World Bank: Management Controls Stronger, but Challenges in Fighting
Corruption Remain (Letter Report, 04/06/2000, GAO/NSIAD-00-73).
Pursuant to a legislative requirement, GAO provided information on the
World Bank's management controls.
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.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-00-73
TITLE: World Bank: Management Controls Stronger, but Challenges
in Fighting Corruption Remain
DATE: 04/06/2000
SUBJECT: Bank management
Foreign loans
Foreign technical aid
Political corruption
Financial management
Internal controls
Risk management
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Testimony. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO/NSIAD-00-73
Appendix I: Chronology of Major World Bank Efforts to Strengthen Management
Control System
36
Appendix II: Implementation Status of the World Bank's
Anticorruption Action Plan
37
Appendix III: The Committee of Sponsoring Organizations of the
Treadway Commission's Management Control Framework
40
Appendix IV: World Bank Management Control Structure
43
Appendix V: Management Controls in the World Bank's Project
Lending
44
Appendix VI: Objectives, Scope, and Methodology
47
Appendix VII: Comments From the Department of the Treasury
49
Appendix VIII: Comments From the World Bank
52
Appendix IX: GAO Contacts and Staff Acknowledgments
57
Table 1: The Status of the Action Plan, as of December 1999 37
Figure 1: Anticorruption Risk Assessments Among the World Bank's
10 Largest Borrowers 23
Figure 2: Milestones in the World Bank's Efforts to Strengthen its
Management Control System, 1995-2000 36
COSO Committee of Sponsoring Organizations of the Treadway Commission
National Security and
International Affairs Division
B-282152
April 6, 2000
The Honorable Mitch McConnell
Chairman
The Honorable Patrick Leahy
Ranking Minority Member
Subcommittee on Foreign Operations
Committee on Appropriations
United States Senate
The Honorable Sonny Callahan
Chairman
The Honorable Nancy Pelosi
Ranking Minority Member
Subcommittee on Foreign Operations, Export Financing
and Related Programs
Committee on Appropriations
House of Representatives
The World Bank1 lends billions of dollars each year to help countries
alleviate poverty and promote economic and social progress. The Bank
provides loans that support specific projects as well as loans that support
broader economic and social reform. In addition to making loans, the Bank
provides advice and technical assistance to borrowing countries. The World
Bank currently manages a portfolio of approximately 1,500 projects valued at
about $121 billion.2
The Bank operates in a difficult and challenging environment in countries
where transparency (openness) and accountability are often lacking, and
corruption--broadly defined as the abuse of public office for private
gain--sometimes flourishes. The Bank must satisfy its dual mandate of
providing development assistance in these environments and exercising its
fiduciary responsibility, including ensuring that corruption is minimized in
the projects it finances.
In 1996, the President of the Bank elevated the discussion of corruption by
identifying it as a significant deterrent to development and made a pledge
to address it more directly with its borrowers. Following the President's
announcement, the World Bank adopted an anticorruption strategy in 1997 and
introduced an anticorruption action plan in January 1999.3 (See app. I for a
chronology of Bank anticorruption efforts and app. II for a detailed
description of this plan.)
One of the Bank's major goals was to create an operating system that would
help ensure that funds are used as intended and spent in accordance with
good management practices. The Bank's anticorruption strategy is aimed at
improving its systems of management controls, particularly in the areas of
procurement and financial management, and ensuring that it is consistent
with the standards of effective management control. These standards were
defined by the Committee of Sponsoring Organizations of the Treadway
Commission and were adopted by the Bank in 1995.4
The Congress has directed GAO to review the Bank's progress in strengthening
measures to prevent corruption.5 In conducting our work, our objective was
to determine whether the outcomes from the Bank's management initiatives
would collectively provide reasonable assurances that project funds are
spent as intended. To do this, we focused on examining the progress the Bank
has made in meeting the five standards for effective management control.
These standards deal with
(1) organizational structures, managerial capacity, and systems necessary to
establish a sound management control environment; (2) risk assessment; (3)
policies and procedures for ensuring that management directives are carried
out; (4) monitoring progress in achieving desired outcomes; and
(5) dissemination and communication of information.
We did not make a complete assessment of the Bank's management control
system but focused on Bank efforts to improve controls that the Bank had
identified as weak. We limited our scope to reviewing Bank controls over
project lending, which cover about one-half of the Bank's operations. To
gain a first-hand view of how these controls are implemented in the field,
we also visited four countries that are large Bank borrowers. As agreed with
the Bank, we did not name these countries in this report or identify the
Bank-financed projects we reviewed.6 Appendix VI contains a more detailed
description of our scope and methodology.
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. The Bank has made significant progress in
meeting each of the five standards of an effective management control
system. 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. Surmounting some of these
challenges--particularly in building borrower managerial capacity for
implementing Bank projects--will be onerous and will require a long-term
effort because problems of corruption and weak management are often endemic
to the economic development environment in which the Bank operates.
Summarized below is the status of the Bank efforts in meeting each of the
five standards of an effective management control system.
� Organizational structure, managerial capacity, and systems. We focused on
Bank efforts to improve internal oversight mechanisms, project management,
and public institutions in borrowing countries. The Bank has added new
oversight committees and staff to better monitor Bank operations and
borrower procurement and financial management practices. For example, the
Bank has established a new fraud and corruption hotline and hired about 90
new procurement and financial management specialists. However, many of the
public agencies in borrowing countries charged with implementing
Bank-financed projects are managerially weak and lack skilled and
experienced staff. A series of recent Bank studies show that borrowers often
have difficulty complying with Bank procurement rules. Significant
institutional capacity building will be necessary to ensure that borrowers
can carry out their management control responsibilities effectively.
� Risk assessment. The Bank has focused more attention on better assessing
the risks associated with corruption and weak managerial capacity of its
borrowers. However, the risks identified are not always raised to the
attention of senior decisionmakers and fully addressed in risk mitigation
plans. Moreover, the Bank does not have a system for allocating its
anticorruption assistance among borrower countries based on risk.
� Policies and procedures for ensuring management directives are carried
out. The Bank has strengthened controls by devoting more attention and
resources to supervising its projects more closely. This has included, for
example, hiring or training local Bank staff or contracting with consultants
to review borrower procurement actions more closely. 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.
� Monitoring. The Bank has introduced some new tools for monitoring and
evaluating the implementation of Bank projects. 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. For example,
Bank studies on the quality of Bank supervision do not fully address key
performance problems reported by external and internal auditors.
� Information and communication. The Bank has significantly improved its
dissemination and communication of information on its anticorruption
efforts, both within the Bank and in borrowing countries. However, some
borrower governments and nongovernmental organizations are still not aware
of the Bank's hotline and other mechanisms for reporting fraud and
corruption.
The Bank is aware of many of these challenges and continues to take actions
to address them but does not publicly report progress in implementing these
management control improvements. This report contains recommendations to
improve the Bank's internal oversight mechanisms and risk assessment
process, and to assure that the Bank monitors and reports on progress in
correcting weaknesses in project management. We also recommend that the
Department of the Treasury annually report to the Congress on the results of
efforts to strengthen the Bank's management control system.
In commenting on this report, the Bank noted that it holds itself to a high
control standard and that it had already identified many of the weaknesses
we cited through its own self-evaluations and has remedial actions underway.
Treasury and the Bank agreed with our findings and recommendations and said
that a more aggressive approach is needed in strengthening the Bank's
management control systems over project lending and building borrowers'
institutional capacity to fight corruption.
Concerns about corruption have intensified in recent years as there is a
growing realization among international financial donors, including the
World Bank, that corruption may undermine development by deterring
investment and growth and exacerbating poverty. Although no Bank-wide
estimates of the magnitude of this problem have been developed, levels of
corruption vary from country to country. World Bank staff estimated that in
one large borrowing country, about 20 to 30 percent of all development
funds, totaling several billion dollars each year, had been systematically
diverted.
The Bank requires borrowers to establish and maintain effective management
controls over project funds and to implement projects. For example,
borrowing agencies are required to produce a variety of financial and
progress reports and to arrange for regular, independent project audits. For
its part, the Bank exercises oversight of project implementation through a
variety of control activities, including review of financial statements and
audit reports, prior review of many procurement actions, and review of the
eligibility of many project expenditures.
The Bank and borrowers use the following process to develop and implement
projects. (App. V describes the Bank's management control activities in more
detail.)
� Project identification and preparation. Project development begins when
Bank staff and borrowers identify a project idea. During the subsequent
preparation phase, borrowers bear the primary responsibility for examining
all aspects of the proposed project and for preparing a project plan for
Bank consideration.
� Project appraisal and negotiation. After preparation is complete, Bank
staff appraise sponsor proposals (including the arrangements for procurement
and financial management). Bank staff negotiate with project sponsors the
terms and conditions under which the Bank will commit funds to the project
and, finally, prepare a project appraisal document. This document is
supposed to contain all of the information the Bank management and the
Executive Board need to decide whether or not Bank financing should be
provided.
� Board approval. The Bank's Executive Board decides whether to approve each
proposed project and, in doing so, exercises oversight over the
implementation of Bank policies and procedures--including those that govern
procurement and financial management.
� Project implementation. The responsibility for project implementation
rests with the borrowers, who must conform to Bank policies and procedures
and other conditions outlined in the loan agreement. The Bank monitors and
supervises project implementation, including project procurement and
financial management, on a continuing basis until project completion and
disburses funds contingent upon the borrower providing required
documentation. Projects are subject to an annual independent audit arranged
by the borrowers. These audits are to include an assessment of the adequacy
of the accounting and internal control systems.
