U4 Helpdesk Query

Content

• Part I provides information about measures agencies take to prevent corruption and mismanagement in donor-supported development projects and programmes.
  
• Part II presents a selection of donor mechanisms geared towards discovering corrupt practice in donor-supported projects and programmes.
  
• Part III addresses possible responses to corruption and mismanagement uncovered in donor-supported development projects and programmes.
• Part IV provides a list of selected literature for futher information.

U4 helpdesk reply

The query is understood to relate to the most appropriate means for donors to prevent, identify and respond to corruption and mismanagement in the development projects and programmes they support at country level. This response is based on Kpundeh's analysis of the approaches taken by four donor agencies in this regard (the World Bank, UNDP, SIDA and NORAD). It addresses mismanagement (i.e. leakages) in addition to corruption in recognition of the negative impact of poor governance on development outcomes, regardless of the intention of the perpetrators. Given the context of the query (an internal donor training course), the response will focus on practical measures of relevance to donor agency staff, though it does not constitute a detailed training guide in these measures. It is, in addition, important to note that corruption in donor-supported development projects and programmes is the consequence of a complex set of political, economic and social factors that are beyond the scope of this brief overview. A selection of further reading on this topic is provided at the end of this response.

Background

Donor development assistance is provided in a number of ways, including direct budget support to finance ministries, support for sector-wide programmes and support for smaller-scale projects. Over the past few years, donor assistance has shifted away from individual donor-supported projects, focusing increasingly on a 'holistic' approach whereby partner countries themselves determine development goals and strategies in collaboration with donor agencies. This approach prioritises sector-wide and general budget support, bringing to the fore overall partner government policies and their implementation. Placing development partners "in the driving seat", however, has generally not implied a weaker anti-corruption focus. Rather, this focus has shifted towards the totality of checks and balances in place at country level. In this context, tackling corruption and mismanagement in donor-supported development projects and programmes is a complex task that requires a strengthening of both internal donor procedures and development partner capacities. The strategy adopted by a particular donor agency will, to some extent, determine the relevant importance of individual measures.

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Part I: Preventing corruption and mismanagement in donor-supported development projects and programmes

The following section provides a discussion of preventive measures taken by a number of different agencies.

i) Strengthening internal donor practices and procedures

Selecting projects
Mainstreaming anti-corruption within the project selection process is a key preventive measure. Assistance strategies and decisions made without regard to corruption risks are likely to increase rather then prevent instances of abuse. Most donors now explicitly consider corruption in formulating assistance strategies. The World Bank addresses governance and corruption explicitly in its Country Assistance Strategy (CAS), which provides the overall framework for its country reform programmes. Since 1997, each CAS is required to contain a diagnosis of a country's governance conditions and an assessment of project risks. The following factors, in particular, are considered:

a) the likelihood of corruption in Bank projects during or following their design and implementation;
b) the extent to which development objectives are compromised;
c) government's willingness to control corruption if it threatens the effectiveness of Bank projects and/or economic and social development.

SIDA's overall approach to project selection also incorporates a thorough assessment of potential corruption risks. A logical framework approach (LFA) is used to examine the partner country's ability to meet specific anti-corruption criteria and a country strategy similar to the Bank's CAS is developed. All project proposals are scrutinised to ensure compliance with current donor directives and particular attention is paid to at-risk country sectors.

Strengthening donor procurement and disbursement procedures
Even in carefully selected projects and programmes, corruption may still occur if donor procurement and disbursement strategies are open to abuse. The World Bank seeks to ensure its projects set an example of best practice in this area. It examines the accountability and financial management systems of its partners both in the public and private sectors. As part of its approach, it periodically launches in-depth surprise procurement audits of selected projects to identify weaknesses in its procurement supervision system. SIDA's internal controls are monitored by its Division for Planning and Control. This division provides tools to ensure transparent and secure financial management and also allows for independent staff to conduct internal audits.

