as devolution), adoption of new arrangements for the design and delivery of aid—in line with the Paris Declaration on Aid Effectiveness , and implementation of more rigorous performance assessment practices. AusAID also embarked on a program to upgrade country strategies to improve the focus (or selectivity) of Australia's support to particular countries.

The audit

8. The objective of this audit is to assess whether AusAID's management of the expanding aid program supports delivery of effective aid. The audit focuses on progress of AusAID's internal reforms to achieve this objective.

9. The audit considers critical aspects of AusAID's management of the aid program. These include: management arrangements and staff capacity; how aid investments are selected; major forms of aid or modes of delivery (being technical assistance and use of partner government systems); coordination of whole of government engagement; monitoring and evaluating aid performance, and external reporting.

10. The audit fieldwork was undertaken at AusAID in Canberra and three countries to which Australia is providing increasing levels of aid—Papua New Guinea, the Philippines and Vietnam. The audit methodology included a survey of AusAID staff, and analysis on the changing make-up of the aid program.

11. The audit did not examine AusAID's management of global programs,⁷ Australian development scholarships, and AusAID's contracts with suppliers.

Overall conclusion

12. Management of Australia's aid program is a complex undertaking—it requires engagement in multiple countries and sectors to help address difficult development challenges. The effective management of the aid program requires that AusAID develop sound aid initiatives and astutely manage their implementation, by working closely with Australian Government partners, recipient country governments, and other development stakeholders. Scaling up of Australian aid and the impetus to change how aid is delivered amplify these challenges.

13. The ANAO concluded that, since 2005, AusAID has managed the expansion of the aid program in a way that supports delivery of effective aid. This period has seen AusAID increase the management responsibilities of country offices, recruit additional staff and build in-house technical expertise, and strengthen monitoring and evaluation of aid—supporting delivery of more aid and improved aid effectiveness. Consistent with the international aid effectiveness agenda, AusAID has also made progress in changing the way Australian aid is delivered, by commencing to increase use of partner government systems, and working more collaboratively with other donors.

14. Notwithstanding this progress, the aid program is likely to double in size between 2008–09 and 2015–16, and AusAID faces considerable management challenges amidst ongoing program growth. AusAID staff are concerned about workloads and stress levels at many overseas posts and there is a shortfall of expertise in some areas; many country programs have operated without an agreed development assistance strategy; the number of aid activities under management has grown strongly—contributing to aid proliferation; and reducing reliance on traditional forms of aid is proving difficult. Resolving these issues requires a particular focus on AusAID's internal capacity and the composition of Australian assistance—to make the delivery of aid more manageable and effective.

15. The ANAO has made six recommendations aimed at improving AusAID's management of the aid program, and strengthening accountability for aid funding and its results. In particular, AusAID can improve management of human resources by addressing its long-standing problems with regards to the level of staff turnover, further increasing management responsibilities of locally engaged staff, and continuing to progress workforce planning and development—thereby building internal capacity to deliver aid. Completion of country program strategies that are central to, and record, aid allocation decisions would help make Australia's increasing levels of aid more focused and predictable. Further, the development of a comprehensive policy on using partner government systems to deliver assistance would facilitate increased use of these systems, thereby helping to strengthen them and providing a scalable means of delivering aid. Finally, clarification of AusAID's approach to classifying administered and departmental expenses, and improved external reporting, would help make aid program running costs more transparent to external stakeholders.

16. Importantly, implementation of strengthened performance assessment for aid programs and activities, and the work of the Office of Development Effectiveness (ODE),⁸ are focusing the attention of AusAID's management and staff on the factors that lead to better aid outcomes. Continued improvement in monitoring and evaluation of aid is required if AusAID is to remain in a good position to meet the challenges of the coming years.

Key findings by Chapter

Devolution and corporate support (Chapter two)

17. Recent corporate reforms undertaken by AusAID provide a platform to deliver more aid, and more effective aid. Devolution has supported accumulation of country knowledge and effective on-the-ground management and has strengthened corporate support in areas such as financial management, which helps country offices manage broader responsibilities. It has also resulted in increased staff numbers, and brought in and developed additional in-house expertise.