The 181 member countries of the World Bank govern it through an Executive
Board--the Bank's primary oversight and decision-making body. Twenty-four
Executive Directors from Bank member countries comprise the Executive Board.
This Board considers and decides on overall policy issues that guide the
Bank's general operations and approves specific project proposals presented
by the President of the Bank. The United States is the largest contributing
member to the World Bank and thus holds the greatest number of voting shares
(16.5 percent) on the Bank's Executive Board (voting shares are allocated on
the basis of member contributions). Other members holding the largest number
of voting shares are Japan (7.9 percent), Germany (4.5 percent), France, and
the United Kingdom (4.3 percent each).7 The Secretary of the Treasury, who
represents the United States as a governor of the World Bank, has the lead
role within the executive branch regarding U.S. policy toward the Bank.
In line with the best practices of major financial institutions in the
United States, the Bank in 1995 adopted the management control standards of
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
This control framework, known as the "Internal Control − Integrated
Framework," establishes a common definition of management controls for all
Bank units and provides a standard to assess improvements in these controls.
We refer to the components of this framework as the "COSO standards" in this
report. (See app. III for a more complete discussion of these standards).
The Treadway Commission identified the following five standards that
constitute the criteria against which a management control system is to be
evaluated. All five standards must be met for controls to be judged
effective in any particular area of an organization's operations, thus
providing reasonable assurance that funds are spent as intended.8
1. Control environment − An organization should establish a positive
control environment, that is, one with a structure, discipline, and climate
conducive to sound management controls. Factors that significantly affect
the control environment include the integrity and ethical values of
management and staff, the competence of personnel, the way the agency is
organized, the manner in which management assigns authority and
responsibility, and the attention and direction provided by oversight
groups.
2. Risk assessment − An organization should properly identify,
analyze, and manage the possible risks involved in meeting organizational
objectives.
3. Control activities − An organization should establish control
activities consisting of policies, procedures, techniques, and mechanisms
that ensure that management directives are being carried out to meet
organization objectives. They include approvals, authorizations,
verifications, and reviews of operating performance.
4. Monitoring − An organization should continually monitor and
evaluate all aspects of internal control to assess the quality of
performance over time. Serious management control deficiencies should be
reported to higher levels, including top management and the Board of
Directors.
5. Information and communication − An organization should identify,
capture, and communicate information in a form and time frame that enable
people to carry out their responsibilities.
In 1999, Bank management used these standards in assessing the effectiveness
of internal controls over financial reporting but has not used these
standards to determine the adequacy of management controls over the Bank's
project lending operations. The Bank concluded that management controls over
financial reporting at the International Bank for Reconstruction and
Development and the International Development Association funds met COSO
standards. The Bank's external auditor concurred with this statement.9
Borrowers
According to COSO standards, establishing an effective management control
environment requires well-managed and properly structured organizations with
qualified personnel in place to implement proper management controls and
address corruption. We assessed the control environment in terms of the
Bank's internal oversight mechanisms, project management, and Bank efforts
to improve public institutions in borrowing member countries.
While the Bank has made significant progress in strengthening its control
environment by creating new oversight structures and increasing staff with
expertise in financial management and procurement, many borrowers still have
weak structures and limited managerial capacity, according to Bank records
and officials. Consequently, the Bank has increasingly targeted its
anticorruption efforts on building borrowers' institutional capacity to
fight corruption.
Further Improvements
Internal oversight is key for preventing, detecting, and addressing
corruption. Although the Bank has long had an internal audit function and a
system of management controls, the Bank recognized that its internal
oversight mechanisms were weak, according to several officials we spoke to.
These officials indicated that the Bank lacked a central focal point for
reporting and reviewing allegations of wrongdoing and sufficient expertise
to investigate allegations of wrongdoing. In addition, while the Bank
expected its staff to exhibit strong ethical behavior, the Bank did not have
a strong ethics awareness program. The Bank's external auditor reported in
1998 that the Bank's internal audit department--a key management oversight
unit--had a fairly restricted scope of audit coverage and played a limited
role within the Bank. For example, about 78 percent of the 206 internal
audit reports conducted from fiscal years 1995 through 1997 were focused on
administrative compliance issues, such as country mission office procedures,
rather than on determining whether project funds were being used as
intended.
While the Bank has made progress in strengthening internal oversight units,
it still faces challenges in ensuring that all fraud and corruption
allegations are centrally reported and effectively addressed.
Progress
In 1998, the Bank established a 24-hour worldwide fraud and corruption
hotline, created a new Oversight Committee on Fraud and Corruption for
reviewing and monitoring allegations, formed an Investigations Unit
comprised of professional fraud investigators, hired new investigative
staff, and established a high-level Sanctions Committee to review results of
investigations and to make recommendations to the World Bank President on
whether certain contractors or individuals should be declared ineligible for
Bank-financed contracts. In addition, the Bank strengthened its ethics
outreach program and increased staff expertise to investigate allegations of
employee misconduct. As of March 2000, the hotline had received 156 calls
since its inception in October 1998. Ninety allegations resulting from these
calls were referred for investigation to the Oversight Committee on Fraud
and Corruption.10 Of the 90 allegations, 47 were investigated and found to
have been either unsubstantiated or did not involve Bank funds. Two other
allegations have been fully investigated and closed while 41 are still being
investigated.
In addition, the Bank's internal auditor had increased the proportion of
operational audits targeting management controls, procurement, and financial
management issues (in relation to administrative compliance audits) in
fiscal years 1998-99 to 28 percent versus 22 percent in fiscal
years 1995-97. The internal audit department's annual workplan calls for
about the same level of coverage of operational audits in fiscal year 2000.
Challenges
The Bank's initiatives to detect, prevent, and investigate fraud and
corruption are positive steps; however, the Bank recognizes that further
steps are needed to build on the progress made to date.
� First, not all fraud and corruption allegations have been centrally
reported to the Oversight Committee on Fraud and Corruption. During our June
1999 visit to one country where the Bank identified corruption to be a
serious issue, we found that over 30 allegations of wrongdoing that were
reported locally to Bank officials had not been reported to the committee.
However, according to Bank officials, the country mission was dealing with
these allegations locally and forwarded them to the Oversight Committee on
Fraud and Corruption after our visit and followed up appropriately. In
November 1999, the Bank issued additional guidelines to help ensure that all
field office allegations are reported centrally; however, more time will be
needed to assess whether this new guidance is being fully implemented.
� Second, the new oversight units responsible for reviewing, monitoring, and
investigating allegations--the Oversight Committee on Fraud and Corruption
and the Investigations Unit--are not organizationally independent of the
Bank's line management (see app. IV). The Oversight Committee on Fraud and
Corruption reports directly to one of the Bank's managing directors. The
Investigations Unit also reports to the Oversight Committee on Fraud and
Corruption's secretariat. The independence of the investigative function
could be affected by the fact that a managing director controls the budget
of the Oversight Committee on Fraud and Corruption and Investigations Unit
and also makes the final decision on whether an investigation is pursued,
including those that may involve employees that report to this director. A
January 2000 study by a Bank consultant confirmed our observation noting
that the Investigation Unit did not have the necessary stature or
independence. This study recommended that this unit report directly to the
Bank President and be given the authority to independently investigative all
matters involving fraudulent and corrupt practices.
� In addition, one member of the Oversight Committee on Fraud and Corruption
also serves on the Sanctions Committee. Thus, a person who helps decide what
investigations should be undertaken also decides what sanctions should be
imposed if improprieties are found. Bank managers we interviewed said that
this arrangement might create a perception that impairment to independence
may exist, regardless of whether it actually affects how investigative
duties are carried out. In October 1999, the Bank contracted with a
consultant to examine these organizational issues in more detail and propose
alternatives to the present organizational arrangement.
� Third, we noted that the Bank's investigation function is fragmented
between two units--the Investigations Unit and the Office of Professional
Ethics. Each unit currently has its own investigative guidelines; case
management system; a hotline and helpline, respectively; and investigative
staff. According to Bank officials, this fragmentation has resulted in some
confusion over the appropriate duties and responsibilities of these
structures and some gaps in investigative coverage, hampering Bank efforts
to promptly identify and investigate all allegations of potential
wrongdoing. To resolve these problems, the heads of these units plan to work
together toward standardizing the procedures and building internal capacity
to operate a joint hotline and conduct investigations. In December 1999, the
Bank hired another consultant to examine the operations of the
Investigations Unit.
Borrowers Lack Experience and Skilled Staff
A strong control environment within the Bank and borrowing country
institutions is critical for effectively implementing the Bank's system of
project management controls. For many years, the Bank has had policies and
procedures in place aimed at ensuring that project financial management and
procurement are sound and that funds are used as intended. Responsibility
for ensuring compliance with these policies and procedures is shared by the
borrowers, which execute the projects, and the Bank, which supervises the
borrower through a variety of approvals and reviews of borrowers' actions.
In recent years, the Bank has recognized that the control environment for
its projects had deficiencies. Bank reports and studies issued in 1997 and
1998 indicated that in many cases, both the Bank and its borrowers had
insufficient managerial capacity to ensure effective safeguards against the
misuse of project funds.11 In particular, the Bank identified deficiencies
in financial accounting, reporting, and auditing in many projects.
