As concerns are raised over development firm Adam Smith International, former minister warns that Tory critics who want budgets cut are ‘scenting blood’

The government has frozen future contracts with a firm entrusted with £268m of development cash after a scathing report from MPs on the company’s “inappropriate” conduct.

The report released on Sunday censures Adam Smith International (ASI) for acting with a “serious lack of judgement”, making up testimonials for its aid delivery, and pressuring people to give glowing responses by implying their funding could otherwise be cut.

The Department for International Development (DfID) reacted swiftly to the findings of the international development committee (IDC), with a spokesman saying it shared concerns about ASI’s “culture and behaviour”.

He added: “DfID has conducted its own forensic investigation into the allegations that ASI falsified submissions to the IDC and made use of improperly obtained DfID documents for commercial gain. Since these allegations came to light, we have frozen awards of new contracts to ASI and are taking detailed advice on next steps.”

ASI, which is paid to carry out development projects in Africa and Asia for the UK government, released a statement defending its activities as having been in “good faith”.

The Labour MP Stephen Twigg, who chairs the IDC, said there were concerns over how ASI operated, including the methods used to secure DfID contracts. Other profit-making contractors were also being looked at. “This is only one aspect of our ongoing scrutiny,” Twigg said. “We are supportive of UK aid, so we feel it’s especially important that we are holding to account how that aid is spent.”

The release of the report comes as DfID itself comes under pressure. On Thursday a bill to allow £6bn of DfID funding to be hived off to a private investment arm, the CDC Group, cleared the House of Lords. CDC’s investments in luxury hotels and malls, private schools and hospitals, and restaurant chains have been controversial; a 2016 National Audit Office report found it was a “significant challenge” for CDC to show it was making a lasting difference to the lives of people in the world’s poorest countries.

Other DfID money is being channelled into different government departments, particularly the Foreign Office, in what observers fear marks the dismantling of a department that is internationally renowned for its expertise and innovation.

The legal commitment to spend 0.7% of gross national income on aid – the UN’s target percentage – is unpopular with many Tory MPs. The prime minister has suggested it could be reviewed within this parliament. However, one government source insisted that “0.7 isn’t up for grabs. Nor is the department. But there is a clear need to make sure every penny of taxpayers’ money is fully accounted for when it goes abroad, otherwise the opponents of the UK aid budget will challenge it ever more loudly.”

The former DfID minister Ivan Lewis said rightwingers who wanted to see UK aid budgets scrapped were “scenting blood” on the issue. Writing for the Observer, Lewis said he feared “UK aid is facing an unprecedented attack from a combination of intense press criticism and rightwing Tory MPs emboldened by Brexit, who scent the blood of another of their pet hates.”

He continued: “DfID’s future as a standalone department and the commitment that the UK will spend 0.7% on development is now under serious threat. It is urgent that those who believe global leadership under successive Labour and Tory governments on aid is morally right, and in the national interest, must find their voice before it is too late.”

Charities are also worried at the attacks, fearing a knock-on effect on donors and public empathy. Saira O’Mallie of the anti-poverty group the One Campaign urged zero tolerance towards improper practice to keep public trust. “One bad organisation should not tarnish the vital work carried out by organisations to reduce poverty on behalf of DfID and taxpayers,” she said, adding that most aid organisations had “extremely high and transparent processes. The taxpayer deserves to have all aid money spent well and deployed with the highest ethical standards.”

O’Mallie said: “The onus is now on DfID to show such abuses will not be tolerated and, with assistance from a vigilante media, to police with extreme care the work of the private sector as it becomes a pivotal vehicle for UK aid delivery. That means open books, open contracts and more transparency.”

One academic and DfID consultant told the Observer: “There are some people doing too well out of DfID – they’re mostly white and British. But the work it does overseas is utterly world-class, worth its weight in gold in terms of international relations and Britain’s reputation abroad. DfID is an extraordinarily unsung British champion. The angst now is that an ideological clampdown will throw that baby out with the dirty bathwater.”