Money wasted: The share of Britain's foreign aid budget delivered by contractors tripled in two years

Caroline Pinder passionately believes in the power of aid to help the world’s poor. She has dedicated the past 25 years of her life to this cause, working on projects often supported by British taxpayers in two dozen countries from Albania to Zimbabwe.

But last month she quit – dismayed at how the Government has lost control of its bloated foreign aid budgets to the ‘poverty barons’: a small group of profit-hungry private consultancies who now dominate the aid industry.

‘This money is meant to be going on poverty reduction in the Third World,’ Pinder said. ‘It is not meant to be about all these people doing so well back here in Britain.’

Pinder told me she grew gradually more distraught at seeing foreign aid exploited by wealthy Western firms enriching themselves with ‘ineffectual’ schemes and ‘faddish’ projects that she says are often ‘off the scale of unreality’.

‘Our job was supposed to be about reducing poverty. But now you just see these people chasing bigger and bigger profits,’ she told me. ‘It is a long way from what development was ever meant to be.’

This dedicated woman is right to be alarmed by the rise of these Western foreign aid fat cats, some of whom are making millions for themselves in the quest to banish global deprivation.

I spoke to her as part of a Mail on Sunday investigation that exposes the shocking truth behind all those soft-soap promises of politicians and charity chiefs to change the world with our tax billions.

We can reveal that:

The share of Britain’s £12billion annual foreign aid budget delivered by contractors has almost tripled in two years to £1.4billion a year according to analysis of Government data – despite pledges to review this figure two years ago.

The biggest 11 firms – six of which are British – were handed almost half a billion pounds last year. This is more than double the sum they were given two years earlier.

Favoured contractors are seeing profits soar and margins rise as they boast of winning multi-million-pound deals from the Department for International Development (DfID). One saw profits almost double in a year – but avoided paying any corporation tax, while a second paid less than one per cent of profits in tax.

Six-figure pay packages are commonplace, with executives earning annual salaries of more than £250,000, massive dividends and substantial annual pay rises. Average salaries at some firms, including the most junior staff, are in excess of £50,000.

The most successful consultancy – largely funded by taxpayers – has almost doubled spending on administrative expenses in a year to more than £10million.

There are accusations that some firms claim from DfID for consultants costing almost £1,000 a day - then use office interns to do the work or pay outsiders significantly less than billed.

David Cameron was so concerned these allegations might appear in public that he summoned some whistleblowers to Downing Street, but failed to allay their concerns.

John Hilary, executive director of War On Want, said: ‘This is the worst possible abuse of the aid budget, which is being recycled to British businesses acting like parasites.

‘It calls into question the point of raising the budgets.’ It is hard to disagree.

I have just returned from investigating the appalling failures of British aid on the tiny Caribbean island of Montserrat. Now it is clear some people back home are becoming very rich off the back of Britain’s profligate pledges to help the world’s poor.

The rise of this ‘consultancy cartel’ is the inevitable consequence of inflating Britain’s aid budget after the Prime Minister’s controversial pledge – backed by opposition parties – to meet an absurd UN target to give away 0.7 per cent of national income.

This means that even as chancellor George Osborne seeks £13 billion spending cuts at home, the sums frittered away abroad on dubious aid projects must soar as the economy grows, to hit a target that is now legally binding. Britain spends £12 billion a year on foreign aid. It rose by more than £4.4 billion under the Coalition government, and the sum is more than any other European nation’s.

Yet staff numbers at DfID rose only slightly. So as they struggle to administer the cash cascade, half the sums are now diverted through multilateral organisations and consultancies with less accountability, higher administrative costs and fewer controls.

THE FAT CAT CONTRACTOR MAKING MILLIONS

DFID’S most successful contractor is Adam Smith International (ASI), which grew out of a free market think tank that, ironically, argues for smaller government and lower taxes. Its directors include Sir Malcolm Rifkind, the Tory MP who quit after cash-for-access claims.

In 2012, its turnover of £72 million was boosted by £43 million from DfID, and it doubled this two years later with projects ranging from tax reform in Afghanistan to market development in Nepal and Nigeria.

Some of the schemes, say insiders, are questionable, with vague outcomes. Yet the firm’s most recent annual report reveals turnover rose 25 per cent to £90.1 million a year later, while post-tax profits shot up 56 per cent to £10.6 million.

‘The group is optimistic about its future prospects,’ stated the report.

Such success has led to huge rewards for its directors, in stark contrast to the struggles faced by the millions of people they are paid to lift from poverty around the planet. Directors shared out £852,260 with the highest-paid director seeing his salary rise from £222,863 to £265,992. The company refuses to disclose his name, despite proclaiming ‘the highest standards of transparency and accountability’.

A spokeswoman denied it was managing director William Morrison. He has previously collected a seven-figure dividend from his 24.7 per cent stake in parent company Amphion, which the report revealed was sold to the firm’s holding company for £10.5 million.

