Red tape, inefficiency and nepotism mean that only one fifth of international aid actually gets to the people who need it, aid agencies said on Monday. Not only that, but 40 percent of international aid is spent buying overpriced goods and services from the donors' own countries, Action Aid and Oxfam said in a joint report calling for urgent reform of a politically compromised system. "First and foremost, they need to spend aid where it is needed -- on poverty reduction -- rather than channel it to their own consultancy and infrastructure industries and geopolitical allies," the report said. It accused the United States and Italy of being the worst culprits in so-called aid "round tripping," spending about 70 percent of their aid on their own companies. "This is the ultimate form of round tripping -- taking with one hand what is given with the other while advertising your 'generosity,'" it said, noting that the inefficiency involved inflated procurement costs by about $7 billion a year. The report "Millstone or Milestone" also accused the international institutions of imposing impossible conditions on recipient nations and of tying the whole process up in a bureaucratic quagmire.