Managing fraud and corruption risks in development projects
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Managing Fraud and Corruption Risks in Development Projects. Department of Institutional Integrity World Bank. INT’s Mandate. INT is to play a key role in ensuring that Bank Group and Donor funds are used for their intended purposes. To this end, INT is tasked to:

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Managing Fraud and Corruption Risks in Development Projects

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Managing fraud and corruption risks in development projects

Managing Fraud and Corruption Risks in Development Projects

Department of Institutional Integrity

World Bank


Int s mandate

INT’s Mandate

INT is to play a key role in ensuring that Bank Group and

Donor funds are used for their intended purposes.

To this end, INT is tasked to:

  • Investigate allegations of fraud and corruption (F&C) in Bank Group operations + allegations staff misconduct

  • Use its expertise & lessons learned from its findings to recommend measures to prevent misuse of these funds

  • Train staff to prevent/detect F&C in WBG operations

  • Devise proactive efforts to identify and eliminate F&C

    INT Terms of Reference (Approved by Board July, 2004)


Int what we do

INT - What We Do

  • Investigateallegations of fraud, corruption, collusion

  • Assess Risk in Bank projects and programs and mainstream information into future operations

  • Advise staff early in the project design stage on measures that can protect projects from fraud and corruption

  • Train Bank staff and clients on fraud and corruption

  • Deter malfeasance through education, proactivity, and publication of sanctions

  • Promote an environment whereby staff can report allegations without fear of retaliation

  • Contributeto the international fight against corruption


Gac and int

GAC and INT

  • INT has a role within the broader governance and anti-corruption agenda together with other Bank entities

    Strengthening Governance and Anticorruption

    Strategy:

  • Need for “feedback” loop to incorporate lessons learned from INT investigations into future project designs and sector and system reforms

    GAC Implementation Plan:

  • INT has role in preventing corruption at all phases of the project cycle


Volcker panel review

Volcker Panel Review

  • Independent panel (Feb. 2007) chaired by Paul Volcker

  • As part of strengthening the Bank’s governance and anti-corruption (GAC) strategy

  • To review INT’s role, responsibilities and working relationships in and outside the Bank

  • Input from Bank staff, other MDBs, Governments and Civil Society

  • Final Report – September 13, 2007


Volcker implementation

Volcker Implementation

  • Working Group established in September 2007

  • Staff views and public comments incorporated

  • Report was published in January 2008

  • All recommendations were accepted

  • Ensured that implementation strengthens GAC strategy


Preventive services unit psu

Preventive Services Unit (PSU)

  • Created in response to Recommendation 3 – The Need for an INT Consulting Unit

    • PSU has NO clearance function

    • Identified need for rotation of investigative and operational staff into PSU

    • Responds to Volcker recommendation for greater integration of INT with Operations


Int and the project cycle

INT and the Project Cycle

Classic (Reactive) Focus:

Complaint-triggered investigations

during and after implementation

Country

Assistance

Strategy

Identification

Evaluation

Preparation

Implementation

and

Completion

Implementation

and

Supervision

Appraisal

Negotiations

and Board

Approval

Pro-active (Preventative) Focus:

Risk-specific advice and

training in parallel with the

Project Cycle


Key business lines psu

Key Business Lines PSU

  • Fraud and corruption risk assessment and mitigation advice to operational staff

  • Training of both WBG staff and client stakeholders

  • Research to distill lessons learned and promulgate best practices

  • Support to client anticorruption functions


Psu resources

PSU Resources

  • Seven staff members (1 GH, 1 GG,

    2 GF, 2 GE, and 1 GC)

  • Expertise in Bank operations, PR, FM, training, research, outreach and DB management

  • Staffing budget: $1,300,000

  • Work budget: $500,000


Challenges

Challenges

  • Establishing a knowledge database

  • Prioritizing the many competing demands

  • Recruiting new staff

  • Clarifying working modalities vis-à-vis the Investigations Unit

  • Positioning the PSU as a constructive partner among internal clients


Opportunities

Opportunities

  • Become a preferred partner for adviceto operational colleagues based on the advantages

  • Become a positive agent of changeof attitude towards issues of fraud and corruptionin Bank projects by operational staff

  • Foster an environment in which managers encourage staff to be alert of and report indicators of fraud or anticorruption in Bank Group operations


Value added by psu

Value Added by PSU

  • Center of knowledge of fraud and corruption

  • Expertise in on-the-ground governance issues

  • Diverse background of INT staff

  • Findings in different sectors/regions/countries


Psu knowledge database

PSU Knowledge Database

  • Engine of the Preventive Services Unit

  • Organization of Findings and Recommendations from:

    • INT Investigative Reports

    • Detailed Implementation Reviews (DIRs)

    • Voluntary Disclosure Program (VDP) Disclosures


The two pillars of psu

The Two Pillars of PSU


Operational advice

Operational Advice

Fraud and Corruption Risk Assessment and Mitigation Advice


Objective

Objective

Present a structured approach to staff in

operations to help prevent fraud and

corruption throughout the project cycle


Benefits of psu advice

Benefits of PSU Advice

  • Mitigation measures have been considered on a rational, cost-benefit basis

  • Task Team’s accountability in the supervision phase has been clarified up-front

  • Risk control framework can be adjusted in light of events and INT’s experience in Region and Sector


Some common pitfalls 1

Some Common Pitfalls (1)

  • Fraud and corruption risks not mentioned, even where relevant

  • Risks are described at too high a level

  • Mitigation measures are not specific in terms of who does what when

  • Government and donor roles in risk mitigation not mentioned / explicit


Some common pitfalls 2

Some Common Pitfalls (2)

  • Capacity building efforts seen as synonymous with risk mitigation

  • Supervision, prior review thresholds, etc. are not linked to specific threats

  • Monitoring framework not clearly spelled out

  • No integration of fraud & corruption risks in overall risk mitigation and reporting plan


Building blocks

Building Blocks

  • Task Teams / Regional teams are the most valuable resource for identifying risks

  • Past project audit reports, ICRs, etc.