18. However, the model of devolved management arrangements implemented by AusAID and large scale organisational change, have led to staff concerns about high workloads and stress levels at many posts, which are likely to continue rising in the coming years. AusAID has not yet achieved effective internal collaboration, whereby posts, country program desks in Canberra, and thematic experts work together in a cohesive manner to manage growing levels of aid.

19. Some of the main difficulties encountered by AusAID in scaling up ODA highlight a need for the agency to improve human resource management. Regular changeover in roles, undertaken by staff, has been a long term problem that has worked against program effectiveness—only one in two APS staff remained in their position over the 2008 calendar year. AusAID did not adequately plan for the work implications of changes in how aid is delivered, which has resulted in a shortfall of expertise in some areas. Also, there are opportunities to build on recent improvements in the use of locally engaged staff by allocating them additional supervisory responsibilities, thereby strengthening management capacity at aid posts.

20. While improvements in these areas will support country programs in meeting high workloads, the aid program is likely to double in size between 2008–09 and 2015–16. Delivering a much larger aid program will require a concerted and collaborative effort across the entire Australian aid community. AusAID will need to strike a sound balance between its country, regional and global programs, and in using AusAID staff, other Australian Government agencies, managing contractors, multilateral agencies, other donors and civil society organisations to deliver aid.

Country program aid (Chapter three)

21. As the main Australian Government agency responsible for managing the aid program, AusAID plays a central role in the selection and implementation of country program aid. AusAID's experience is called on to inform and deliver aid policy, to align investments with the priorities and needs of partner governments, and to develop manageable programs of assistance.

22. In pursuing these objectives, AusAID has responded flexibly to changing aid policy directions, and has been able to deliver increased levels of country program aid, often through a broader range of sectors within countries. During fieldwork partner governments identified AusAID as a responsive donor, which is reflected by the large and diverse number of aid activities under the agency's management.

23. However, the broad focus of some country programs; strong growth in the number of aid activities under management; and the findings of reviews of AusAID's country programs, all indicate a need to improve the selectivity of country program aid. While AusAID has been responsive in management of country programs, their continued scaling up necessitates more strategic approaches that consolidate and expand on existing areas of focus, and contribute to global efforts to reduce aid fragmentation and proliferation.

24. A primary cause of weaknesses in selectivity of country program aid has been a failure to complete country specific strategies, and their lack of centrality to aid allocation decisions—in early 2009 only 11 of the top 20 recipients of country program aid had a strategy in place. There are many ways in which donors can provide support, and country strategies enable strategic approaches—through detailed consideration of developing country contexts, and donor capacity. AusAID can make country strategies and their review more relevant to strategic and operational decision making, including by using them as a vehicle to make Australian aid more predictable.

Technical assistance and partner government systems (Chapter four)

25. In 2007 AusAID committed to reducing its reliance on ‘stand-alone' aid projects—implemented by contractors and involving ‘technical assistance', and to increase use of sector programs of support—that work through recipient country development strategies and financial systems, together with other donors. The 2006 White Paper also committed to more selective and effective use of technical assistance.

26. In the Pacific and Timor Leste, where Australian aid forms a major component of the resources available for development, an appropriate balance needs to be struck between provision of technical assistance and other forms of aid to support delivery of government services. Based on available data concerning use of technical assistance, aid program reviews, and the perceptions of AusAID staff in program delivery areas, the ANAO found that AusAID has not yet achieved the objective of using technical assistance more strategically and effectively in the region.

27. To make further progress, AusAID and its whole of government partners need to establish more strategic approaches for the use of technical assistance at a country and sector level—thereby supporting lasting capacity development. This requires careful consideration of the context in which technical assistance will be used, including constraints on partner government capacity and the ability of technical assistance to address these constraints; and considering whether alternate forms of support are more appropriate.

