This report starts by exploring the experience of other countries and multilateral bodies in measuring fraud in aid. It also investigates the methods used amongst other public bodies. The report then moves on to the challenges of measuring fraud in bilateral aid agencies, using Fraud Loss Measurement Techniques (FLM), before considering some of the methodologies which were ruled out. The report ends with the preferred methodology followed by options for fraud loss measurement in bilateral agencies.

This report seeks to identify and select an appropriate methodology to measure fraud losses in the different modalities of aid. It explores the experience of other countries, donors and multilateral bodies in measuring fraud in overseas aid and discovers little evidence that bilateral donors, multilateral agencies or UK NGOs use Fraud Loss Measurement Techniques (FLM) to assess fraud levels in their overseas aid budgets.

Some governments and multilateral agencies find it useful to have large sampling exercises to collect measures of wider losses due to what they call ‘Improper Payments’ or some similar term. Reported figures vary widely from organisation to organisation and over time: e.g. the total estimated Improper Payments rate for USAID was reported as 0.85% in 2008 and 0.28% for 2009; but the estimated financial impact of irregularities on the budget of the European Anti Fraud Office OLAF rose from 1.13% in 2009 to 1.27% 2010.