Furthermore, the Bank did not devote adequate attention to reviewing the
borrowers' procurement actions. An underlying cause of this problem was that
the Bank did not have an adequate number of skilled staff to ensure that
borrowers were complying with financial management and procurement policies
and procedures, which were designed to minimize opportunities for
corruption.
The Bank has made progress in strengthening its project management
capabilities but still faces major challenges in building this capacity
among borrower agencies responsible for implementing Bank-financed projects.
Progress
The Bank has undertaken initiatives to enhance the control environment for
Bank projects, both within the Bank and among borrowers. In fiscal year
1998, the Bank launched a major effort to hire and train more Bank staff
qualified to deal with the financial management and procurement aspects of
project management. As a result, the Bank increased the number of qualified
financial management staff by about 159 percent (from 34 in fiscal year 1998
to 88 in fiscal year 1999) and the number of qualified procurement
specialists by about 78 percent (from 46 in 1997 to 82 in
1999).12 A financial management specialist and a procurement specialist are
now to be assigned to every Bank project, both new and ongoing. Furthermore,
the Bank has assigned many of these new staff members to its country
missions,13 where they can be more closely involved in implementing projects
and strengthening management controls.
In addition, the Bank has undertaken initiatives to build the financial
management and procurement capacity of those agencies in borrowing countries
that are responsible for implementing projects. One major initiative
introduced in July 1998 is aimed at ensuring that all new projects meet
minimum requirements for financial management, including having adequate
staffing, internal controls, and auditing arrangements.
Similarly, the Bank has focused on improving borrowers' compliance with Bank
procurement rules. These efforts involve assessing implementing agencies'
capacity to manage new projects and devising action plans to remedy any
significant gaps either before the project begins or during the course of
the project.
Challenges
Despite these initiatives, the Bank recognizes that it still faces a major
challenge in ensuring strong financial management and procurement capacity
among its borrowers as the institutional capacity-building required may be
difficult and time consuming to achieve, according to senior Bank officials
we interviewed. Also, the Bank's new initiatives to build greater financial
management and procurement capacity, which began for new projects appraised
in July 1998 (financial management) and November 1998 (procurement) only
apply to about 208, or 14 percent, of the Bank's 1,500 projects. Bank
studies indicate that management weaknesses persist in ongoing projects. For
example, the results of a series of recently completed procurement audits
show a lack of understanding of and noncompliance with Bank procurement
rules among many (17 of 25) borrowers subject to these audits.
Our review of 12 randomly selected projects approved by the Bank since
November 1998 identified 5 projects in which the borrowers' implementing
agencies had little or no experience managing development projects,
according to Bank records and staff. Thus, their ability to effectively
manage the financial and procurement aspects of project implementation and
safeguard against corruption appeared limited. Six of the projects we
reviewed did not meet the Bank's minimal financial management requirements
at the time that the Board approved the projects. Furthermore, for 3 of the
12 projects, the Bank determined that the borrowers' implementing agencies
had particularly weak capacity for carrying out procurement in accordance
with Bank rules. For four projects, the implementing agencies were not yet
functioning and did not have key staff or operating procedures in place.
Bank officials told us that it is common practice for borrowers to delay
fully establishing
project-implementing organizations until after projects are approved by the
Board. These officials indicated that most management deficiencies would be
corrected, as a legal condition of the loan, before any Bank funds are
actually disbursed. However, even with required corrective actions, the
ability of these agencies to exercise proper financial management and
procurement functions is unproven, given the agencies' lack of experience.
In addition, the Bank remains concerned that project auditors lack
institutional independence. Project auditing is a critical element of the
Bank's management control system; the Bank uses audits, arranged for by the
borrower, to help ensure that project funds are used as intended. The Bank
is required to approve the selection of the auditors. However, Bank guidance
on auditor selection acknowledges that it is often not possible to ensure
the independence of auditors, particularly government auditors that are used
for auditing Bank-financed projects in many countries. The Bank guidance
states that government auditors are frequently not professionally qualified
accountants--many are political appointees, and some are public service
administrators. Furthermore, the Bank has been concerned that government
auditing institutions sometimes are understaffed, underfinanced, and subject
to political pressure.
Until the Bank has assurance that its borrowers' institutions are properly
organized, staffed, and experienced in financial management and procurement,
the overall control environment for its projects will continue to be weak.
Although the Bank has strengthened its capacity to supervise projects, it
recognizes that this cannot fully compensate for the weaknesses of its
borrowers, given the shared responsibility in implementing management
controls. Hence, Bank assurances that funds will be managed appropriately
depend on the success of ongoing and future capacity-building efforts.
Borrower Countries
The Bank has recognized that the key to helping countries fight corruption
is to help them create a sound control environment at the country level.
Many borrowers lack well-functioning public management systems; accountable
organizations; and a strong legal framework to prevent, detect, and redress
corruption. The Bank has supported a wide variety of initiatives to
strengthen public institutions in its borrowers but faces significant
challenges in ensuring that these efforts will be successful over the long
run.
Progress
The Bank has introduced new programs to help borrowers establish strong
management controls on a countrywide basis. The Bank has helped launch over
350 anticorruption activities in 95 countries. For example, it has conducted
detailed surveys to help diagnose the magnitude and nature of corruption in
13 countries, and a major governance pilot program is currently working with
teams in 7 African countries to develop and implement targeted
anticorruption action plans. The Bank has also provided numerous
institutional development grants to borrowers to enhance their ability to
deal with corruption. For example, in one country we visited, the Bank
awarded a grant to a newly created National Office of Public Ethics. The
Bank has also supported capacity-building in the accounting and auditing
professions, which are viewed as a critical area of reform for many large
borrower countries. A country we visited received two grants to provide
procurement and financial management training for agencies that implement
projects and for auditing institutions.
Challenges
The Bank faces a difficult and long-term challenge in trying to help
borrower countries create effective and well-managed institutions. According
to the Bank's Annual Review of Development Effectiveness in 1998, only 40
percent of Bank-supported projects have had substantial impact on
institutional development. In addition, the Bank's achievements in
institutional building in the financial sector were deemed likely to be
sustainable in just 50 percent of countries for a variety of reasons,
including "fragile institutional environments," and low capacity to absorb
foreign aid.14 A 1998 evaluation of the World Bank Institute's (the World
Bank's research and training institute) efforts to help curb corruption in
two African countries questioned the sustainability of these efforts for
several reasons, including the lack of needed reforms in public procurement
and lack of support and involvement of civil society. Bank officials are
optimistic about the prospects for greater impact in its more recent
institution-building efforts, because they said these efforts are based on
some new approaches. Nonetheless, given the challenging nature of this work,
major improvements in borrowing country institutions should not be expected
for some time.
Persist
According to COSO standards, an effective management control system requires
risk assessments to properly identify, analyze, and manage the possible
risks to meeting project objectives. Recently, the Bank has focused
attention on better assessing the risks associated with corruption and the
weak management capacity of its borrowers. However, our review revealed that
weaknesses persist in the Bank's risk assessment process at the project
level and country level. As a result, the Bank has approved some projects
with limited assurance that all risks and borrower weaknesses have been
addressed and that the Bank's supervision of the project will minimize the
potential misuse of project funds.
Decisionmakers
The Bank assesses project risks primarily during the project appraisal and
approval process. When evaluating a project, the Bank staff prepares a
project appraisal document. According to Bank guidance, this document should
include all the information that Bank management and the Board need to
decide whether or not Bank financing should be provided, including an
assessment of critical project risks. This guidance requires that the
appraisal identify each critical risk, note the severity of the risk
(ranging from negligible to high), and indicate any measures to be taken to
minimize the risk. These risks may include economic, political, and social
factors that could hinder the implementation of the project and prevent it
from meeting its development objectives.
A series of Bank studies from 1994 to 1998 showed that Bank staff had often
not adequately assessed all risks in projects reaching approval stages with
Bank management and the Executive Board of Directors. In particular, Bank
staff did not always explicitly state the risks posed by the inadequate
management capacity of many borrowers' institutions or incorporate
appropriate strategies to mitigate these risks. Although the Bank has made
progress in ensuring that project risks are better identified and assessed
during project design, the Bank faces additional challenges in ensuring that
the results of these risk assessments are clearly communicated to the Board
of Directors--the key decisionmakers charged with approving Bank project
loans.
Progress
The Bank has established new requirements in 1998 to ensure that staff more
systematically address risks in the design of new projects. Bank project
managers and procurement and financial management specialists are required
to analyze the risks to successful project implementation, including
administrative, institutional, and financial risks. New project appraisal
documents must include an action plan for reducing the risks through
capacity-building activities and for mitigating the risks through
appropriate levels of Bank supervision. In assessing procurement risks for
each project, a Bank procurement specialist is required to rate the level of
risk (ranging from low to high) and devise an appropriate supervision plan.
This supervision plan is to include the monetary amount (threshold value)
above which Bank pre-approval would be required for procurements; it is also
to indicate to what extent the Bank will audit procurements to ensure that
the borrower has followed Bank rules.