Adam Smith International was singled out for criticism by the powerful Public Accounts Committee two years ago, with MPs warning such dividends were ‘excessive’ and ‘undermined public confidence’ that aid money was being well-spent.

Mr Morrison hit back saying the firm had completed important projects in some of the world’s most dangerous hotspots. ‘I have been shot at in helicopters and cars, mortared on open ground and I have worked from buildings struck repeatedly by rockets.’

The firm cannot be accused of neglecting its staff. It paid them an average salary of £64,400 despite group numbers rising from 77 to 99 as business grew. Its soaring administration costs rose by more than £4 million to £10.3 million.

Business was so good that Rifkind, who infamously complained about living on an MP’s salary, was given a £5,512.50 bonus on top of his £2,916.66 monthly director’s stipend.

An ASI spokeswoman said pay levels were based on market rates. She added: ‘British taxpayers can be assured that they are getting excellent value for money from our teams of specialists, who often risk their lives to achieve results in very difficult and dangerous conditions, helping make Britain more secure and lifting millions out of poverty.’

THE BARONS’ SOARING POVERTY AID PROFITS

OUR investigation shows that big rewards, such as those at ASI are far from unique in the poverty industry, thanks to DfID’s generosity.

One consultancy called Coffey International boasts of being ‘well-positioned to benefit from increased levels of spend by our main client’ in its annual report. The firm received £23.7 million from DfID last year – a substantial increase from the £9.5 million it was handed two years earlier.

Its report also bragged about increasing margins – and revealed a healthy rise in annual profits to almost £5 million.

Then there is the US-owned firm DAI Europe, handed £34.3 million by DfID last year, almost three times the amount given in 2012.

Seeking 'best value': International Development Secretary Justine Greening

This went on projects such as a £13 million attempt to improve police accountability in conflict- ridden Democratic Republic of Congo. Such schemes helped turnover rise £10 million to £27.4 million according to the firm’s latest accounts, and gross profits almost double to £3.3 million.

But despite doing so well from the generosity of British taxpayers, it did not pay a penny back in corporation tax in either 2012 or 2013. A spokesman said this was due to failure to make net profit. ‘DAI has paid all applicable taxes and is committed to good corporate citizenship wherever we work,’ he said.

Yet DAI Europe could afford to pay staff an average salary of £52,000 – and handed managing director Dr Julian Lob-Levyt £271,102, a rise of almost £23,000 on the previous year, based partly on incentive payments. ‘As stewards of taxpayer funds, often managing projects in some of the world’s most challenging environments, it is critically important that we attract and retain the very best employees,’ said the firm’s spokesman.

Lob-Levyt, a former senior DfID adviser who lives near Ed Miliband in North London, has since moved on. He was replaced by Christopher Lockett, who ran a firm called HTSPE whose expertise in climate change and governance was bought by DAI ‘to increase access to European donor organisations’.

HTSPE was owned by its 47 staff and made annual profits of more than £2 million – which means it would have sold for between £8 million and £12 million, according to a well-placed source.

If it sold for £10 million, payouts to staff would have averaged £213,000 – although senior figures probably received bigger shares of the pot.

GRM International is another contractor seeing turnover, profits and staff numbers soar.

The DfID sum awarded to GRM last year was £25.6 million.

It boasts in its annual report of winning three major new contracts from DfID worth millions and admits ‘99 per cent of turnover was attributable to DfID contracts’.

Yet the Australian-owned multinational paid just £32,690 in corporation tax – less than one per cent of its £3.8 million gross profits.

‘We comply with UK tax law and statutory filings and our financial results are independently audited,’ said a spokesman.

Managing director Kim Bredhauer, who has been with the firm for more than 30 years, is an aid adviser to the Australian government. He lives in the tax haven of Dubai.

Crown Agents – a state enterprise privatised in 1997 and now consulting in more than 100 countries – was given £208 million last year by DfID to run projects.

This was a big rise on the £30 million it received two years beforehand. Yet its latest annual report revealed falling turnover and substantial losses.

The firm’s £192,000-a-year chief executive Terence Jagger, a former Ministry of Defence official who lives in Chiswick, West London, stepped down last month.

Another outfit doing well is Oxford Policy Management. Just two years ago it employed 136 full-time staff, along with 83 casual consultants, but today its website talks of ‘more than 200 staff’ with nine offices in Africa, Asia and Europe.

Higher margins helped deliver profits of £7.8 million in 2013, enabling managing director Simon Hunt to be rewarded with a £185,585 pay and pension package, a hefty increase from the £159,850 taken home the previous year. Last year it was handed £26.7 million by DfID.

Mr Hunt pointed out that Oxford Policy Management had worked with DfID for 20 years and said: ‘Repeat business and the length of relationships are reasonable indicators of a client’s perception of value for money.’

