"Material Weaknesses" Cited in World Bank Fraud and Anti-Corruption Measures
Tuesday, April 28, 2009
In a report released this month, an Independent Evaluation Group (IEG) cited “material weaknesses” in the fraud and anti-corruption measures of the World Bank’s International Development Association (IDA). Such a performance rating of the one of the World Bank’s primary aid programs is cause for concern for the countries that fund the IDA’s activities, including the United States.
Established in 1960, the IDA’s goal is to “reduce poverty by providing interest-free credits and grants for programs that boost economic growth, reduce inequalities and improve people’s living conditions.” The IDA was created with internal control mechanisms to ensure that loans granted to client countries are “used as intended and show measurable results.” The report, which is the first of its kind carried out by a major development-oriented international financial institution, evaluates these control mechanisms and makes recommendations according to its findings. The evaluation was conducted in several stages and includes a review of the World Bank’s Internal Auditing Department and a management self-assessment. In addition, the IEG’s findings have been reviewed and validated by a “senior outside advisory panel.”
While the IEG commends the IDA for its overall effectiveness, high standards and transparency, it also cites some important problem areas. The IEG names several “significant deficiencies” related to the IDA’s internal control mechanisms. Most worrying, however, is the evaluation of the fraud and corruption controls used by the IDA to ensure the proper use of loaned funds. The IEG gives this aspect of the IDA’s operations its lowest possible rating of “material weakness.” According to the IEG, such a weakness “could potentially increase the risk of misuse of funds for IDA and its development partners unless actions are taken.”
The Bank has argued that the rating the IEG assigned to the IDA’s corruption and fraud mechanisms are unfair, claiming that the report failed to take into account recent steps it has taken to improve in this area. The report, however, only adds to the discoveries of corruption within various World Bank programs that have come to light over the past year (for more information, please see the August 4, 2008 Global Governance Watch® post).
The IEG concludes its report by making several recommendations to the IDA to improve its fraud and corruption performance. These recommendations include incorporating specific fraud and corruption controls into general risk management and “key processes” for aid programs; hastening the implementation of the World Bank’s Governance and Anticorruption (GAC) program; and bolstering IDA controls over fiduciary and governance systems, both within the IDA itself and in client countries. The Bank states that it has begun to develop a plan of action to address these recommendations, and hopes to have the changes implemented by June 2009.
Jim Kelly is the President of Solidarity Center for Law and Justice, P.C., a public interest civil and human rights law firm based in Atlanta, Georgia. The opinions expressed herein are his own.
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