Managing the country programme for results: Audit - Karen Juergens

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  • Managing the country programme for results: Audit - Karen Juergens

    1. 1. ASIA AND THE PACIFIC  Annual performance review  WORKSHOP 1-4 March 2009 Bangkok, Thailand
    2. 2. Combating Fraud and Corruption in IFAD-funded Projects and Programmes IFAD, Office of Audit and Oversight Karen Juergens
    3. 3. Kofi Annan <ul><li>“ Corruption hurts the poor disproportionately – by diverting funds intended for development, undermining a government’s ability to provide basic services, feeding inequality and injustice, and discouraging foreign investment and aid.” </li></ul><ul><li>Secretary-General of the United Nations - Statement to the General Assembly on the UN Convention Against Corruption </li></ul><ul><li>(31 October 2003) </li></ul>
    4. 4. Overview <ul><li>Context </li></ul><ul><li>IFAD’s Anti-corruption policy (“rules”) </li></ul><ul><li>Fraud/corruption indicators </li></ul><ul><li>Prevention & practical countermeasures (“tools”) </li></ul><ul><li>Investigation process </li></ul><ul><li>Your input </li></ul>
    5. 5. How big is the problem? <ul><li>$40 billion per year in corrupt money flowing out developing countries. </li></ul><ul><li>40 % of annual official development assistance funds. </li></ul>
    6. 6. It’s only 10%? <ul><li>IFAD-financed procurement: > USD 500 million a year  50 million </li></ul><ul><li>No one works for free – 10% is the profit margin </li></ul><ul><li>Domino effect: Fraud committed to recover the bribe, kickback </li></ul><ul><li>Poor quality – bridge built badly / falls down </li></ul><ul><li>The bribe was too much – bridge is not built </li></ul>
    7. 7. The problem <ul><li>Delays in implementation </li></ul><ul><li>Selection of unqualified contractors </li></ul><ul><li>Inflation of costs </li></ul><ul><li>Failure to complete works </li></ul><ul><li>Deters investment </li></ul><ul><li>Prevents development </li></ul><ul><li>Adds to unproductive debt </li></ul>
    8. 9. Transparency International Corruption Perception Index
    9. 11. This …
    10. 12. … won’t help!
    11. 13. The IFAD Anti-Corruption Policy <ul><li>Approved by the IFAD Executive Board in 2005 </li></ul><ul><li>Established a zero-tolerance policy towards fraud and corruption both at HQ and in IFAD activities and operations in the field </li></ul>
    12. 14. Zero-Tolerance <ul><li>The Fund shall apply a zero-tolerance policy where it has determined, </li></ul><ul><li>through an investigation performed by the Fund, the borrower or another competent entity, that fraudulent, corrupt, collusive or coercive actions have occurred in projects financed through its loans and grants, and it shall enforce a range of sanctions in accordance with the provisions of applicable IFAD rules and regulations and legal instruments. “Zero tolerance” means that IFAD will pursue all allegations falling under the scope of this policy and that appropriate sanctions will be applied where the allegations are substantiated. This policy applies to IFAD-funded activities whether supervised directly by the Fund or by a cooperating institution. The Fund will continue to improve its internal controls, including controls inherent in or pertaining to its project activities, so as to ensure that it is effective in preventing, detecting and investigating fraudulent, corrupt, collusive and coercive practices. The Fund shall take all possible actions to protect from reprisals individuals who help reveal corrupt practices in its project or grant activities and individuals or entities subject to unfair or malicious allegations. This policy is in line with the policies adopted by the other international financial institutions. </li></ul>
    13. 15. Meaning? <ul><li>All significant allegations received will be investigated </li></ul><ul><li>Appropriate sanctions will be applied in all proven cases </li></ul>
    14. 16. Obligation of IFAD staff and consultants <ul><li>1.3. Staff members and consultants have an obligation to report potential or alleged fraud/corruption without delay . </li></ul><ul><li>3.2. Staff members and consultants are required to cooperate unreservedly with any investigation conducted by OA and to respond promptly and fully to OA requests for information. </li></ul><ul><li>IFAD President’s Bulletin 2007/02, Annex I </li></ul><ul><li>IFAD Investigation and Sanction Processes </li></ul>