ii) Strengthening partner accountability and capacity

Strengthening partners' ability to deal with corruption is an important aspect of preventing abuse in donor-supported projects and programmes. The extent and nature of this work will, to a great extent, depend on the size and character of the partner in question (i.e. government ministry, local or international non-governmental organisation). The World Bank seeks to support broad public sector reform to improve the management of public resources, addressing various aspects of policy and institutional development that are critical in reducing corruption. In addition to providing financial assistance and expertise to promote such reform, the Bank also supplies special assistance in the form of:

a) help in the design of governments' anti-corruption programmes;
b) conducting surveys that diagnose the extent and character of corruption in a given country;
c) disseminating the results of these surveys; and
d) facilitating and providing workshops and training for government officials and member of civil society.

The UNDP, too, prioritises support for institutional development and reform at country level as a means to create an enabling 'good governance' environment. Its staff seek to construct a framework for institutional change that fosters relationships between state and civil society. Like the World Bank, the UNDP conducts studies and supports workshops that build and strengthen national capacities to develop and implement anti-corruption reform, though it focuses less on training governments than it does on training members of civil society.

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Part II: Identifying instances of corruption and mismanagement in donor-supported development projects and programmes

Many of the preventive measures developed to deter corruption in donor projects and programmes are also of use in identifying particular instances of abuse. The following is a selection of donor mechanisms geared towards unearthing corrupt practice.

i) External audits of selected projects

As mentioned above, surprise external audits of selected projects and programmes can help identify systemic weaknesses both on the part of donors and development partners. They are also of use in uncovering specific instances of abuse. The World Bank periodically launches in-depth surprise audits of its own projects, conducted by internationally recognised audit firms. The audits have revealed a number of deficiencies ranging from departure from agreed procurement procedures to a lack of proper documentation surrounding the procurement process. As a consequence, it has declared 'misprocurement' on about 40 contracts with a total value of USD 40,000.

ii) Hotlines for reporting corruption

Telephone hotlines can provide a central focus point for collecting reports about corruption in donor projects and programmes. Since 1998, the World Bank has operated a free hotline operating 24 hours a day, seven days a week, staffed by multilingual trained specialists. The sole purpose of this service is to accept complaints of abuse from Bank staff and the general public from countries around the world. All complaints are handled seriously and investigated for their accuracy.

iii) Access to information

Strengthening access to information about development projects and programmes is key to enabling the identification of corrupt practice. Promoting access to such information is, in part, a preventive approach aimed at enhancing scrutiny of development activities in a particular context. This encompasses both access to information on the part of development partners and on the part of donor agencies. Good access to information is, however, also an integral aspect of identifying particular instances of corruption. For telephone hotlines to work, for example, the public, journalists, members of parliament and donor agency staff themselves must have appropriate access to information about development activities and objectives. A key aspect of NORAD's anti-corruption policy is that all grants to governments, non-governmental organisations and other partners are accessible not only to the contracting parties but also to journalists and the general public. All NORAD grants are, furthermore, published on its homepage and on all Norwegian Embassy homepages.

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Part III: Responding to corruption and mismanagement in donor-supported development projects and programmes

Donor agencies have, over time, developed a number of response strategies for dealing with instances of corruption involving their own projects and programmes. The World Bank, for example, has established an Oversight Committee on Fraud and Corruption to review all allegations of fraud or abuse that involve Bank financed contracts. This committee is responsible for supervising all investigations of fraud, including those involving Bank staff. A number of possible responses are available to donors when addressing instances of corruption. These include instigating an internal review process to identify whether all formal requirements are being met; consulting with other donor agencies present in a particular partner country; and initiating high-level political dialogue with partner governments. Where corruption and mismanagement are found to have taken place, options include the following:

i) Debarment from future projects/contracts

Though most donors have not adopted such a system, one possible option is to debar contracted development partners found to have committed fraud or corruption in the execution of donor-supported projects or programmes. The World Bank has developed procedures that allow for the debarment of firms found to have engaged in fraud or corruption in Bank-financed activities. A list of all firms currently ineligible for World Bank-financed contracts is available on its website.