Maxwell Stamp, an ‘international economics consultancy’ based in Britain, received almost £20 million from DfID last year, while Options – an offshoot of abortion provider Marie Stopes that provides ‘technical and management expertise in the health and social sectors’ – saw DfID income rise to £15 million.

THE SPEND, SPEND, SPEND CONSULTANTS

This is an industry that declares itself dedicated to helping the world’s poorest people.

But aid workers told me how, as budgets started to soar under Tony Blair, they saw controls loosen and contractors take over delivery of aid programmes.

‘There was a spend, spend, spend attitude that came from politicians at the top,’ said one former senior DfID official.

As budgets ballooned, these projects were bundled together into ‘frameworks’ such as governance, conflict-resolution and market-creation. These often had loose aims, huge budgets, were hard to quantify and were handed to consulting firms.

Insiders say the culture also changed with emphasis placed on spending over results.

‘Before we would close down projects that were not working but, because of the pressures from above, we began turning a blind eye to failures so long as the money was spent,’ said the ex-DfID source.

The legacy can be seen in places such as Nigeria, getting the biggest increase of any major recipient nation over the course of the coalition with £247 million handed over this year.

Among the firms involved on multi-million projects are ASI, GRM and DAI.

Exposed: Mail on Sunday man Ian Birrell’s report last week on aid corruption on Montserrat

Yet one consultant working there admitted many of the schemes were ineffective. ‘It would be better to drive through Nigeria shovelling money out the back of a lorry – and given the sums involved, you would need a shovel,’ he said.

Another consultant was surprised to see a £13.6 million project to boost construction in four states when the sector was clearly booming.

‘I would go into the office and see all the consultants sitting around drinking coffee after flying in from around the world,’ said this source.

‘They were doing workshops and research, but we all knew the problems. You were making recommendations to a corrupt government that would do nothing about it but was happy to have the money.’

This might be pointless but it can be highly lucrative: ASI has charged almost £2,500 for attendance at five-day training courses passing on its ‘governance’ expertise. I heard from consultants on daily rates of close to £950, while major City consultancies are reputed to claim even higher fees for experts.

Those involved include KPMG, which runs ‘accountability’ projects in Africa despite being accused of aiding tax avoidance by MPs.

‘MAKE £150,000 A YEAR WITHOUT SWEAT’

THE MPs also attacked accountancy giant PricewaterhouseCoopers (PwC) for promoting tax avoidance ‘on an industrial scale’ earlier this year, yet this has not stopped the firm from handling a surge in DfID spending from £33.7 million in 2012 to £42.9 million last year.

‘The majority of the figures represent the funds we disburse on behalf of DfID,’ said a spokesman. ‘They do not represent the level of fees paid to PwC.’

Little wonder one former DfID official told me he quit his £60,000-a-year civil service job and started earning £650-a-day as a consultant doing much the same work. ‘You can make £150,000 a year without much sweat,’ he said.

He added that he would pay people daily rates of £400 and ‘charge out’ £800 to funders. Such claims were supported by other former and current consultants, who said DfID knew about such mark-ups but were often oblivious to the scale of them.

‘You go into development to make a difference to the world but then find out so much money ends up back here,’ said a source.

Other aid workers told me of local staff billed to DfID as £205-a-day consultants but paid only £90, and of numerous conferences held in expensive hotels. One consultant claimed contractors win deals on the basis of using outside experts or workers at fixed rates, then reduce their workload and use lower-paid internal staff to boost profits. There was even a rumour that executives at one firm bet a case of champagne on whether DfID would pay out for a fabricated £25,000 invoice – which they did instantly.

Whether apocryphal or not, the story highlights widely held beliefs.

Whistleblowers sought to raise such concerns with DfID, the official watchdog, Ministers and MPs to improve the effectiveness of spending and evaluation of contracts. They contacted David Cameron, claiming he urged them not to go public and arranged a meeting at No 10 with Kate Joseph, his adviser on foreign affairs and development.

Joseph admitted the £180 million Growth And Employment In States programme in Nigeria ‘had been pretty bad’ but told them DfID believed it was now back on track.

One whistleblower said: ‘Whatever DfID does they can justify it because they use all these statistics that are impossible to verify. All that matters is their money is being spent.’

DfID introduced a code of conduct for consultants two years ago after it emerged they were taking almost half a billion pounds annually.

‘Suppliers need to show they are delivering the very best value for taxpayers money,’ said Justine Greening, the secretary of state.

She refused to publish an internal inquiry into their use, however, prompting accusations of hypocrisy given her department’s emphasis on transparency.

DfID insists all contracts are issued after a competitive bid process.

‘We provide care and support to people in some of the most hostile and poorest places in the world,’ said a source. ‘Often they are the only agencies able to deliver the results we need on the ground.’