Challenges
Despite improvements in project design requirements, a July 1999 Bank study
of new projects approved in 1998 showed that project appraisal documents
continued to be unduly optimistic--Bank staff often understated or did not
disclose known project risks relating to borrowers' implementation capacity
to Bank management and the Board of Directors.15
Our review of 12 projects approved after November 1998 confirmed that the
Bank's senior decisionmakers still have not adequately assessed the risks
posed by potential corruption and weak managerial capacity of borrowers. We
found that Bank staff had generally conducted the required assessments of
financial management and procurement capacity for the new projects we
reviewed. However, in nine cases, Bank staff did not clearly present the
results of these assessments in the project appraisal document when seeking
project approval from Bank management and the Board of Directors, as
required by Bank guidelines. The Bank staff did not indicate the level of
procurement risk for seven projects and did not indicate whether the project
met the Bank's minimum financial management requirements for seven projects.
Consequently, the Board may not have had sufficient information to assess
the borrowers' capacity when approving these projects.
Furthermore, we believe that Bank staff did not adequately identify the
risks that potential corruption poses to projects when seeking management
and Board approval. Only 4 of the 12 projects we reviewed identified
corruption or undue political interference as a critical project risk (even
as a low or negligible one), even though Bank reports had indicated that
corruption is a problem in all of the countries included in our project
sample.
In addition, in the new projects we reviewed, the Bank often did not
identify what steps the Bank will take to manage identified risks and
weaknesses. In six of eight projects in which Bank staff had flagged weak
management capacity, corruption, or political interference as a critical
risk, the project appraisal documents did not describe what specific
supervisory actions the Bank planned to take to mitigate the risks. For most
projects with these types of risks, the Bank proposed providing additional
technical assistance for the borrower agencies (sometimes funded by the
projects) or requiring additional borrower actions to address the risks.
Given the recognized weaknesses in borrower institutions and the difficulty
borrowers have had in building capacity, technical assistance and borrower
actions alone may not be sufficient to ensure that project risks can be
mitigated.
Furthermore, the project appraisal documents provided to the Board and Bank
management did not consistently and comprehensively address how the Bank
staff proposed to supervise the projects in order to compensate for specific
borrower management weaknesses. Senior Bank officials told us that they have
recognized the need for better planning of supervision activities and are
devising new requirements for this function. The Bank plans to introduce
these new requirements by June 2000.
The Bank also assesses risks at the overall country level when making
decisions about country assistance and lending levels. In 1992, the Bank
introduced a country assistance strategy process as a key tool in examining,
among other things, the performance of Bank projects and the policy reform
record in countries that receive Bank assistance. The Board considers the
results of this analysis, including the risks posed by corruption, poor
governance, and an adverse public policy environment, when approving loans
and establishing lending levels for each country. In addition, the Bank's
process for allocating the Bank's concessional (below market interest rate)
loans among borrowers includes consideration of country governance issues,
which includes corruption issues.
The Bank acknowledges that historically, like other international financial
institutions, it has not adequately addressed the risks associated with
corruption and poor governance when making decisions on providing country
assistance. According to several Bank officials we spoke to as well as the
Bank's anticorruption literature, the Bank had for years been reluctant to
address corruption risks openly and directly with borrowers.16
The Bank has made progress in addressing the nature and extent of corruption
and related risks in some but not all country lending strategies.
Progress
In 1998, the Bank introduced new rules requiring country assistance
strategies to explicitly address the state of governance and corruption in
the country and its impact on Bank programs so that these issues could be
considered in the Board's lending decisions. In the same year, the Bank also
introduced new procedures for enhancing the usefulness of key inputs into
these country assistance strategies. For example, Bank staff are now
required to complete, with borrower assistance, comprehensive risk
assessments of countries' national financial management and procurement
systems to better identify major risks and weaknesses in institutions,
government policies, and legal frameworks.
Challenges
Only about one-fourth of the 31 fiscal year 1999 country assistance
strategies that we reviewed included a discussion of corruption-related
risks or the role that progress on corruption-related issues would likely
have on the Bank's lending decisions. However, Bank officials told us that
the treatment of these issues in the country assistance strategies has
improved over time. In December 1999, the Bank completed a review of the
treatment of corruption and governance issues in Bank country assistance
strategies. While the study noted an improvement in the discussion of these
issues from fiscal year 1998 to 1999, less than 40 percent of the assistance
strategies were rated as satisfactory or better in explicitly assessing
corruption risks to Bank projects and proposing remedial measures, if
pertinent. This study also found that few assistance strategies included
performance benchmarks or lending triggers related to governance conditions
or corruption risks. The Bank expects more improvement in the discussion of
these issues over time as more country strategies are subject to the new
requirements.
One of the first steps in establishing a major anticorruption program in a
country is conducting an assessment of that country's procurement and
financial management systems. However, the Bank has not prioritized, based
on corruption risk, which countries should undergo these assessments. In its
action plan, the Bank indicated that it would target assessments at
countries where corruption risks were greatest. Bank officials confirmed
that they did not use a systematic approach or establish priorities for
conducting these assessments. Instead, the assessments were generally
scheduled based on the interest of the borrowers or the existing knowledge
level of Bank staff. As of November 1999, of 143 borrowers, the Bank had
completed financial management risk assessments for
57 countries and country procurement risk assessments for 16 countries.
Figure 1 shows that few assessments (two procurement assessments and seven
financial management assessments) were completed for the Bank's top 10
fiscal year 1999 borrowers. These borrowers collectively received
62 percent of Bank financing in that year.
Figure 1: Anticorruption Risk Assessments Among the World Bank's 10 Largest
Borrowers
Legend
FY = fiscal year
aTotal lending includes investment and adjustment loans.
bCompleted between 1997 and August 1999.
cProgress report.
dReview is either planned or underway but was not completed as of August
1999.
Source: World Bank data.
A senior Bank official told us that the Bank hopes to target future
anticorruption efforts, including the Bank's country financial management
and procurement risk assessments, to higher risk borrowers and that the Bank
is currently developing some comprehensive "good governance" indicators to
better guide its efforts.17 A Bank official indicated that it may take
several years to develop these new indicators.
In addition to not targeting risk assessments to higher risk borrowers, the
Bank has not scheduled the completion of its country level assessments of
procurement and financial management risks to coincide with the approval of
the Bank's country assistance strategies. Our review of fiscal year 1999
country assistance strategies did not reveal any cases in which the Bank
included a discussion of the risks to development posed by weak financial
management and procurement practices in the borrowing countries.
Since the types and level of Bank financing appear to have been set through
the country lending process without a full consideration of these important
risk management tools, the Bank may have missed an important opportunity to
better target its anticorruption risk assessments and leverage its efforts
to minimize opportunities for corruption in
Bank-financed projects. A senior Bank official told us that the proper
sequencing of these events is more likely to occur in the future as the Bank
gains more experience.
Auditing and Supervision Remain Weak
According to COSO standards, effective control activities should be
undertaken to ensure that management's directives are carried out. The Bank
has established various control activities to ensure that borrowers follow
Bank rules when implementing Bank-financed projects. The borrowing nation
monitors implementation of projects and reports progress and financial
status periodically. Independent audits arranged by the borrower are a key
component of the Bank's control activities. For every project, the Bank
requires the borrower to arrange for an independent auditing firm or
institution to conduct an annual financial audit. Audits must include
reviews of project financial reporting and testing of internal controls for
the project.
To supplement borrower monitoring and project audits, Bank staff conduct
various types of procurement and financial management supervision of
projects to ensure borrowers' compliance with Bank rules. These activities
include, among other things, reviewing project financial accounting,
reporting, and auditing arrangements; reviewing bid awards and contracts;
reviewing project expenditures; and visiting project sites. In some cases,
Bank approvals of certain borrower actions are specifically required under
the loan agreements. For example, for major procurements, representing about
one-third of the value of total Bank-financed procurement contracts, Bank
staff must pre-approve contract awards to ensure that they are fair and
verify that contract expenditures are eligible under the loan agreement
before Bank funds are disbursed. However, for the remaining procurements,
Bank staff are only required to conduct spot-checks to ensure that Bank
rules were followed.
In the past several years, the Bank's internal auditor has identified
significant weaknesses in some control activities. For example, recent Bank
reports have revealed that many Bank-approved auditors produced audit
reports that were late and of poor quality, with limited identification of
problems. In addition, Bank studies for 1996 through 1998 noted that the
Bank had not practiced appropriate financial management supervision and
ensured that borrowers complied with the Bank's basic financial accounting,
reporting, and auditing requirements. For example, in a September 1998
report on the quality of Bank supervision, Bank reviewers found that
financial management supervision, while improving, was less than
satisfactory in over 30 percent of the projects reviewed. In addition, other
Bank studies indicated that the Bank often failed to conduct required
spot-checks of borrowers' compliance with procurement and expenditure
eligibility requirements . As a result, a large and growing percentage of
the contracts financed by the Bank were awarded without any Bank review.
The Bank has made progress in strengthening project auditing and
supervision, but it is not yet clear whether its efforts have been
successful.
Progress
The Bank has devoted increased resources and attention to financial
management and procurement supervision. In the financial management area,
the Bank has increased awareness among staff about the importance of
ensuring adequate financial management arrangements and reporting in its
projects. It has also upgraded its financial management policies and
procedures, established a framework for ensuring proper financial
management, and provided additional staff and training for this purpose.