    15. 17. It is the Government’s money - Does IFAD have the right? <ul><li>IFAD member states agreed AC Policy </li></ul><ul><li>Loan Agreement </li></ul><ul><li>To be used only for the purposes for which the financing was provided** </li></ul><ul><li>To help rural poor, not project / government officials or suppliers  beneficiaries’ money </li></ul><ul><li>Highly concessional loan - not commercial* </li></ul><ul><li>Other IFAD restrictions: non-objections, project design and audit reports </li></ul><ul><li>Reputational risk </li></ul>
    16. 18. Types of fraudulent/corrupt practice <ul><li>Corrupt practices </li></ul><ul><li>Fraudulent practices </li></ul><ul><li>Collusive practices </li></ul><ul><li>Coercive practices </li></ul><ul><li>Embezzlement </li></ul>
    17. 19. Conflict of interest <ul><li>Interests that could improperly influence performance of official duties or responsibilities, contractual obligations or compliance with applicable laws and regulations </li></ul><ul><li>Problem if undeclared , may constitute a prohibited practice under the anticorruption policy </li></ul>
    18. 20. Why is this a problem? <ul><li>Perception of corruption – undermines confidence in the process </li></ul><ul><li>Leads to false accusations </li></ul><ul><li>Protect yourself – be transparent </li></ul><ul><ul><li>declare every connection to suppliers </li></ul></ul><ul><ul><li>declare property ownership in relevant areas </li></ul></ul>
    19. 21. How do I know? <ul><li>The $ in your pocket – if it comes from a supplier, it’s probably not allowed </li></ul><ul><li>Would I be happy for IFAD to know about it? </li></ul>
    20. 22. Red Flags of fraud / corruption <ul><li>Persistent high prices </li></ul><ul><li>Poor quality works </li></ul><ul><li>Unnecessary agents (“middlemen, ”local partners”) </li></ul><ul><li>Inadequate/incomplete documentation </li></ul><ul><li>Lack of or inadequate inspections </li></ul><ul><li>Project official ‘micro managing’ </li></ul>
    21. 23. Bid Manipulation Red Flags <ul><li>High prices </li></ul><ul><li>Connections between bidders </li></ul><ul><li>Vague/narrow bid specifications </li></ul><ul><li>Split contracts just below threshold ($9,999) </li></ul><ul><li>Same bidders bid, rotation of winning bidders </li></ul><ul><li>Questionable disqualification of bidders </li></ul>
    22. 24. How to combat the problem
    23. 25. How to combat the problem <ul><li>Acknowledge </li></ul><ul><li>Prevent: Training; contractor compliance; </li></ul><ul><li>voluntary disclosure programs </li></ul><ul><li>Transparency: Project financial details (contract log; proc. plan); CoI; </li></ul><ul><li> checks & balances </li></ul><ul><li>Encourage and facilitate reports of concerns; </li></ul><ul><li>Enforce sanctions: withhold payments; </li></ul><ul><li>debar; refer violators f. prosecution </li></ul>
    24. 26. Practical countermeasures <ul><li>“ Rules but no tools?” </li></ul><ul><li>Accountability for results: </li></ul><ul><ul><li>Red flags present? </li></ul></ul><ul><ul><li>Fair price? - Good quality? </li></ul></ul><ul><li>Look behind the documents, “Professional Skepticism” </li></ul><ul><li>Closer reviews/SPN and inspections, procurement audits </li></ul><ul><li>Publicize contract register, procurement plan </li></ul><ul><li>Inquire and report to IFAD </li></ul><ul><li>Prevent: Get beneficiaries & civil society involved </li></ul><ul><li>Create complaint mechanisms </li></ul>
    25. 27. What will IFAD do? <ul><li>We will call or e-mail you </li></ul><ul><li>We will corroborate what you say </li></ul><ul><li>We will come and investigate if credible </li></ul><ul><li>We will be discreet </li></ul><ul><li>We will exercise “healthy suspicion” </li></ul><ul><li>We will support you </li></ul>
    26. 28. What will we NOT do? <ul><li>Fly across the world whenever an allegation is made </li></ul><ul><li>Shut down the project immediately </li></ul><ul><li>Tell your boss what you said about him </li></ul><ul><li>Tell other staff/suppliers that you have spoken to us </li></ul><ul><li>Pay you anything or give you a better job following your complaint </li></ul>
