The number of fraud cases probed by the Department for International Development (DFID) quadrupled in the past five years to 429 cases due to its efforts in increasing awareness and strengthening reporting requirements among staff and suppliers, the National Audit Office said in a report.
The government, which has stuck to a pledge to spend 0.7 percent of its gross domestic product on foreign aid, has come under increasing scrutiny over how it spends its aid budget, which some lawmakers say would be better spent at home.
DFID is committed to spending at least 50 percent of its Â£12 billion ($15 billion) aid budget on fragile or conflict-affected states, where the rule of law and governance are often weak.
This policy could make it more vulnerable to fraud, the report said.
"Fragile states are more likely to be vulnerable to fraudulent activity, so the ... commitment could increase the risk of fraud in DFIDs budget," the report said.
Britain concentrates its bilateral aid funding on 32 countries, 15 of which are ranked as the most corrupt in the world, according to the Corruptions Perceptions Index compiled by watchdog Transparency International every year.
In Transparencys 2016 index, war-torn Somalia was ranked as the most corrupt country in the world, with Afghanistan, Syria and the Democratic Republic of Congo also perceived as some of most corrupt globally.
However, other countries also ranked as highly corrupt such as Iraq, Zimbabwe and South Sudan have reported small numbers of serious fraud cases to DFID, the report said.
International Development Secretary Priti Patel said her department had put robust systems into place to detect fraud.
"In the last three years DFID has overhauled its approach to fraud, meaning our robust systems are better at preventing and detecting fraud, and better at getting taxpayers money back," Patel said in a comment emailed by her department.
The Â£3.2 million lost to fraud represented 0.03 percent of the departments expenditure in 2015/2016, less than in other public and private sector organisations, the report said.
Since 2003, DFID has recovered around two thirds of the reported fraud loss, the auditors noted.
The rise was mainly in the number of lower priority fraud cases, with the most serious cases remaining steady between 20 and 25 annually, the report said.
The report gave no details about the cases but said the most common type of fraud was theft of assets or information, followed by procurement fraud.