In the procurement area, the Bank has taken a variety of steps to better
supervise borrowers' procurement activities and ensure that contracts were
awarded in compliance with Bank guidelines. This has included hiring or
training local Bank staff or contracting with local consultants to review
borrowers' procurement actions. In addition to improving routine procurement
supervision, the Bank has undertaken a number of special procurement audits
to help oversee the use of project funds. In fiscal
years 1998 and 1999, the Bank conducted or contracted for intensive
procurement reviews of 54 of its approximately 1,500 projects. Since 1996,
the Bank identified cases in 26 projects in 16 countries in which the
borrower did not comply with the Bank's procurement rules. Thus, the Bank
refused to finance contracts valued at at least $114 million. In addition,
the Bank has debarred 44 firms and 9 individuals, prohibiting them from
conducting future business with the Bank.18
For some new projects, the Bank has also introduced innovative approaches to
project design and implementation intended to provide more effective
controls over the use of project funds. For example, in several new projects
we reviewed, community-based monitoring programs are being devised that
incorporated input from local citizen and user groups. The Bank believes
that since these groups have a vested interest in the outcome of the
projects, they will put pressure on responsible officials to ensure the
proper use of project funds. In one country we visited, the Bank allocated
project funds to hire local consultants to facilitate community involvement
in project design and implementation, including monitoring of project
expenditures. Project implementers posted detailed information in local
villages on the schedule and cost of small infrastructure works financed by
the project. Eight of the 12 new projects19 we reviewed specifically
included some aspect of increased transparency or community involvement in
the project design to help prevent the misuse of funds.
Challenges
Although there are signs of improvement in the quality of supervision, the
Bank is still having difficulties in correcting some of the shortcomings
that the Bank's internal units and external auditors have highlighted. For
example, according to a 1999 Bank study on procurement reform in two of the
Bank's six geographical regions, one of these regions had not conducted the
required level of procurement supervision, even though both regions had
engaged in significant hiring of new specialized staff and training of
existing staff members to strengthen this function. Bank officials indicated
that this region is taking corrective measures to ensure that the required
level of procurement supervision is completed.
The Bank is also experiencing difficulty in meeting financial management
supervision requirements. A 1999 Bank study found that the percentage of
projects for which Bank staff meet basic financial management supervision
requirements increased from about 70 percent in 1998 to about 80 percent in
1999.20 However, Bank officials who conducted this study noted that Bank
performance in this area was still deficient, considering that the
requirements "should have been easily attainable." Bank officials are
optimistic that performance of these basic requirements will improve further
as the Bank continues to build its financial management capacity. However,
the Bank is also establishing additional requirements that will make
financial management supervision more challenging in the future.
We found little evidence that improved financial management supervision has
resulted in any increase in the quality of project auditing. The previously
cited 1999 Bank study of financial management supervision indicated that
Bank staff were generally more diligent about reviewing project audit
reports. However, according to Bank managers we spoke to, supervision of
project auditors is not considered the responsibility of Bank staff, and
Bank staff conduct little quality control of audit work.
Control Weaknesses Not Measured
According to COSO standards, an effective management control system requires
monitoring of the controls to assess their quality over time and to ensure
that problems are promptly resolved. Although the Bank has established an
extensive array of mechanisms to monitor project management, it does not
clearly measure progress the Bank is making in correcting management control
weaknesses. Without a monitoring system that focuses on key areas of
weakness, the Bank's management and Board of Directors cannot be certain
that the initiatives in the Bank's anticorruption action plan are
appropriate or sufficient to safeguard loan funds.
The Bank has a variety of systems to monitor and evaluate the quality of its
management processes and controls. At the individual project level, Bank
staff regularly (at least semiannually) submit a project status report,
which includes the staff's assessment of the progress of project
implementation and the status of procurement and financial management, among
other issues. These reports are compiled and analyzed annually to provide
Bank management and the Board with a detailed report on overall portfolio
performance. In addition to this reporting, various Bank units conduct
evaluations of Bank project management. The Bank's internal auditor has
conducted occasional audits of various aspects of Bank supervision of Bank
projects. The Bank's quality assurance unit has taken a systematic
evaluation approach, conducting annual studies to evaluate the quality of
new project designs and Bank supervision activities. Finally, the Bank's
external auditor assesses annually the adequacy of the Bank's management
controls over financial reporting.
The Bank has made progress in using new tools for monitoring and evaluating
the implementation of Bank projects. However, it faces challenges in
ensuring that it corrects acknowledged weaknesses in management control
activities.
Progress
The Bank has improved its monitoring mechanisms by assigning responsibility
for tracking Bank-wide compliance with quality standards for project
supervision to a central operations group. This unit draws upon various
monitoring mechanisms in place and has established some new ones. To assess
progress on procurement reforms, the unit has sponsored new studies of two
regions in 1999, with similar studies to follow in the future. To assess
progress in financial management reform, the unit focuses on the quality
assurance group's annual review of supervision quality. In addition, in
1999, the unit solicited status reports on project supervision from the
regional procurement and financial management advisors in each of the Bank's
six regions and compiled annual status reports for Bank management.
Challenges
Bank monitoring efforts do not fully assess the impact of Bank efforts to
improve the strength of its management controls over project lending. In
particular, the Bank's monitoring efforts do not focus on key deficiencies
in management controls highlighted by Bank studies in the past few years.
Consequently, we were unable to determine the extent to which the Bank has
corrected these deficiencies. In particular, we were unable to determine
whether the quality of project audits has improved or whether Bank staff
have conducted required reviews of project procurement, financial reporting,
and expenditure eligibility.
The Bank does not systematically monitor the quality of project audits.
Although the Bank has a system for tracking compliance with auditing
requirements, according to Bank officials this system generates unreliable
data that cannot be used to reach firm conclusions because Bank staff have
not consistently entered these data accurately or on time. The Bank's
planned implementation of a new management information system may improve
the reliability of these data in the future. Based on our review of the
Bank's other periodic monitoring activities, none includes a systematic
assessment of audit quality. For example, the Bank's annual study of
financial management supervision addresses whether Bank management received
and reviewed the required audit reports but not the quality of the audit.
Thus, the Bank has not determined the extent to which the reliability of
project audits as a management control activity has improved.
In addition, the Bank conducts limited monitoring of the extent to which
Bank staff carry out required supervision at the project level, the regional
level, or the Bank-wide level. At the project level, Bank staff are not
required to report on compliance with key procurement and financial
management supervision requirements in their mandatory project status
reports. For example, these reports do not indicate to what extent Bank
staff conducted required spot-checks of completed procurement actions and
project expenditures reports to ensure that the borrower complied with Bank
rules. Regional-level monitoring and reporting on supervision performance
have also been incomplete. The annual regional reports on procurement and
financial management supervision do not provide an analysis of the extent to
which each region conducted the required level of supervision. As a result,
Bank management cannot use these reporting systems to compile Bank-wide data
for assessing whether Bank staff are meeting supervision quality standards.
At the Bank-wide level, the Bank does some monitoring and evaluation of
project supervision in the annual review of supervision quality, prepared by
the Bank's Quality Assurance Group. However, this review gives an incomplete
picture of the quality of Bank supervision because it includes only certain
supervisory activities and does not encompass some important Bank
supervisory functions where performance has persistently been weak. For
example, the review of procurement supervision does not address the Bank's
performance in conducting required spot-checks of contract awards made by
borrowers.21 Similarly, the review of financial management supervision does
not address the Bank's performance in
spot-checking the eligibility of project expenditures. As a result, the
supervision quality scores generated by this study mask performance problems
reported by external and internal auditors.
The Bank also lacks meaningful performance indicators that could be used to
monitor the impact of its institutional development efforts in strengthening
management controls in borrowing countries. Only 2 of the 31 country
assistance strategies we reviewed established measurable indicators for
improving the anticorruption environment. Also, an evaluation of the Bank's
anticorruption efforts in two African countries prepared by a World Bank
consultant in 1998 indicated that the Bank's performance indicators could
not be used to measure the effectiveness of the Bank's interventions and
approaches. Bank officials told us that developing indicators to assess
progress being made in this area is very difficult, but efforts are
underway.
in Borrower Countries
COSO standards emphasize the need for information to be communicated in a
form and time frame that enable people to carry out their responsibilities.
Bank management recognized the need to increase the level and quality of its
communications on anticorruption initiatives with its own staff and among
borrowers and has launched a major effort to improve communications through
a variety of outreach programs. This outreach effort has been conducted
through the internet, special publications, Bank-sponsored conferences,
workshops, training sessions, and other means.
Despite progress in improving information and communications, the Bank still
faces challenges in raising awareness within borrowing countries.
Progress
The Bank has strengthened communication with and coordination on
anticorruption issues among international donors, nongovernmental
organizations, former government officials, academicians, business leaders,
and other organizations. The Bank has also worked in tandem with the
Organization for Economic Cooperation and Development, an economic forum of
major industrialized countries, to promote global initiatives, such as the
International Anti-bribery Convention.
Challenges
During our country visits, we found that some borrowing country staff and
members of civil society charged with monitoring Bank projects were not
fully aware of the Bank's efforts to establish new mechanisms for countering
fraud and corruption in Bank-financed projects. For example, we visited
several locations during our field visits where civil organizations involved
in monitoring Bank-financed projects were not aware of the hotline or other
mechanisms for reporting allegations of fraud and corruption. As a result,
allegations of fraud and corruption in Bank projects could potentially go
unreported to the Bank's Oversight Committee on Fraud and Corruption or be
handled locally without the committee's knowledge. Senior Bank officials
confirmed that additional efforts need to be made to increase awareness of
the anticorruption activities and resources within borrower countries,
particularly project implementing agencies and beneficiaries.