28. AusAID's use of partner government systems to deliver aid is increasing, but remains well-short of internationally agreed targets, and behind progress of other donors. This reflects the complexity of transitioning from its historic operating model, the lack of an agency strategy to reform this model, and the generally poor track record in accounting for government expenditure of many countries to which Australia provides aid.

29. To support increased use of partner government systems to deliver aid, there would be benefit in AusAID developing and publishing a comprehensive policy articulating its approach. Such a policy would describe: the benefits of using partner government systems and lessons learned to date; how decisions to use partner government systems are reached—including thorough assessment of potential development benefits and associated risks; and how the more significant risks of using partner government systems are managed by AusAID.

Whole of government coordination (Chapter five)

30. Around 10 per cent of the aid program annually is provided by Australian Government agencies other than AusAID, as well as state, territory and some local governments, either through their own budget appropriation or that of AusAIDs.

31. The participation of other government agencies in the aid program enables development of bilateral institutional linkages and application of valued Australian expertise. However, deploying staff from other government agencies is relatively costly, agencies involved often have a limited capacity to support international work, and their personnel can be inexperienced in development contexts. Given these strengths and weaknesses, it is important that the costs and benefits of possible whole of government approaches are considered in comparison to alternate approaches for delivering aid, with decisions based on their relative merits.

32. The 2006 White Paper in the aid program established several mechanisms to coordinate whole of government engagement in the aid program, and to make sure it did not lead to loss of accountability for aid expenditure. These include the cross-agency Development Effectiveness Steering Committee (DESC), whole of government country strategies, and the role of the Office of Development Effectiveness (ODE) in monitoring and evaluating all Australian aid. Frameworks have also been developed at an operational level by responsible agencies to support whole of government coordination.

33. These mechanisms provide a sound basis for whole of government involvement in the aid program. However, to date their success has been variable, with weaknesses resulting in reduced selectivity of aid activities and shortfalls in monitoring and external reporting.

34. More work is needed to effectively use existing avenues for whole of government coordination. Greater effort is required to make sure all ODA eligible budget proposals are subject to scrutiny by the DESC in a timely fashion; to establish AusAID's country strategies as whole of government documents; to develop consistent aid monitoring and evaluation approaches that assist agencies; and strengthen operational coordination.

Monitoring and evaluation (Chapter six)

35. Since the 2006 White Paper was released, AusAID has: implemented a robust performance assessment framework for aid investments; commenced valuable annual program reporting; strengthened its quality reporting system for aid activities; and established ODE to monitor the quality and evaluate the impact of Australian aid. These efforts are focusing agency attention on the quality of country programs and aid activities, and the factors that lead to better development outcomes.

36. The strengthening of aid monitoring and evaluation in AusAID remains work in progress that requires long term commitment. Continuing focus is needed to make sure country strategies provide a basis of assessment, to raise compliance with design and review requirements for aid activities, and position ODE to provide deep and sustained influence. Refinements are also necessary to align performance assessment at different levels and make quality reporting more rigorous.

37. The ongoing evolution of performance management in AusAID will require more strategic use of performance information, thereby informing program design and the scaling up of ODA. This means expanding on successful initiatives, identifying areas in need of further assistance, rationalising program portfolios and better understanding the internal resources required to deliver outcomes. To help make these links the quality of aid program data can be improved, particularly data about how aid is delivered.

External reporting (Chapter seven)

38. There have been recent improvements to AusAID's PBS performance information framework, including adoption of program level measures, budgeting and reporting at a regional level, and embedding performance indicators as part of internal monitoring.

39. However, performance indicators do not yet provide a comprehensive set of measures that drive and explain agency performance. To help do so, additional measures can be introduced covering completion of development assistance strategies, improvement in the selectivity of aid investments, compliance with quality reporting requirements for aid activities, and progress of changes in how Australian aid is delivered.

