World Bank: Management Controls Stronger, but Challenges in Fighting Corruption Remain

In response to the GAO recommendation, the World Bank is combining the Bank's investigative unit and the ethics office into the new "Department of Institutional Integrity." Management of the new unit, currently being recruited internationally, has been elevated to that of a director level, and will answer directly to the Office of the President.

On October 8, 2002, Treasury reported that significant progress has been made in making the reporting of risks more explicit in the Bank's country assistance strategies (CAS) and in related project documents. Revised staff guidance stipulates that CASs should include a "thorough discussion of country risks (economic-financial, including domestic and external, political, social and environmental) and operational risks to the Bank (financial/creditworthiness as well as reputational)". All CASs are now required to include a detailed diagnosis of governance conditions in general, and corruption risks faced by Bank-supported projects in particular. On a country level, the Bank aims to carry out a Country Procurement Assessment Review and a Country Financial Accountability Report (collectively referred to as a "fiduciary assessment") for its client countries. The Bank aims to have the fiduciary assessment become one of the key diagnostic analyses that underpins the Bank's assistance to both middle- and low-income countries. All major client countries are expected to be covered by July 2003. The procurement and financial management issues identified during these reviews will help identify (1) the priorities for policy action and capacity building and possibilities for Bank support, and (2) the risk posed for Bank funds and suggested options to mitigate these risks. On a project level, as part of project preparation the Bank assesses the capacity of the executing agency to implement procurement, and assesses the risk involved. A plan of action is developed as part of the project design to address any weaknesses.

The World Bank is taking steps to better allocate its anticorruption assistance on the basis of risk. For example, the Bank has introduced a requirement that every country assistance strategy (a key lending document) explicitly discuss pertinent governance issues, including corruption issues, within borrowing countries. The Bank is also undertaking a review of its fiduciary controls for project and adjustment lending and aims to give priority to large and risky borrowers in the schedule for conducting procurement and financial management assessments. In fiscal years 2000 and 2001, assessments were conducted in countries such as Bangladesh, Brazil, Colombia, India, Indonesia, Mexico, Nigeria, Pakistan, Russia, and Uganda.

The Bank is refocusing the Internal Auditing Department's work more on operational compliance issues, with emphasis on compliance with procurement and financial management policies and procedures. The Bank is also taking steps to strengthen the Financial Management Board by dedicating a cadre of full-time staff to help implement the following goals: (1) establishing higher quality financial management assessments, disbursement, and loan accounting services to country teams and borrowers; (2) establishing quality financial management in all Bank projects; and (3) strengthening the professionalism of the Bank's financial management staff. The Bank is also working with borrowers to improve the quality of project audits. This is likely to be a long-term effort. On procurement, the Bank is developing a procurement compliance system to better monitor the Bank's compliance with key internal control requirements, such as spot checks of procurements over certain dollar thresholds.

In response to the recommendation, the Bank established a more focused and cohesive communications strategy on its anticorruption efforts. As part of this strategy, the Bank now issues regular public progress reports on its anticorruption activities. The first report was issued in June 2000, and is titled Helping Countries Combat Corruption--Progress at the World Bank Since 1997. The report is an anthology of the progress made by the Bank since 1997. The Bank expects that this will become a regular public disclosure exercise.