Although the Bank's external auditor does assess the adequacy of some
management controls, the scope of the assessment is limited to controls
relating to the Bank's financial statement reporting. The scope of the
external auditor's annual assessment does not currently extend to controls
over project lending. The Bank is planning to extend the scope of its future
COSO reviews to include an examination of the efficiency and effectiveness
of its operations, which will include its lending operations.
The Bank lends billions of dollars to developing countries each year in a
difficult and challenging environment. Over the past several years, the Bank
has made a vigorous attempt to strengthen its management controls and build
borrower capacity to better manage Bank-financed projects to reduce
opportunities for fraud and corruption on its projects. This effort has
entailed making major improvements in the Bank's internal oversight
structure, project management, and institutional development strategies.
However, these controls, although improving, are not yet strong enough to
provide reasonable assurances that project funds are spent according to the
Bank's guidelines. Significant weaknesses still exist in each of the key
components of the Bank's management control system. Efforts are underway to
address many of these weaknesses in (1) internal oversight mechanisms, (2)
assessing risks in individual projects and in overall country assistance
strategies, (3) allocating anticorruption assistance among borrowers based
on risk, (4) monitoring and reporting progress in correcting management
control deficiencies, and (5) disseminating information on anticorruption
activities within borrowing countries. Additional steps would enable the
Bank to further limit opportunities for fraud and corruption and safeguard
project funds. Continual management attention would also help sustain the
current improvement efforts and ensure these remaining weaknesses are fully
addressed. Nevertheless, questions will remain about the adequacy of the
steps taken to strengthen these controls unless the World Bank publishes
periodic public progress reports.
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, we recommend that the Secretary of
the Treasury instruct the U.S. Executive Director of the World Bank to work
with other Executive Board members to encourage the Bank to
(1) integrate investigative functions into a single unit and establish
organizational independence of the unit to better address allegations of
wrongdoing;
(2) 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;
(3) target procurement and financial management assessments at countries
where corruption risks are greatest;
(4) 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; and
(5) develop a plan to raise awareness of the Bank's anticorruption program
among project implementing agencies and beneficiaries.
Furthermore, to ensure that Bank's anticorruption initiatives have the
desired impact, we recommend that the Secretary of the Treasury monitor Bank
progress in meeting each of the five components of an effective management
control system and annually report to the Congress evidence of progress.
We received written comments from the Department of the Treasury, the agency
that represents the United States at the World Bank, as well as from the
World Bank. These comments are reprinted in appendixes VII and VIII. In
addition to their overall comments, the Treasury and the Bank provided
technical comments, which we incorporated in the report as appropriate.
Treasury agreed with our findings and recommendations and characterized the
report as a fair and constructive assessment of a difficult and challenging
subject that provides helpful guidance to assess process and policy
improvements at the Bank. Treasury said that the Bank should increase its
up-front investment in project control systems, particularly those related
to procurement, financial management, and audit. Moreover, Treasury also
said that the Bank should be more aggressive in building borrowers' capacity
to fight corruption, in providing more project planning and reviews prior to
contract award, and in performing more assignments of borrowers' public
sector management control mechanisms to provide greater assurance that
project money is well spent.
The World Bank said our report provides valuable input into its ongoing
anticorruption efforts. The Bank noted that it has made significant
progress, given that it is about one year into implementation of its
anticorruption action plan and that fighting corruption will require a long-
term effort. The Bank also indicated that it is taking action on the issues
and recommendations outlined in our report, including steps to (1)
strengthen the independence of the Bank's investigative functions, (2)
report risks more explicitly in project documents, (3) allocate
anticorruption assistance on the basis of risk, (4) improve monitoring
tools, and (5) introduce greater public reporting on its anticorruption
initiatives.
The Bank agreed that there are still areas requiring improvement in its
management control system but believes that, for the most part, it has
reasonable assurance that project funds are spent as intended. As our report
points out, it is generally recognized that all five of the Committee of
Sponsoring Organizations of the Treadway Commission standards must be met
for controls to be judged effective in any particular area of an
organization's operations, thus providing reasonable assurance that funds
are spent as intended. We believe the Bank is not in a position at the time
to gauge the extent to which this is the case due to the weaknesses in its
current system of controls described in our report.
We are providing copies of this report to the Honorable Lawrence Summers,
the Secretary of the Treasury; James Wolfensohn, the President of the World
Bank; and interested congressional committees. Copies will be made available
to other interested parties upon request.
This report was prepared under the direction of Benjamin Nelson, Director,
International Relations and Trade Issues, who may reached on
(202) 512-4128 if you have any questions about this report. Other contacts
and key contributors are listed in appendix IX.
Henry L. Hinton, Jr.
Assistant Comptroller General
Chronology of Major World Bank Efforts to Strengthen Management Control
System
Since 1995, the Bank has undertaken a series of steps to strengthen its
management control system. Figure 2 outlines major milestones in this
effort.
Figure 2: Milestones in the World Bank's Efforts to Strengthen its
Management Control System, 1995-2000
Source: World Bank.
Implementation Status of the World Bank's Anticorruption Action Plan
In 1997, the World Bank adopted an anticorruption strategy as outlined in a
report titled "Helping Countries Combat Corruption: The Role of the World
Bank." To implement its strategy, the Bank subsequently put together an
Anticorruption Action Plan. This plan outlines a series of anticorruption
activities for the Bank to undertake aimed at (1) strengthening internal
oversight mechanisms within the Bank, (2) improving the Bank's project
management processes, (3) strengthening public institutions in borrower
countries, and (4) supporting international efforts to reduce corruption.
Table 1 shows the implementation status of the Bank's anticorruption plan as
of December 1999.
Table 1: The Status of the Action Plan, as of December 1999
Continued from Previous Page
World Bank Action Status of
implementation
Strategy setting and dissemination
Completed
1
Update strategy. Develop messages for annual
meetings, and briefing materials.
Present to the Board a public sector strategy Completed
paper and governance update.
Executive Directors' briefing
Completed
2
Brief the Board on the implementation of the
Bank's anticorruption action plan.
Anticorruption web sites
Completed
3
Establish web sites to share country
experiences.
Expand internal and external web sites. Underway
Anticorruption workshop and conference
4 Completed
Conduct workshop on lessons learned from the
Bank's experience with corruption.
Conduct conference on analytical developments,
i.e., lessons learned from a sector Underway
standpoint.
Major reports on corruption
Completed
5
Submit outline for possible World Development
Report on institutions, including corruption.
Prepare Europe and Central Asia Region Underway
anticorruption report.
Rules for reporting and handling fraud and
corruption allegations
6 Present proposal to senior management to Completed
clarify rules for reporting and handling
internal and external fraud and corruption
allegations.
Workshop on procurement practices
Completed
7 Conduct workshop with experts to generate
ideas on useful modern procurement practices.
Staff survey
8 Completed
Survey staff on Bank culture, ethics, and
their willingness to report corruption.
Security plan
9 Completed
Prepare action plan to increase security for
staff.
Annual meetings
10 Completed
Hold seminar on corruption at the October 1998
annual meetings.
World Bank Action Status of
implementation
Hotline
11 Completed
Launch hotline for reporting internal fraud
and corruption.
Staff training
12 Hold orientation for all regional staff, Substantially completed
including resident mission staff.
Provide specialist training.
Accountability within regional departments
13 Designate within each of the regions clear Substantially completed
accountability and resources for
anticorruption efforts.
Project design support
14 Establish a focal point within the Operational Completed
Core Services Network for links between
project design and corruption.
Assist operational staff, through best
practice dissemination and advice, in project Underway
design features that can help to reduce
corruption in Bank projects.
Publication of series of anticorruption notes
15 Publish notes to provide guidance on Underway
corruption diagnosis and public sector reform
approaches.
Procurement capacity building and risk
analysis
Complete scheduled country procurement
16 assessment reviews in high-risk countries. Underway
Procurement Board to help teams implement new
procedures for project capacity/risk analysis
and evaluate experience.
Financial management
Implement the Loan Administration Change
Initiative to ensure that all World Bank
17 projects appraised after June 1998 meet Underway
minimum requirements for financial management.
Increase the use of country financial
accountability assessments, focusing on higher
risk and priority countries.
Implement financial management and procurement
reforms
Assess and report on the first year's
18 experience with the implementation of Underway
financial management and procurement reforms.
(completed)
Adapt implementation of the reforms in light
of the findings.
Require the systematic use of country risk
assessments
19 Issue guidelines for best practices and Underway
sequencing of the country procurement
assessment reviews and the country financial
accountability assessments.
Country requests for assistance
20 Undertake anticorruption programs in countries Underway
requesting assistance (e.g., corruption
studies, surveys and workshops, policy and
institutional reform).
Implement institutional reforms in countries
that have a clear commitment and request Underway
assistance.
Institutional reviews
Undertake 4-5 pilot institutional reviews,
21 including diagnostic work on governance and Underway
public sector performance, which will provide
input in formulating country strategies and
designing projects.
Research, training, and dissemination of best
practices
22 Underway
Undertake surveys and workshops, conduct
training programs, and publish research
reports.
Special topics
23 Investigate the boundaries of Bank involvement Planned
in the area of political finance and
corruption.
Country assistance strategy
24 Underway
Explicitly address governance and corruption
in every country assistance strategy.
World Bank Action Status of
implementation
High-risk countries
25 Underway
Focus on countries with high indicators of
corruption.
