Howard Horsley is an idealist, committed to overseas aid. Over the years he has worked as a volunteer, a paid teacher and a VSO field officer in Africa. Then, in 1999, at the age of 54 and with a successful career as a headteacher in England behind him, he applied for a job with the Department for International Development (DfID). "I was thrilled by the expansion of the overseas aid programme under the newly elected Labour government and keen to make my expertise available," he recalls.

In May that year he took up a post managing the education field office (EFO) in Ghana, administering a British aid programme worth £50m over five years. He liked Accra, the capital, and made plans for his wife to join him, but within a few weeks he began to notice things at work that he didn't like. As months passed, he grew more and more concerned about what he describes as "lax financial controls, unchecked powers of patronage and the potential for mismanagement and corruption". He reported these concerns to DfID in London in e-mails, memos and telephone conversations. Yet, instead of seeing them investigated, Horsley was summarily sacked and denied a reference.

It was a personal calamity. For the past five years, this former head of a tough Grimsby comprehensive, who has a glowing Ofsted report on his record, has been unable to find work. With the vigorous support of the MP Austin Mitchell, who describes his treatment as "monstrous", Horsley has fought to have his case reviewed and his complaints investigated. Now he has decided to tell his story.

It is a story that raises important questions about DfID's control over aid spending - at a time when the G8 summit has just agreed to double aid to Africa by 2010, and when our government is assuring us that our aid money is not seeping away through corruption and poor management. And, while the government insists it has done nothing wrong, uncertainty remains about its past procedures and about the fate of no less than £18m in aid. More worrying still, it is now clear that Horsley was not the first British aid official in Accra to raise doubts about financial control.

At the time he went to Accra, Britain's policy for distributing aid had shifted from big projects to local programmes administered through the Ghana Education Service, with staff at the British education field office working alongside officials in the Ghanaian education ministry. Horsley soon heard complaints from other aid agencies, and from the Ghanaian minister and his officials, about the way money was spent and contracts awarded without adequate accounting or monitoring by DfID. Incidents included a request to authorise spending of £32,000 on office furniture, when the furniture had already been bought; the failure of DfID to provide the Ghanaian education minister with a full statement of how education aid was being spent, and the potential use of aid as, in Horsley's words, "a means of dispensing personal favours".

The most mysterious incident came after Horsley was told by the Ghanaian deputy education minister in August 1999 that Clare Short, the then secretary of state for international development, had pledged an extra £18m in aid. When none of this money turned up, Horsley made inquiries with the Ghanaian accountant general - who, he says, confirmed in September 1999 that it had been received by the government.

The money, however, did not find its way into the usual education aid channels, so Horsley, alarmed about the fate of such a sum and about the other problems he had found, wrote to London requesting a formal, independent investigation of the conduct of DfID affairs in Ghana.

Soon afterwards, on a working trip to northern Ghana, he caught typhoid and returned to Britain to recuperate. On his recovery he was called to a meeting at DfID headquarters on 6 January 2000. He thought this was to discuss the investigation he had requested and also to complete his midterm performance review, but he arrived to find that it was a disciplinary hearing. It didn't last long. Blamed for a breakdown in communication and a lack of coherence in the presentation of policy, he was sacked with immediate effect.

Horsley strenuously denied the charges and received strong support from international colleagues, but, when he returned to Ghana to assemble evidence for his appeal, he found that his filing cabinets had been emptied and his computer files professionally wiped. DfID then withdrew his formal right of appeal and threatened him with the Official Secrets Act if he spoke out.

Claiming protection as a whistle-blower under the Public Interest Disclosure Act, Horsley sought to have his dismissal investigated first by DfID itself and then at an employment tribunal. The tribunal said it had no jurisdiction because he had not been employed for long enough and had not lodged his Public Interest Disclosure Act claim soon enough. The civil service commissioners brushed him off, too, saying they could not investigate as DfID claimed he was employed on contract, not as a civil servant.