    27. 29. Protection from retaliation and from malicious accusations <ul><li>Retaliation against good faith complainants / witnesses not tolerated* </li></ul><ul><ul><li>“ no proof ” </li></ul></ul><ul><li>Absolute confidentiality throughout the investigative process </li></ul>
    28. 30. What do we need? <ul><li>Details </li></ul><ul><ul><li>Who? </li></ul></ul><ul><ul><li>What? </li></ul></ul><ul><ul><li>Where? </li></ul></ul><ul><ul><li>When? </li></ul></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><li>How? </li></ul></ul><ul><li>Documents </li></ul><ul><li>Discretion </li></ul>
    29. 31. Then what? <ul><li>Investigation </li></ul><ul><li>Try to work with government </li></ul><ul><li>Suspension or Debarment of firms / individuals </li></ul><ul><li>Criminal prosecution </li></ul><ul><li>Suspension of loan </li></ul><ul><li>Cancellation of loan </li></ul>
    30. 32. Contact ? <ul><li>[email_address] </li></ul><ul><li>Tel: +39 06 5459 2006 </li></ul><ul><li>anticorruption@ifad.org </li></ul><ul><li>Confidential online complaint form: www.ifad.org/governance/anticorruption </li></ul>
    31. 33. Substandard goods <ul><li>   </li></ul>
    32. 34. First class transport links
    33. 36. Universal Healthcare
    34. 37. Sustainable infrastructure
    35. 38. High quality schools
    36. 39. Diversion of resources: School?
    37. 41. Actual school
    38. 42. Questions?
    39. 43. Definitions
    40. 44. Corrupt practices <ul><li>“ the offering, giving, receiving, or soliciting, directly or indirectly, anything of value to influence improperly the actions of another party” </li></ul>
    41. 45. Fraudulent practices <ul><li>“ any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation ” </li></ul>
    42. 46. Collusive practices <ul><li>“ an arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party” </li></ul>
    43. 47. Coercive practices <ul><li>“ impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party”. </li></ul>
    44. 48. Conflict of interest <ul><li>“ a situation in which a party has interests that could improperly influence that party’s performance of official duties or responsibilities, contractual obligations or compliance with applicable laws and regulations, and that such conflict of interest, if undeclared, may contribute to or constitute a prohibited practice under the anticorruption policy”. </li></ul>
    45. 49. AC Provisions
    46. 50. Paris Declaration on Aid Effectiveness Art. 4(v) <ul><ul><li>We commit ourselves to taking concrete and effective action to address the remaining challenges, including:… </li></ul></ul><ul><ul><li>“ corruption and lack of transparency, </li></ul></ul><ul><ul><li>which erode public support, impede effective resource mobilisation and allocation and divert resources away from activities that are vital for poverty reduction and sustainable economic development”. </li></ul></ul>
    47. 51. Agreement Establishing IFAD <ul><li>“ The Fund shall make arrangements to ensure that the proceeds of any financing are used only for the purposes for which the financing was provided […]” </li></ul><ul><ul><ul><ul><ul><li>Article 7, sec. 1 (c) </li></ul></ul></ul></ul></ul>
    48. 52. Model Loan Financing Agreement - August 2007 Article VI Remedies of the Fund <ul><li>Section 6.01. Suspension . (a) The Fund may suspend , in whole or in part, the right of the Borrower to request withdrawals from the Loan [Grant] Account […] if: </li></ul><ul><li>(k) The Fund has given notice to the Borrower that credible allegations of corrupt or fraudulent practices in connection with the Project/Programme have come to the attention of the Fund, and the Borrower has failed to take timely and appropriate action to address the matters to the satisfaction of the Fund. </li></ul>
    49. 53. General Terms and Conditions for Agricultural Development Financing <ul><li>Section 12.02. Cancellation by the Fund. </li></ul><ul><li>If any of the following events has occurred, the Fund may terminate the right of the Borrower to request withdrawal […] from the Loan Account: </li></ul><ul><li>(c) at any time, after consultation with the Borrower, the Fund hdetermines that corrupt or fraudulent practices were engaged in by representatives of any Loan Party, Project Party or beneficiary in respect of any amount of expenditures incurred during the procurement or the carrying out of any contract financed by the Loan, and that the Borrower has failed to take timely and appropriate action to remedy the situation; </li></ul>