  • Knowledge of donors, government officials and trusted third parties

  • Lessons learned from INT investigations, DIRs and VDP disclosures


Risk assessment

Risk Assessment

Identifying and Prioritizing Risks

  • Identify Fraud and Corruption Threats

  • Identify Critical Decision Makers

  • Identify Critical Project Assets

  • Identify Control Weaknesses

  • Determine Possible Impact

  • Rank Risks


Identify fraud corruption threats

Identify Fraud & Corruption Threats

Identification

Design

Procurement

Implementation

Project benefits decision makers constituency

Specifications tailored to particular company

Bidders collude to seek higher prices

Goods not delivered according to specification

Project benefits particular company / few companies

Officials steer contracts to favored bidders

Invoices are over-paid

Invoices are over-paid

Officials demand facilitation payments

Officials exclude eligible beneficiaries

Ineligible beneficiaries misrepresent their status

Beneficiary payment for free services

Officials embezzle project funds

Higher

Medium

Lower


Identify control weaknesses

Identify Control Weaknesses

Procurement

Financial Mgt.

Oversight

Supervision

  • Procurement staff split contracts to avoid Bank prior-review

  • Poor document retention

  • Just below threshold

  • ECE is leaked

  • Contract awarded prior to Bank’s NOL

  • Audit clause is omitted from the contract

  • Procurement manuals not existing

  • Procurement plan is poorly defined

  • BEC Members steer contracts

  • Procurement documents are not retained

  • Ledger cannot be balanced

  • Accounting records are not matched with invoices

  • Receipts are missing

  • Audits are not effective

  • Supervision agent signs-off on poor quality work

  • Time set aside for supervision not adequate in light of risk

  • Supervision does not target key risk areas

  • Team does not have adequate skills to detect implementation related fraud and corruption


Example of risk control framework

Example of Risk Control Framework


High impact probability risks

Bidders collude to inflate prices in contracting for the construction of five highway segments

4

8

32

Accountants or Senior PMU officials embezzle project funds by falsifying receipts when paying administrative expenses

Accountants or Senior PMU officials embezzle project funds by falsifying receipts when paying administrative expenses

Transportation Minister or Jr. Minister divert project funds to non-critical roads by including such work in the project design

Transportation Minister or Jr. Minister divert project funds to non-critical roads by including such work in the project design

5

3

15

High Impact/Probability Risks

8

8

64

Bidders collude to inflate prices in contracting for the construction of five highway segments

Who does whatwhenwith which immediate impact?


Risk mitigation 1

Risk Mitigation (1)

When looking at mitigating risks, consider:

  • Strengthen Project Safeguards - internal control mechanisms, audits, transparency measures, etc.

  • Deter Corrupt Actors-through additional government vigilance, prosecution and public information

  • Strengthen Third Party Monitoring - press, parliament, NGOs and project beneficiaries


Risk mitigation 2

Risk Mitigation (2)

  • Strengthen Bank/Donor Supervision-set aside additional resources for design, procurement and supervision phases

  • Outsource - outsource government procurement and financial management to independent agencies/companies


Learning and outreach

Learning and Outreach


Target groups

Target Groups

  • Internal:

    • TTLs, staff in procurement, financial management, operations, network anchors, and senior management

  • External:

    • other MDBs, anticorruption and law enforcement agencies in client countries, and specialized NGOs


Specific objectives

Specific Objectives

  • Share information about F&C schemes, patterns & trends

  • Provide skills development opportunities in:

    • F&C risk assessment and risk mitigation

    • F&C detection

    • How to handle potential cases of F&C

  • Create synergies with PREM, OPCS, WBI

  • Partner with other MDBs and anticorruption agencies


1 st priority needs assessment

1st Priority: Needs Assessment

  • Objective:

    • Identify the fraud and corruption knowledge and skills needs of Bank staff

    • Identify preferred knowledge sharing tools

  • Execution:

    • Survey (online)

    • Focus Groups

  • Deliverable: FY09 Work Plan


Potential products

Potential Products

  • Outreach:

    • Intranet (incl. online discussion forum)

    • Publications

    • Presentations

  • Learning:

    • E-learning modules

    • Training/Workshops/BBLs

  • Tools:

    • Spreadsheet to detect cartels

    • Online searchable database of corruption schemes and red flags


How can psu assist fm

How Can PSU Assist FM?

  • How to assess corruption related FM risks and mitigate these risks

  • How to develop fraud and corruption specific audits and performance audits

  • How to increase transparency and disclosure on project financial management

  • How to come to an integrated approach of PR, FM and oversight


To contact preventive services

To Contact Preventive Services

Call or send an email to:

  • Juan Ronderos (Head PSU)

    34172 – [email protected]

  • Anders Agerskov (Operational Advice)

    34979 – [email protected]

  • Bart Stevens (Learning and Outreach)

    82563 – [email protected]


To contact preventive services1

To Contact Preventive Services

Call or send an email to:

  • Juan Ronderos (Head PSU)

    + 1 202 473 4172 – [email protected]

  • Anders Agerskov (Operational Advice)

    + 1 202 473 4979 – [email protected]

  • Bart Stevens (Learning and Outreach)

    + 1 202 458 2563 – [email protected]


Your ideas suggestions and comments

Preventive Services Unit

Your Ideas, Suggestions, andComments?

Thank you


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