Summary
The World Bank lends billions of dollars each year to help countries overcome poverty and promote economic and social progress. The Bank, however, operates in an environment in which countries often lack openness and accountability and corruption sometimes flourishes. The Bank faces the challenge of both providing development assistance under such conditions while also exercising its fiduciary responsibility, including minimizing corruption in the projects it finances. To combat corruption, the Bank has undertaken an ambitious and systematic effort to identify and correct key weaknesses in its management controls. The Bank has made significant strides in meeting each of the five standards of an effective management control system, including (1) strengthening internal oversight mechanisms, project management, and public institutions in borrowing countries; (2) focusing more attention on assessing the risks associated with the corruption and the weak managerial capacity of its borrowers; (3) supervising its projects more closely to ensure that management directives are carried out; (4) monitoring and evaluating the implementation of the Banks' projects; and (5) better disseminating and communicating information on its anticorruption efforts, both within the Bank and in borrowing countries. However, challenges remain and additional action will be required before the Bank can provide reasonable assurances that project money is being spent according to the Bank's guidelines. Overcoming some of these challenge, particularly in building borrower managerial capacity for implementing the Banks' projects, will be onerous and will require a long-term effort because corruption and weak management are often endemic to the economic development environment in which the Bank operates.
GAO noted that: (1) in its efforts to address corruption concerns, the Bank has undertaken an ambitious and systematic effort to identify and correct key weaknesses in its system of management controls; (2) the Bank has made significant progress in meeting each of the five standards of an effective management control system; (3) however, challenges remain and further action will be required before the Bank can provide reasonable assurance that project funds are spent according to the Bank's guidelines; (4) GAO focused on Bank efforts to improve internal oversight mechanisms, project management, and public institutions in borrowing countries; (5) the Bank has added new oversight committees and staff to better monitor Bank operations and borrower procurement and financial management practices; (6) however, many of the public agencies in borrowing countries charged with implementing Bank-financed projects are managerially weak and lack skilled and experienced staff; (7) the Bank has focused more attention on better assessing the risks associated with corruption and weak managerial capacity of its borrowers; (8) however, the risks identified are not always raised to the attention of senior decisionmakers and fully addressed in risk mitigation plans; (9) the Bank has strengthened controls by devoting more attention and resources to supervising its projects more closely; (10) this has included hiring or training local Bank staff or contracting with consultants to review borrower procurement actions more closely; (11) however, the Bank and some borrowers do not always comply with Bank procedures on project auditing and Bank supervision of borrowers' procurement and financial management practices; (12) the Bank has introduced some new tools for monitoring and evaluating the implementation of Bank projects; (13) however, these tools do not provide enough information for Bank management to measure the extent to which some key management control problems are being resolved; (14) the Bank has significantly improved its dissemination and communication of information on its anticorruption efforts, both within the Bank and in borrowing countries; and (15) however, some borrower governments and nongovernmental organizations are still not aware of the Bank's hotline and other mechanisms for reporting fraud and corruption.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
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Team:
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Recommendations for Executive Action
Recommendation: To help ensure that the World Bank achieves its goal of obtaining reasonable assurance that project funds are spent as intended and that corruption risks are mitigated in Bank-financed projects, the Secretary of the Treasury should instruct the U.S. Executive Director of the World Bank to work with other Executive Board members to encourage the Bank to integrate investigative functions into a single unit and establish organizational independence of the unit to better address allegations of wrongdoing.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: In response to the GAO recommendation, the World Bank is combining the Bank's investigative unit and the ethics office into the new "Department of Institutional Integrity." Management of the new unit, currently being recruited internationally, has been elevated to that of a director level, and will answer directly to the Office of the President.
