The billions of pounds spent on housing asylum seekers is ripe for the kind of “scam and scandal” that emerged in the contracts awarded during the Covid pandemic, the Observer has been told.

A crippling collapse of the systems and expertise monitoring the use of Britain’s aid budget over several years means that there has been a dangerous lack of oversight of the £4.3bn spent annually on asylum seekers in the UK, according to a damning assessment of Whitehall’s control over the spending.

Oversight of some spending has become so bad that the Foreign Office’s own internal auditors are said to have raised warning flags over the number of core systems that are now either not fit for purpose or that are being systematically ignored.

The alarm has been raised by Sir Mark Lowcock, the ex-UN official who was the most senior civil servant in the former Department for International Development (DfID).

In an interview with the Observer, he warned about a damaging combination of a decline of spending controls on aid since the DfID was folded into the Foreign, Commonwealth and Development Office (FCDO), together with a massive and rapid expansion of spending on refugees within the UK.

Lowcock said that he had concerns about spending both on housing asylum seekers and on wider aid projects. While government spending on asylum is audited, he said the issue required an urgent investigation.

“That budget has gone from £500m a year to about £4bn a year in a very short period,” he said.

“When I see things like that, my scam and scandal antennae start flashing red. Who is the Home Office giving all that money to? This is ­redolent, for me, of the kinds of things we saw during the disastrous, pretty obviously corrupt scams during Covid.

“Throwing money at [asylum costs] willy-nilly, with no proper process or control or understanding whether you’re getting value for money – that’s a really serious thing that the Treasury, the Cabinet Office and National Audit Office ought to be all over.

“Some people are making a killing from that massive increase to £4bn a year… That should all be subject to an urgent independent forensic audit. I think the results would not be pretty.”

Earlier this month, a study by Transparency International UK uncovered corruption “red flags” in government Covid contracts worth more than £15bn.

The amount of official development assistance spent on supporting refugees in the UK ballooned from £500m in 2019 to £4.3bn last year amid a backlog in asylum cases. The vast majority of the cash has been spent by the Home Office. The levels are thought to be similar this year.

Lowcock has worked with Ranil Dissanayake, a senior adviser to the DfID until its closure in 2020, to document the state of UK aid spending. Senior Whitehall staff still in post revealed to them that attempts to recruit people with the necessary technical skills were still failing in early 2024. They found management staff who lacked the skills needed to carry out their roles properly.

They also learned that only 60% of officials accountable for large-scale investments had received the necessary training.

“Basic processes, like the requirement to get an independent annual review done of every major programme to assess whether it is on track, are simply not being carried out,” they write in a new book to be published next month, The Rise and Fall of the Department for International Development.

They state that expertise on spending and monitoring aid has been dismantled periodically since 2020, when the DfID was placed inside the Foreign Office by Boris Johnson. “The result was, as intended, a comprehensive destruction of the structure, skills, accountability system and processes which had been fundamental to DfID’s ability to spend a large budget well to achieve the development outcomes ministers had decided to prioritise,” they write.

Their damning assessment comes with aid groups warning last week that UK aid spending will fall to its lowest level since 2007 unless the government takes urgent action in the budget. While the previous government provided an extra £2.5bn over two years for the UK aid budget, the additional funding ends in April.

Lowcock and Dissanayake calculate that for the 18 countries in which DfID had focused much of its anti-poverty effort, the volume of direct aid fell in real terms from £3.4bn in 2013-14 to £642m a decade later – a cut of more than 80%. However, they warn against injecting more money into a system that is unable to spend and monitor it properly. A review of the government’s approach to international development is already under way, ordered by the foreign secretary, David Lammy.

“The current machine is not capable of spending a lot more money well enough,” they write. “The first period of the new government’s tenure would be better spent remedying that – just as was done from 1997 to 2000, when DfID’s capabilities were strengthened to equip it to spend the budget that then grew rapidly.

“That does not mean there is nothing to be done on resources now. The funding system for the aid budget needs cleaning up by the Treasury… In addition, the government should return to the system that prevailed for 50 years up to 2010, where the bulk of the aid budget is managed by a single department, rather than being sprayed across Whitehall.”

A government spokesperson said: “The foreign secretary has launched three strategic reviews aimed at bolstering the UK’s global impact, enhancing the use of economic diplomacy to strengthen UK growth and modernising our approach to international development.

“The international development review will examine how we maximise the impact of [the FCDO]’s integrated development and diplomacy model and how we can improve development capability and assurance within the department.”