Anticorruption and lending
26 Finalize Bank policy note on anticorruption Underway
and lending, including adjustment lending, in
high-risk countries.
Governance
27 Refine, evaluate, and disseminate internally Underway
existing governance indicators.
Prepare principles or code of good governance.
International Development Association funding
28 Assist in defining governance criteria for the Underway
Twelfth Replenishment of the International
Development Association (IDA-12).
Sector strategy papers
29 Require that anticorruption concerns are Underway
systematically addressed in key sector
strategy papers.
Multilateral development banks and bilateral
donors
30 Underway
Share information and coordinate efforts with
multilateral development banks and bilateral
donors.
Nongovernmental organizations
31 Underway
Continue collaboration with nongovernmental
organizations on anticorruption.
Organization for Economic Cooperation and
Development
Continue participation in the Working Group on
Bribery.
32 Underway
Assist Organization for Economic Cooperation
and Development efforts to promote the
antibribery convention in non-Organization for
Economic Cooperation and Development
countries.
Professional bodies and associations
33 Enhance working relationships with Underway
international professional organizations such
as the International Organization of Supreme
Audit Institutions.
Crime and money laundering
34 Continue participation in international Underway
conferences and other efforts to address
international crime.
Projects and program evaluation
35 Assess how corruption risks have been Underway
addressed in selected Bank projects and
programs.
Ethics program
Develop modern ethics management program,
35 including updating the Code of Professional Underway
Ethics, providing integrity awareness training
for staff, and investigating and addressing
allegations of staff misconduct.
COSO and internal controls
Review adequacy of internal controls.
Audit major risk areas of the Bank.
Continue control self-assessments in Bank
37 units. Underway
Report status of internal controls to the
Audit Committee.
Managing directors and vice presidents to
annually submit a letter of representation on
the adequacy of internal controls in their
respective areas.
Legend
COSO = Committee of Sponsoring Organizations of the Treadway Commission
Note: This table provides the status of the World Bank's implementation of
its anticorruption action plan, which was presented to the Board in November
1998 and updated in July and December 1999.
Source: World Bank.
The Committee of Sponsoring Organizations of the Treadway Commission's
Management Control Framework
In 1995, the World Bank adopted the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) framework to establish a common definition of
management controls for all Bank units and a standard against which unit
managers and auditors can assess and measure progress in improving
management controls. GAO and other professional bodies use this framework,
referred to as the "Internal Controls−Integrated Framework," as a
standard in evaluating management controls. (See GAO's Nov. 1999 standards
that update and replace the previous standards first issued in 1983).22
The COSO framework emphasizes accountability and ownership of controls at
all levels. Under this model, the effectiveness of a management control
system is measured by its capacity to provide reasonable assurance to the
Executive Board of Directors and management regarding the achievement of
their objectives in the following three categories:
� effectiveness and efficiency of operations,
� reliability of financial reporting, and
� compliance with applicable laws and regulations.
Under COSO, management control is defined as consisting of five interrelated
components that form the criteria for effective control. The five components
are used as the criteria to evaluate the strengths and weaknesses of the
controls and to identify what actions can be taken to improve controls. All
five components must be present and effective in order for management to
have the reasonable assurance needed. These components include the
following:
Control environment. An organization should establish a positive control
environment, that is, one with a structure, discipline, and climate
conducive to sound management controls. Factors that significantly affect
the control environment include the integrity and ethical values of
management and staff, the competence of personnel, the way the agency is
organized, the manner in which management assigns authority and
responsibility, and the attention and direction provided by oversight
groups.
Risk assessment. An organization should properly identify, analyze, and
manage the possible risks involved in meeting organizational objectives.
Control activities. An organization should establish control activities
consisting of policies, procedures, techniques, and mechanisms that ensure
that management directives are being carried out to meet organization
objectives. They include approvals, authorizations, verifications, and
reviews of operating performance.
Monitoring. An organization should continually monitor and evaluate all
aspects of management control to assess the quality of performance over
time. Serious management control deficiencies should be reported to higher
levels, including top management and the Board of Directors.
Information and communication. An organization should identify, capture, and
communicate information in a form and time frame that enable people to carry
out their responsibilities.
In 1995, the Bank established a 5-year timeline to ensure that, by the end
of fiscal year 2000, management will be able to express assurance that
adequate controls are in place, not only for financial reporting purposes,
but also for efficiency and effectiveness of operations. The Office of
Controller made a commitment to
� meet the COSO standards for control effectiveness across the Bank's major
operational areas by the end of fiscal year 1996;
� extend the COSO standards for prudential controls to nonfinance
organizational units in the Bank in fiscal year 1997;
� assert that both the International Bank for Reconstruction and Development
and the International Development Association have maintained effective
controls over financial reporting as of June 30, 1997, and obtain the
external auditor's agreement;
� expand the application of the COSO framework during fiscal years 1998 and
1999, so that issues of organizational efficiency and effectiveness are
brought to light; and
� become an institution in which Bank management and staff will have the
ability and process in place to analyze the effectiveness of internal
controls for their areas of responsibility.
In order to meet these goals, the Office of Controller adopted the Control
Self-Assessment methodology for assessing controls based on the COSO
framework. This approach uses the staff from various Bank units to
� review the business unit's objectives, key processes supporting the stated
objectives, associated risks, and mitigating controls; under normal
circumstances, testing of key controls and documentation of testing is
required;
� hold workshops to (1) analyze obstacles and strengths that affect the
organization's ability to achieve key business objectives and (2) decide
upon an approach to address issues arising from the process;
� identify reportable conditions requiring control enhancements together
with the results of the control self-assessment workshop in the business
unit's action plan; and
� obtain representation letters from all the Bank's senior managers
acknowledging their responsibility for effective controls and confirming
that they have maintained an effective system of management control.
The control self-assessment methodology was initiated during fiscal year
1996. Bank management has issued a series of reports to the Audit Committee
of the Executive Board on the Bank's progress made in implementing the COSO
management control framework. The Internal Audit Division also issued annual
reports in 1998 and 1999 providing independent observations and findings on
internal controls in the Bank based on prior audits and the control
self-assessment workshops. In 1999, the Bank concluded that it met the COSO
criteria for effective internal control over financial reporting for the
International Bank for Reconstruction and Development and the International
Development Association. The Bank's external auditor examined management's
assertion and concluded that it was fairly stated, in all material respects.
Bank management has not made an assertion regarding the adequacy of internal
controls over operations.
World Bank Management Control Structure
Source: World Bank.
Management Controls in the World Bank's Project Lending
The Bank and borrowers share responsibility for establishing and maintaining
effective management controls. The borrower is responsible for execution of
project procurement and financial management in accordance with Bank
policies and procedures, as agreed with the Bank. The Bank is responsible
for monitoring and supervising procurement and financial management on a
continuing basis until project completion. The major management controls
that Bank projects are subject to are outlined as follows.
Project procurement capacity assessment: Prior to project approval, the Bank
independently assesses the adequacy of the procurement arrangements and
plans, focusing on the institutional capacity to carry out these
arrangements and assess risks involved. Based on this assessment, the Bank
and the borrower develop an action plan to address any deficiencies.
Contract award and management: During project implementation, the borrower
is responsible for ensuring that contracts for goods and works are awarded
and managed in accordance with the policies and procedures agreed to with
the Bank. For each contract, the borrower is required to document the
procurement process, including analyzing bids, and to make this
documentation, as well as the contract and other relevant information,
available to the Bank.
Prior procurement reviews: For procurement contracts above a specified
monetary threshold, the Bank reviews the procurement documents before the
contract award is made to ensure that the borrower follows Bank procurement
guidelines. The prior review thresholds vary by project, depending on the
implementing agency and type of contract awarded.
Ex-post procurement reviews: Contracts not subject to prior review are
subject to ex-post review by the Bank on a sample basis to ensure that they
were awarded in compliance with Bank procurement guidelines. Minimum sample
size varies by project and generally ranges from 5 percent to
20 percent of contracts, depending on the implementing agency.
Project financial management assessment: Prior to project approval, the Bank
independently assesses the adequacy of the financial management
arrangements, including accounting, financial reporting, and auditing
systems, to ensure that they can provide accurate and timely information on
project resources and expenditures. The assessment focuses on the borrower's
institutional capacity to carry out these arrangements and analyze the risks
involved. Based on this assessment, the Bank and the borrower develop an
action plan to address any deficiencies.
Financial accounting, reporting, and auditing : During project
implementation, the borrower is responsible for maintaining a financial
management system, including records and accounts, and for preparing
financial statements in a format acceptable to Bank adequate to reflect the
operations, resources, and expenditures related to the project. The borrower
must have the financial statements for each year audited by independent
auditors acceptable to the Bank.
Annual audited financial statements must be submitted to the Bank by an
agreed date and include (a) an assessment of the adequacy of accounting and
internal controls systems to monitor expenditures and other financial
transactions and ensure safe custody of project- financed assets; (b) a
determination as to whether the borrower and project implementing entities
have maintained adequate documentation on all relevant transactions; and (c)
verification that expenditures submitted to the Bank are eligible for
financing, and identification of any ineligible expenditures.
Prior approval of auditor: Bank staff are required to approve the auditor
based on a review of the auditor's independence, qualifications, experience,
and terms of reference and inform the borrower whether the auditor is
acceptable.
Review and follow-up of audit reports: Bank staff ensure that audits are
submitted on time, that their scope and quality are acceptable, and that any
deficiencies identified in the project's accounting and internal controls,
or in the reliability of financial statements, are corrected by the
implementing agency.