Recommendation: To help ensure that the World Bank achieves its goal of obtaining reasonable assurance that project funds are spent as intended and that corruption risks are mitigated in Bank-financed projects, the Secretary of the Treasury should instruct the U.S. Executive Director of the World Bank to work with other Executive Board members to encourage the Bank to include more complete information in project appraisal documents and country assistance strategies on the risks related to corruption and any procurement and financial management weaknesses of borrowers, as well as planned supervisory actions to mitigate the identified risks.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: On October 8, 2002, Treasury reported that significant progress has been made in making the reporting of risks more explicit in the Bank's country assistance strategies (CAS) and in related project documents. Revised staff guidance stipulates that CASs should include a "thorough discussion of country risks (economic-financial, including domestic and external, political, social and environmental) and operational risks to the Bank (financial/creditworthiness as well as reputational)". All CASs are now required to include a detailed diagnosis of governance conditions in general, and corruption risks faced by Bank-supported projects in particular. On a country level, the Bank aims to carry out a Country Procurement Assessment Review and a Country Financial Accountability Report (collectively referred to as a "fiduciary assessment") for its client countries. The Bank aims to have the fiduciary assessment become one of the key diagnostic analyses that underpins the Bank's assistance to both middle- and low-income countries. All major client countries are expected to be covered by July 2003. The procurement and financial management issues identified during these reviews will help identify (1) the priorities for policy action and capacity building and possibilities for Bank support, and (2) the risk posed for Bank funds and suggested options to mitigate these risks. On a project level, as part of project preparation the Bank assesses the capacity of the executing agency to implement procurement, and assesses the risk involved. A plan of action is developed as part of the project design to address any weaknesses.
Recommendation: To help ensure that the World Bank achieves its goal of obtaining reasonable assurance that project funds are spent as intended and that corruption risks are mitigated in Bank-financed projects, the Secretary of the Treasury should instruct the U.S. Executive Director of the World Bank to work with other Executive Board members to encourage the Bank to target procurement and financial management assessments at countries where corruption risks are greatest.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: The World Bank is taking steps to better allocate its anticorruption assistance on the basis of risk. For example, the Bank has introduced a requirement that every country assistance strategy (a key lending document) explicitly discuss pertinent governance issues, including corruption issues, within borrowing countries. The Bank is also undertaking a review of its fiduciary controls for project and adjustment lending and aims to give priority to large and risky borrowers in the schedule for conducting procurement and financial management assessments. In fiscal years 2000 and 2001, assessments were conducted in countries such as Bangladesh, Brazil, Colombia, India, Indonesia, Mexico, Nigeria, Pakistan, Russia, and Uganda.
Recommendation: To help ensure that the World Bank achieves its goal of obtaining reasonable assurance that project funds are spent as intended and that corruption risks are mitigated in Bank-financed projects, the Secretary of the Treasury should instruct the U.S. Executive Director of the World Bank to work with other Executive Board members to encourage the Bank to monitor and report on progress in strengthening management controls and correcting past project management control weaknesses, including results of efforts to strengthen project auditing and supervision.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: The Bank is refocusing the Internal Auditing Department's work more on operational compliance issues, with emphasis on compliance with procurement and financial management policies and procedures. The Bank is also taking steps to strengthen the Financial Management Board by dedicating a cadre of full-time staff to help implement the following goals: (1) establishing higher quality financial management assessments, disbursement, and loan accounting services to country teams and borrowers; (2) establishing quality financial management in all Bank projects; and (3) strengthening the professionalism of the Bank's financial management staff. The Bank is also working with borrowers to improve the quality of project audits. This is likely to be a long-term effort. On procurement, the Bank is developing a procurement compliance system to better monitor the Bank's compliance with key internal control requirements, such as spot checks of procurements over certain dollar thresholds.
Recommendation: To help ensure that the World Bank achieves its goal of obtaining reasonable assurance that project funds are spent as intended and that corruption risks are mitigated in Bank-financed projects, the Secretary of the Treasury should instruct the U.S. Executive Director of the World Bank to work with other Executive Board members to encourage the Bank to develop a plan to raise awareness of the Bank's anticorruption program among project implementing agencies and beneficiaries.
Agency Affected: Department of the Treasury
Status: Implemented
Comments: In response to the recommendation, the Bank established a more focused and cohesive communications strategy on its anticorruption efforts. As part of this strategy, the Bank now issues regular public progress reports on its anticorruption activities. The first report was issued in June 2000, and is titled Helping Countries Combat Corruption--Progress at the World Bank Since 1997. The report is an anthology of the progress made by the Bank since 1997. The Bank expects that this will become a regular public disclosure exercise.
Recommendation: To ensure that the Bank's anticorruption initiatives have the desired impact, the Secretary of the Treasury should monitor Bank progress in meeting each of the five components of an effective management control system and annually report to Congress evidence of progress.
Agency Affected: Department of the Treasury
Status: Not Implemented
Comments: Treasury has not implemented this recommendation.
