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

2. 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

3. 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.

4. 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

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

6. 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

7. 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

8. 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

9. 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

10. 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.

11. 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.

12. 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.

13. 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)