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The merger of the Foreign and Commonwealth Office and the Department for International Development created “dysfunctional” IT and procedural systems that left it unable to recruit new staff or pay contractors for months on end, the aid watchdog has said.

In its just-published annual report for 2022-23, the Independent Commission for Aid Impact – which is an advisory non-departmental public body sponsored by the Foreign, Commonwealth and Development Office – said the FCDO’s creation had created “significant corporate challenges” for the organisation.

ICAI is tasked with scrutinising all UK official development assistance – or ODA for short, regardless of which government department provides the funding. In her foreword to the latest annual report, chief commissioner Dr Tamsyn Barton said crises such as the Covid-19 pandemic, the withdrawal from Afghanistan and the war in Ukraine had been “compounded” by machinery-of-government changes and major budget reductions.

Controversially, the government decided in 2021 to scrap the UK’s commitment to spend 0.7% of gross national income on ODA every year to offset the financial impact of the pandemic.

Barton said that over the past three years, ICAI had faced existential challenges through proposals for its abolition and had often needed to operate on a skeleton staff. She added that ICAI had also been left unable to pay temporary staff and contractors for weeks on end because its budgets had not been agreed well into the start of the financial year.

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“ICAI has been linked since 2020 to a much bigger department with many pressing priorities, and we have faced greater challenges in accessing information, carrying out our country visits, dealing with a continually changing cast of interlocutors, and having to use FCDO’s IT, finance and HR systems which have been dysfunctional for most of the time,” Barton said.

At times during the last financial year, half of ICAI’s posts were vacant, she said, adding that organisational difficulties rather than a lack of suitable candidates had been an obstacle to recruitment.

“In the cases where we finally succeeded in recruiting staff, some gave up waiting for the contracts to be issued, and as for the finance, we have had to wait until June for clarity on our budget in the same financial year, and were unable to pay temporary staff or our contractors for several weeks,” she said.

Barton said that last June, the FCDO had belatedly proposed an in-year budget of £2.8m for ICAI to deliver its programmes, which was “not the full allocation” required to deliver the work plan previously agreed with MPs on the International Development Committee.

However,  she said that delays to ICAI’s programme of work for the year – “arising mainly” from delays in FCDO recruiting to the watchdog’s vacant posts and the rescheduling of some review milestones – meant spending was contained to the reduced budget.

ICAI’s current commission has had its remit extended until September, when it is due to deliver a “synthesis review” titled UK aid in turbulent times.

Barton acknowledged that the FCDO’s creation of a development and humanitarian directorate and the appointment of a dedicated development minister, former secretary of state at DfID Andrew Mitchell, had led to “improvement” in FCDO’s reactions to ICAI’s work and “more appreciation of the value of independent scrutiny”.

An FCDO spokesperson said: “We are committed to ensuring ICAI has the resources needed to scrutinise across a range of development issues and considerable progress has been made to address issues, including those around recruitment and budgets.”