The case has outraged Austin Mitchell, who raised it in the House of Commons and has written to Hilary Benn, the current Secretary of State of International Development, asking for an independent inquiry. Mitchell told the New Statesman: "As a result of his attempt to blow the whistle on financial inadequacies and possible maladministration, this man has been out of a job for nearly six years and that's a monstrous way for DfID to behave. They made Howard a sacrificial victim. He was an embarrassment in raising these concerns. The proper procedure should have been to investigate complaints and tighten up procedures. They didn't do that."

One body that has investigated DfID aid to Ghana is the National Audit Office (NAO), which reported in a letter to Mitchell: "At no point . . . has any evidence emerged to suggest that financial impropriety or mismanagement occurred within DfID." But the letter added that "investigations revealed areas where the department might usefully tighten up its procedures and controls, which they are doing".

As for the mysterious £18m, the audit office initially said that DfID claimed no such amount had been paid to Ghana in 1999. Then, in May 2003, the NAO admitted that £18m had been paid, in 2000, as "budgetary support". It explained: "It follows that for payments of budgetary support it is not possible directly to answer the questions 'What was it for?' or 'How was it spent?', except to say that it added to the resources available to the government of Ghana." This is a remarkable admission: put bluntly, it means that neither DfID nor the NAO could say what became of £18m of British taxpayers' money.

Since that investigation, the NAO has tightened up accounting procedures for aid spending in general and for "budgetary support" in particular. Howard Horsley is entitled to some credit for this, though he has had no thanks for his efforts.

DfID maintains that any weaknesses in its financial procedures have been addressed and that Horsley's dismissal was "wholly related to his performance, which did not meet the requirements of the job". It says: "All parties across Whitehall have been satisfied that DfID acted correctly in relation to Mr Horsley's dismissal and found no evidence of financial impropriety."

Horsley authorised DfID to release documents to the New Statesman to clarify the grounds for dismissal. He says they prove that DfID never carried out the investigation he requested weeks before his dismissal and also that it ignored its own disciplinary procedures in sacking him.

But the story does not end there, for, in the course of his campaign, Horsley discovered he was not alone in raising concerns about aid to Ghana. His predecessor there had raised similar doubts about an "absence of checks and balances". Howard Tyers, who now works at Westminster University, has confirmed to the New Statesman that in his time at the Accra EFO he made "a number of complaints" about payments for an expensive office and also for Land Cruisers of an unnecessarily high specification, purchased without the usual tendering process.

Worryingly, after these complaints Tyers's tenure in Ghana also ended strangely. His contract ended in March 1999, but he asked for a three-month extension because he had to remain resident in Ghana, as his daughter was completing her A-levels. This request was rejected in London, and it was only after an appeal by the Ghanaian education ministry that he was allowed to stay. However, he was sidelined to a research project and denied access to the EFO. And, like Horsley, he found his computer files wiped.

The experiences of Horsley and his predecessor raise questions that should worry anyone who cares about aid. Does DfID respond properly to concerns about financial management? Does it ensure that new aid is spent wisely, with transparency and adequate financial controls? DfID says yes, but unless whistle-blowers are encouraged and protected, how can we be sure?

How does Horsley feel? "Angry that DfID has still held no one accountable for what was going on in Ghana; that no one has been held accountable for my entirely unjustified dismissal; that there has been no hearing, anywhere, on the merits of my case. And appalled that DfID can demand good governance in other countries and still fail to meet the most basic standards of good governance in its own internal practices." He is angry, too, at the waste of years of his career. Despite the emotional and financial costs, he remains determined not to let the matter drop.

Transparency International, which campaigns against corruption in aid and trade, would not comment on the case, but its executive director, Chandrashekhar Krishnan, was clear about one thing: "Any development organisation should have a policy of encouraging whistle-blowers and of ensuring that, if someone has suspicions to report, there is a mechanism to allow that person to express those concerns in a way which will not attract recriminations." The Horsley case does not seem to match that standard and it will deter, not encourage, future whistle-blowers.