Corruption Warning Signs Is your Project at Risk? World Bank Fiduciary Forum March 2008 Snezena Mitrovic, Ahmadou Moustapha Ndiaye & Diomedes Berroa

What Warning Signals are about Information or action That could point out to potential fraud or corruption That should trigger measures to prevent or detect fraud or corruption

About the toolkit Support the implementation of the Bank’s GAC strategy Region’s responsibility to provide appropriate guidance Quick reference Collection of real-life experiences within and outside the Bank Not a comprehensive list Generally requires further investigation to establish the case Guidance to teams on managing fiduciary risks and the prevention of corruption Quick reference for awareness and to help project teams to identify issues which may require further review and seek appropriate guidance on follow-up. These signs only indicate that there could be one or more form of fraud and corruption, only after extensive review and investigation by specialists it could be established that F&C are involved.

Sensitive areas Project preparation Project implementation Procurement process Financial management Project preparation Justification of project/subproject selection criteria Responsibility for project administration Scope of the project (under or overestimating project costs) Manipulation of studies (unsupported conclusions or controversial recommendations) Non definition of or weak supervision/monitoring mechanisms Provision for discretional decisions (absence of clear criteria and procedures for decisions) Project implementation Absence of or weak monitoring and oversight Abuse of discretionary powers Procurement process Excessive recourse to emergency procedures Technical specifications tailored to particular suppliers Contracts with unusual payment patterns Time for submitting bids Limited access to information Financial management Discussed in further details in following slides

Corruption & Procurement Procurement is not the cause of corruption; BUT corruption could pervert procurement outcomes. Procurement is the government activity most vulnerable to corruption

Project Environment: C = M + D - A Questionable selection of components & implementation arrangements Manipulation of studies Market distortion Low transparency & harmful discretional power Limited oversight (civil society) Inadequate mechanisms for identifying & mitigating irregular schemes Impunity Lack of competitive procurement, coupled with abuse of direct contracting or sole sourcing Approvals not observing procedures Consultants with generic terms of reference and or unclear responsibilities Conflict of interest Excessive delays in procurement processes and payments while others are completed in short periods Inexistence or incomplete files supporting/documenting contract awards and contract management

Procurement process Excessive recourse to emergency procedures Technical specifications tailored to particular suppliers Contracts with unusual payment patterns Time for submitting bids Limited access to information Inadequate oversight mechanisms

Financial Management Focus Revisiting the concept of week capacity in the context of poor financial management conditions Enabling factor for F&C Deliberate efforts to undermine F&C prevention actions Excessive influence over the formulation of the project budget

Financial Management Focus (cont.) Attention to the budget execution stage where resources actually flow and assets change hands Poor accounting and reporting can in many instances be a deliberate attempt to conceal corrupt activities Weaknesses in the overall internal control, internal audit, and external audit

Second look Warning signs of fraud and corruption in projects may warrant a “second look” … ….. But better safe than sorry Think about interim conservative measures depending on the seriousness of the allegations Propose institutional strengthening actions including strengthening of control framework. Interim conservative measures could include: increasing controls, lowering statement of expenditures and/or procurement thresholds, suspending disbursement, etc. Propose institutional strengthening actions including strengthening of control framework. Review and revise the financial management and procurement arrangements and processes. Review and revise audit terms of reference and other ex-post instruments.

Second look (cont.) Review and revise the financial management and procurement arrangements and processes. Review and revise audit terms of reference and other ex-post instruments. Interim conservative measures could include: increasing controls, lowering statement of expenditures and/or procurement thresholds, suspending disbursement, etc. Propose institutional strengthening actions including strengthening of control framework. Review and revise the financial management and procurement arrangements and processes. Review and revise audit terms of reference and other ex-post instruments.

The “S” Approach “S” Assessment “S” Supervision PR? Portfolio Procurement Review Fiduciary assessment beyond PIUs Risk base approach mitigation measures Web-base procurement information CS oversight Price monitoring mechanism Mainstreaming PIUs “S” Supervision PFR Market structure PR? GAC is part of what the Bank has been doing for long time, just labeled differently Web-base (SEPA): enhances transparency and competition in World Bank operations, enabling the Bank and country clients to monitory the implementation of procurement plans; (ii) providing updated information to the private sector on business opportunities, (iii) providing public disclosure of relevant information on contract awards and contract management (payments, modifications, etc). PFR: An in-depth review to supervise borrowers’ implementation of WB financed or administrative operations. Usually triggered when there appears to be systematic procurement problems in a sector/ institution/ operation. Provides timely information which could be used to make operational decisions about existing or future operations where allegedly corruption and or fraud have occurred. PFR does not represent or is equivalent to an investigation of alleged procurement fraud or corruption, which is INT’s core business.

Challenges Skills/management of resources Coordination/ organization Clarity/ roles Ownership (internal/ external) Managing expectations Budget Skills and allocation Coordination (within the Procurement Team, OS family, internal clients, CPAR) Ownership: Internal/ External Managing expectations: How to manage your managers Budget: at the project level: too many expectations with limited or not budget (service providers)