40. Since the aid program White Paper in 2006, AusAID has made good progress in increasing the transparency of aid program expenditure through external reporting. In particular, it has begun publishing thorough annual effectiveness reviews, annual program reviews, and more in-depth evaluations of the aid program. However, beyond these improvements, AusAID has not yet implemented its own policy that publication of agency reports is the default position—many ODE reviews and evaluations of specific aid activities remain unpublished.

41. An important area of the aid program's funding that is not yet transparent is program running costs. Since the introduction of the Outcomes and Outputs Framework in 1999–2000, AusAID has, based on its interpretation of government guidelines, increasingly funded staff and other administration costs using the administered appropriation, on the basis of their proximity to aid. AusAID's approach to classifying expenses is not in line with conventional practices, and the extent of use of aid funds in this manner is not transparent. It is, therefore, difficult for external stakeholders to hold AusAID to account on the costs that it controls. Clarifying the classification of AusAID's expenses would improve transparency and accountability of aid program expenditure, in a way that maintains the integrity of the budget system.

Summary of agency response

42. The proposed report was provided to AusAID and an extract was provided to the Department of Finance and Deregulation for formal comment. AusAID provided the following summary response, and the formal responses from both agencies are shown at Appendix 1 of the report.

43. AusAID welcomes ANAO's report: AusAID's Management of the Expanding Australian Aid Program and the contribution it makes to the ongoing reform processes currently underway in AusAID. In particular, ANAO's analysis of the complex set of issues around creating a larger, more effective and efficient aid program will help Australia achieve the international development goals set by Government.

44. By drawing significantly on AusAID's own internal reviews (such as the Annual Review of Development Effectiveness reports and Building on the 2010 Blueprint – A Reform Agenda for 2015) the report helps to identify work in progress within AusAID's reform process and provides a useful external perspective on how this should be addressed. Similarly, the findings are consistent with other external reviews of the aid program, such as the OECD's Development Assistance Committee Peer Review of Australia, that confirms the robustness of AusAID's monitoring and evaluation system and whole-of-government approach that facilitates policy coherence for development.

Footnotes

¹ Commonwealth of Australia 2009, Australia's International Development Assistance Program, A Good International Citizen, Statement by the Hon. Stephen Smith MP, Minister for Foreign Affairs and the Hon. Bob McMullan MP, Parliamentary Secretary for International Development Assistance, 12 May 2009, p. 1.

² Real growth, adjusted for inflation. In September 2005, the Australian Government announced a doubling in the aid program on 2004 levels to around $4 billion annually by 2010. [See Press Release, 13 September 2005, by Prime Minister John Howard, Increases in overseas aid.]

³ The MDGs set global development targets to be achieved by 2015 for poverty and hunger reduction, primary education, gender equality, maternal health and child mortality, combating disease, environmental sustainability, and global partnerships. The MDGs are drawn from actions and targets contained in the ‘Millennium Declaration,' which was adopted by 189 nations and signed by 147 heads of states and governments during the United Nations Millennium Summit in September 2000.

⁴ This approach is illustrated by Pacific Partnerships for Development, which were launched by the Prime Minister under the 2008 Port Moresby Declaration. The partnerships jointly commit Australia and Pacific nations to achieving and assessing progress against shared goals. [Media Release from the Prime Minister of Australia, 6 March 2008, Port Moresby Declaration.]

⁵ In the aid context, fragmentation refers to the situation when there are many small projects being delivered; proliferation refers to the provision of aid by a wide variety of donors in relatively small amounts.

⁶ AusAID 2006, Australian Aid: Promoting Growth and Prosperity: A White paper on the Australia Government's aid program.

⁷ Global programs include funding for humanitarian, emergency and refugee programs, funding for programs run by multilateral organisations such as the World Bank, Asian Development Bank, and United Nations agencies, and funding for non government organisations, volunteer and community programs.

⁸ ODE was established by the 2006 White Paper as an independent unit within AusAID responsible for monitoring the quality and evaluating the impact of Australian aid.