Prior review of project expenditures: For major contracts above a specified
monetary threshold, the Bank reviews the borrowers' withdrawal applications
before disbursing loan funds to ensure expenditures are authorized,
eligible, and adequately documented.
Ex-post review of project expenditures: Expenditures for contracts not
subject to prior review by the Bank are subject to ex-post review by Bank
staff to ensure that they were authorized, eligible, and adequately
documented. The sample size for such reviews is not clearly specified in
Bank guidelines.
Objectives, Scope, and Methodology
To determine whether the Bank's management control system provides
reasonable assurances that project funds are spent as intended, we assessed
each of the following components of that system: the control environment,
risk assessment, control activities, monitoring, and information and
communication. For each of the five components, we
(1) identified acknowledged management control weaknesses, (2) assessed the
Bank's progress in addressing those weaknesses or otherwise strengthening
management controls, and (3) identified remaining challenges in assuring the
improvement measures are consistent with COSO management control standards.
To identify acknowledged management control weaknesses, we reviewed numerous
internal Bank reports and special studies prepared by the Controller's
Office, the Internal Audit Department, the Operations Evaluation Department,
the Quality Assurance Group, and other Bank units and consultants. We also
interviewed a variety of senior Bank officials throughout the Bank for
additional background, details, and clarification of these issues.
To identify the progress made by the Bank in strengthening management
controls, we reviewed the Bank's 1997 anticorruption strategy and related
initiatives aimed at strengthening internal oversight units, improving
project management, and strengthening public institutions in borrower
countries to reduce opportunities for corruption. We interviewed and
obtained documentation about these initiatives from numerous World Bank
officials in Washington and in four countries. We also met with
representatives of the Board of Executive Directors Audit Committee, the
U.S. Department of the Treasury, and other multilateral institutions, such
as the International Monetary Fund, the Asian Development Bank, the United
Nations Development Program, and nongovernmental organizations.
To identify remaining challenges, we evaluated how key management control
units were implementing the World Bank's initiatives. With regard to
internal oversight issues, we reviewed the operations of the Office of
Professional Ethics, Oversight Committee on Fraud and Corruption,
Investigative Unit, and the Internal Audit Department, and other Bank units.
We reviewed their mandates, composition, reporting authority, policies and
procedures, and a random sample of reports and cases relating to allegations
of fraud and corruption in Bank projects. With regard to project management,
we reviewed the operations of key units involved in project implementation,
including the Operational Core Services Network, the Controller's Office,
and all six regional offices. We reviewed
12 randomly selected projects for 12 different countries approved between
November 1, 1998, and July 1, 1999, and a judgmental sample of 6 ongoing
projects approved prior to November 1998. As part of these file reviews, we
reviewed project documents, interviewed some Bank and borrower project
staff, and conducted several site visits. We also reviewed a variety of
internal Bank reports and studies on project management and supervision
conducted by the Internal Audit Department, the Operations Evaluation
Department, and the Quality Assurance Group, and other Bank units and
interviewed officials involved in preparing these reports and studies. With
regard to strengthening public institutions in borrower countries, we
examined a random sample of 30 country assistance strategies and related
documents approved since June 1, 1998, to determine how corruption and good
governance issues were addressed.
We did our work from January 1999 through December 1999 in accordance with
generally accepted government auditing standards.
Comments From the Department of the Treasury
Comments From the World Bank
The following are GAO's comments on the World Bank's letter dated
March 16, 2000.
1. We agree that an important dimension of the Bank's anticorruption effort
is provided through policy dialogue, lending for adjustment and public
sector reform, and advisory services as many borrowers lack well-functioning
public management systems, accountable organizations, and a strong legal
framework to prevent, detect, and redress corruption. Our report noted that
the Bank has helped launch over 350 anticorruption activities in 95
countries, including a variety of initiatives designed to help borrowers
strengthen public institutions and establish strong management controls on a
countrywide basis.
2. We agree that the Bank's role as a development institution is to work in
countries that may have weak controls and capacity. However, we disagree
that there is a blurring in the report between the Bank's internal controls
and those of the borrowers. The report focuses on the Bank's system of
controls to ensure project funds are used as intended, including its systems
for project supervision, monitoring, and auditing. The report also
recognizes that the responsibility for ensuring compliance with the Bank's
policies and procedures is shared by the Bank's borrowers, which execute the
projects, and the Bank, which supervises the projects through a variety of
approvals and reviews of borrower actions. (See app. V for a description of
the major management control activities.)
3. Our legislative mandate was to evaluate the control processes and
anticorruption programs at the World Bank; thus, we did not analyze the
anticorruption programs of other international financial organizations to
see whether these organizations have reasonable assurances that project
funds are being used as intended.
GAO Contacts and Staff Acknowledgments
Harold Johnson, (202) 512-4128
Stephen M. Lord, (202) 512-4379
In addition to those named above, Mark B. Dowling, Barney L. Gomez, Luisa
Joy G. Labez, Rona H. Mendelsohn, Zina D. Merritt, James B. Michels,
Gertrude O. Moreland, and Lawrence L. Suda also made key contributions to
this report.
(711371)
Table 1: The Status of the Action Plan, as of December 1999 37
Figure 1: Anticorruption Risk Assessments Among the World Bank's 10 Largest
Borrowers 23
Figure 2: Milestones in the World Bank's Efforts to Strengthen its
Management Control System, 1995-2000 36
1. The "World Bank" and "Bank" refer to the World Bank Group of
institutions. The World Bank Group is made up of the original "World
Bank"--the International Bank for Reconstruction and Development--as well as
the International Development Association, the International Finance
Corporation, the Multilateral Investment Guarantee Agency, and the
International Center for the Settlement of Investment Disputes. Our review
focused on the lending operations of the International Bank for
Reconstruction and Development and the International Development
Association.
2. Project lending totaled about $13.6 billion, about 47 percent, of the
Bank's total lending commitments for fiscal year 1999.
3. The action plan was the result of a number of initiatives flowing from
various units within the Bank. Several items, such as a major financial
management improvement initiative, were already underway at the time the
action plan was announced. The relative significance of steps in the action
plan varies as does their ease of implementation. (See app. II.)
4. The National Commission on Fraudulent Financial Reporting, known as the
"Treadway Commission," was created in 1985 by the joint sponsorship of the
American Institute of Certified Public Accountants, the American Accounting
Association, the Institute of Internal Auditors, the Institute of Management
Accountants, and the Financial Executives Institute.
5. Public Law 105-277, 112 Stat. 2681-167 (Oct. 21, 1998). The Congress also
mandated that we review the Bank's personnel procedures, especially
regarding the protection of individuals who have alleged that mismanagement,
fraud, and abuse of Bank funds have occurred. For our assessment of Bank
personnel practices, see World Bank: Status of Grievance Process Reform
(GAO/NSIAD-99-66, May 13, 1999).
6. We reviewed 12 randomly selected projects for 12 different countries
approved between November 1, 1998, and July 1, 1999, and a judgmental sample
of 6 ongoing projects approved prior to November 1998.
7. These voting shares apply to projects financed through the Bank's
market-based lending.
8. It is recognized that no matter how well designed and implemented,
management controls cannot provide absolute assurance that program funds
will be used as intended. For example, human mistakes, judgment errors, and
acts of collusion to circumvent controls can limit their effectiveness.
9. On July 21, 1999, the Bank reported that its external auditor, Deloitte
Touche Tohmatsu, agreed with this conclusion.
10. Sixty-six calls did not result in an investigation.
11. For example, see The World Bank Procurement Function − Adjusting
to Emerging Needs (Washington D.C.: World Bank, Apr. 1998), and Loan
Administration Change Initiative (LACI) − Implementation Strategy
Paper (Washington D.C.: World Bank, June 29, 1998).
12. Figures for financial management specialists and procurement specialists
are as of August 1999 and June 1999, respectively.
13. The Bank had 87 country missions as of the end of fiscal year 1999.
14. 1998 Annual Review of Development Effectiveness (Washington, D.C.: World
Bank, 1999).
15. Quality at Entry in Calendar Year 1998: A Quality Assurance Group
Assessment (Washington D.C.: World Bank, July 1999).
16. For example, see Helping Countries Combat Corruption: The Role of the
World Bank (Washington, D.C.: World Bank, Sept. 1997).
17. For example, the World Bank Institute has developed six clusters of
governance indicators for over 150 countries. The six clusters are (1) voice
and accountability, (2) political instability and violence, (3) government
effectiveness, (4) regulatory burden, (5) rule of law, and (6) graft.
18. The information on Bank "misprocurements," that is, expenditures that
have not been procured in accordance with Bank procurement rules and related
loan agreements, covers the period from January 1996 to November 1999. Data
on bank misprocurements occurring before this date are not available, as
they were not centrally tracked. Debarment data are through March 24, 2000.
19. Approved since November 1, 1998.
20. Supervision Quality in Fiscal Year 1999: A Quality Assurance Group
Assessment (Washington, D.C.: World Bank, Oct. 7, 1999).
21. According to Bank procurement staff, the assessment addresses the Bank's
performance in conducting prior review of proposed contract awards but not
ex-post reviews of contracts awarded without the Bank's prior approval.
22. Standards for Internal Control in the Federal Government
(GAO/AIMD-00-21.3.1,
Nov. 1999).
*** End of document. ***