ii) Internal enforcement measures against staff involved in corruption and fraud

For instances in which donor staff themselves are found to be involved in corrupt or fraudulent practice, it is important for donor agencies to define clear policies with regard to internal enforcement measures. The selection process for investigators, appropriate procedures for securing evidence as well as possible sanctions should be detailed and clearly communicated within and outside the organisation. The manner in which such measures are implemented is a key issue. Concerns about the possible negative consequences of strong internal enforcement measures can lead agencies to depart from their own written codes. This points to the need for policy development on the basis of wide consultation with staff and other stakeholders, as well as for regular assessments comparing theory with practice.

iii) Legal action by recipient country authorities

Donor projects and programmes occur within specific national legal jurisdictions. As such, investigations into allegations of corruption involving such projects/programmes may be carried out by the relevant national authorities, potentially followed by prosecutions and sanctions. In countries where governance is weak and/or the penalties for engaging in corruption are deemed excessively severe, however, donors are often reluctant to address corruption in this manner. In relation to cases of fraud and corruption involving World Bank-financed contracts, the Bank notes that investigations carried out by national authorities should be conducted in a manner that fairly protects the privacy of the accuser and the rights of the accused firm.
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Part IV: Selected further reading

1. Mick Foster and Jennifer Leavy, The Choice of Financial Aid Instruments (Overseas Development Institute: 2001)

This ODI working paper provides a well-structured overview and general discussion of the choice of aid instruments available to donor agencies.

2. Organisation for Economic Cooperation and Development, Development Assistance Committee, Synthesis Of Lessons Learned Of Donor Practices In Fighting Corruption (OECD: 2003)

This document provides a review of donor experiences and lessons about what works and what does not in fighting corruption in developing countries.

3. The World Bank, Preventing Fraud and Corruption in World Bank Projects: A Guide for Staff, (World Bank: 2000)

In this guide for its staff, the World Bank identifies four important areas where corruption and fraud may occur within Bank projects: (1) the project design stage, (2) the procurement stage, (3) the implementation stage, and (4) the financial management stage. The Bank then outlines the opportunities for both corrupt and fraudulent practices within each of the four crucial stages. This is intended to provide staff with a fairly comprehensive inventory of different ways fraud and corruption may occur during different stages in the project. The document provides training and guidance to staff in the field with varying degrees of experience in project management in order to improve capacity and limit the opportunities for fraud.

4. Ritva Reinikka and Jakob Svensson, Survey Techniques to Measure and Explain Corruption, (The World Bank: 2003)

With appropriate survey methods and interview techniques, it is possible to collect quantitative micro-level data on corruption. Public expenditure tracking surveys, service provider surveys and enterprise surveys are highlighted with several applications. These surveys permit measurement of corruption at the level of individual agents, such as schools, health clinics, or firms. They also permit the study of mechanisms responsible for corruption, including leakage of funds and bribery.

5. Bastøe, P.Ø. & Masst, M, 'How to Prevent Corruption in Development Aid-Funded Projects and Programs', in: Gabriel, L., Stapenhurst, R. & Thomas, M. (eds), The Role of Bilateral Donors in Fighting Corruption (The World Bank: 2000)

In order to ensure the integrity of donor funds and the effectiveness of donor projects, the authors recommend focusing on administrative improvements, institutional development, raising awareness, increasing transparency, improving competence and being more selective in the projects and countries that donors support.

6. M Dorschel, 'Preventing Corruption in German Financial Cooperation with Developing Countries', in Gabriel, L., Stapenhurst, R. & Thomas, M. (eds), The Role of Bilateral Donors in Fighting Corruption (The World Bank: 2000)

This paper presents an overview of Kreditanstalt für Wiederaufbau's (KfW) work on preventing corruption in its own projects. It emphasises the selection process, influencing partners and projects, restricting discretion and, if necessary, imposing sanctions. The paper also refers to a review undertaken to evaluate KfW's anti-corruption procedures.
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