    50. 54. General Terms and Conditions for Agricultural Development Financing <ul><li>Section 10.03. Visits, Inspections and Enquiries . </li></ul><ul><ul><li>The Loan Parties and the Project Parties shall enable agents and representatives of the Fund and the Cooperating Institution from time to time to: </li></ul></ul><ul><ul><li>(a) visit and inspect the Project, including any and all sites, works, equipment and other goods used for Project-related purposes; </li></ul></ul><ul><ul><li>(b) examine the originals and take copies of any data, accounts, records and documents relevant to the Loan, the Project, or any Loan Party or Project Party; and </li></ul></ul><ul><ul><li>(c) visit, communicate with and make enquiries of all Project personnel and any staff member of any Loan Party or Project Party </li></ul></ul>
    51. 55. IFAD Procurement Guidelines (projects) I Part A, sec. 15 <ul><li>“ It is IFAD’s policy to require that the staff of IFAD and the Borrower (including beneficiaries of IFAD loans) as well as all bidders, suppliers, contractors and consultants under IFAD-financed contracts observe the highest standard of ethics and integrity during the procurement and execution of such contracts.[...]” </li></ul>
    52. 56. IFAD Procurement Guidelines (projects) II Part A, sec. 15 <ul><li>IFAD </li></ul><ul><li>will reject a proposal for award if it determines that the bidder or consultant recommended for award has […] engaged in corrupt, fraudulent, collusive or coercive practices in competing for the contract […]; </li></ul><ul><li>(iii) will cancel the portion of the loan allocated to a contract […] if it determines […] that representatives of the Borrower or of a beneficiary of the loan engaged in corrupt, fraudulent, collusive or coercive practices during the procurement or the execution of that contract, without the Borrower having taken timely and appropriate action satisfactory to IFAD to remedy the situation; </li></ul><ul><li>(iv) will sanction (which includes the possibility of declaring ineligible) an individual or firm – either indefinitely or for a stated period of time – to be awarded an IFAD-financed contract if it […] determines that the individual or firm has […] engaged in corrupt, fraudulent, collusive or coercive practices […] “ </li></ul>
    53. 57. IFAD President’s Bulletin 2007/02, Investigation and Sanction Processes <ul><li>Annex I </li></ul><ul><li>1.3. Staff members and consultants who, in the course of their official duties, become aware of potential or alleged irregular practices have an obligation to report their observations and/or information in their possession to OA through any of the above mechanisms, without delay . </li></ul>
    54. 58. IFAD President’s Bulletin 2007/02, Investigation and Sanction Processes <ul><li>Annex 1 </li></ul><ul><li>3.2. Staff members and consultants are required to cooperate unreservedly with any investigation conducted by OA and to respond promptly and fully to OA requests for information. Staff members and consultants are also expected to provide any additional relevant information that might be unknown to OA, whether or not requested to do so. Additionally, staff members shall provide assistance to OA in its dealings with borrowers/recipients and projects/programmes with whom a staff member, by virtue of his/her duties, has more direct involvement. Failure to cooperate with investigations may constitute misconduct. </li></ul>
    55. 59. Consultants’ Declaration <ul><li>11. I understand that if in the course of my contract I become aware of potential or alleged irregular practices, I have an obligation to report my observation and/or information in my possession to the Office of Audit and Oversight without delay. </li></ul><ul><li>12. I understand that I have an obligation to cooperate unreservedly with any investigation conducted by the Office of Audit and Oversight even after the duration of my contract. </li></ul><ul><li>(to be signed by all IFAD consultants since 2008) </li></ul>
    56. 60. Contact ? <ul><li>[email_address] </li></ul><ul><li>Tel: +39 06 5459 2006 </li></ul><ul><li>[email_address] </li></ul><ul><li>Confidential online complaint form: www.ifad.org/governance/anticorruption </li></ul>

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