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Internal World Bank Report Finds Staff Fear Reprisal; Corruption Inadequately Addressed
Lending to Poor Countries Fails to Counter Wrongdoing;
New, Inherently Flawed Whistleblower Policy Pointed to as Solution
WASHINGTON - April 22 - The Independent Evaluation Group (IEG) of the World Bank has released its Review of IDA Internal Controls, which reveals that the Bank's lending to poor countries does not effectively address fraud and corruption ("F&C"). The Government Accountability Project (GAP) notes that the IEG review of the IDA (International Development Association) also states that: "Staff fear reprisal for reporting infringements," and "reported improprieties are not followed up on and resolved in a timely manner."
In addition, the IEG makes the claim that these deficiencies will be "addressed by the new whistleblower mechanism," which was approved in June 2008 by Bank officials. GAP, however, was consulted about the provisions of this whistleblower protection policy prior to its adoption, and immediately denounced the measure. The policy is palpably deficient and inadequate, as it contains coverage loopholes, inadequate compensation limits, and unjustifiable reporting restrictions - all of which render it virtually useless. Nearly eleven months after its approval, there are virtually no whistleblower cases under investigation at the Bank despite reports of both widespread corruption and retaliation.
Buried in the IEG review (Annex D to Volume II), the real problems appear:
Outside of risk assessments, the treatment of F&C considerations has often been sparse, although it has now begun to be addressed better in several important documents and processes:
Country/ Sector Strategy: The CAS [Country Assistance Strategy] and Sector Strategy processes have not systematically and seriously addressed fraud and corruption risk at the country level. Management is now trying to change this, and under the CGAC (Country Governance and Anti-Corruption Program) being undertaken as part of the GAC (Governance And Anti-Corruption Program) initiative it should become routine for a CAS to contain a section on country governance, which would often include F&C issues. (emphasis added)
"Former Bank president James Wolfensohn placed accountability and governance prominently on the Bank's agenda in 1996," said Bea Edwards, International Program Director at GAP. "Thirteen years later the report shows that World Bank staff have not yet been given the tools necessary to assess and address the risk of fraud and corruption. Nor have they been given the protections necessary to come forward and report misconduct inside the Bank itself or at counterpart agencies and vendors."
A lack of whistleblower protection leaves an institution such as the World Bank vulnerable to fraud and corruption, despite the presence of other internal controls, described in the review. A survey by PriceWaterhouseCoopers of more than 5,400 companies in 40 countries, shows that whistleblowers identify more fraud in private corporations than internal auditors, corporate compliance officers and law enforcement agencies.
The IEG report reveals that most of the Bank's efforts on F&C have been confined to "high-level speeches," "major reports" and "analytical programs." To date, according to the review, (Vol. II, Annex D, p. 41), project design documents do not directly address the issue; nor do guidelines for project supervision, financial management or procurement. "Country Systems" lending, through which the World Bank provides budget support to borrowing governments requires accountability assessments, but lacks real safeguards against fraud and corruption (Vol. II, Annex D, p. 47). In brief, there is an anti-corruption program on paper but very little in practice. Staff who consider implementing anti-corruption measures are reporting that they fear they are risking their careers at the Bank if they do so.
The Department of Institutional Integrity
More worrisome still is the fact that staff members in the Department of Institutional Integrity (INT), the unit specifically responsible for investigating corruption, reported fear of reprisal more than the staff of any other unit:
[S]eeking out F&C issues in projects and reporting on observed improprieties may lead to reprisals from their managers, and managerial signals and behavior are not always consistent with these messages. Overall, mixed messages and ambivalence are still considered prevalent.
"These facts paint a dismal picture of INT," said Edwards. She noted that the department has been controversial in its approach to dealing with international whistleblower concerns for years - highlighted during the Paul Wolfowitz scandal. Over the last few months, INT Director Leonard McCarthy has operated under a cloud of suspicion that he intervened politically in a high-level investigation for which he was responsible in South Africa.
Inadequately Addressing Issues from the Volcker Report
In preparing for the IEG report, Bank management claimed to have addressed F&C issues by adopting the recommendations made by a panel headed by Paul Volcker that examined complaints about INT nearly two years ago. The Volcker Panel insisted that corruption would only be addressed effectively through a "fully coordinated approach across the entire World Bank Group, ending past ambivalence about the importance of combating corruption."
The findings of the IEG review show, however, that this is precisely what management has not done:
- Investigators of corruption are themselves afraid of reprisal;
- The director of INT stands accused of politicizing an investigation in his previous post;
- Basic project and lending documents do not include a requirement to assess risk of F&C or address it;
- Safeguards against F&C do not exist for budget support loans, perhaps the most vulnerable of IDA funds;
- Staff members have not been adequately trained to recognize signs of corruption in projects, nor do performance appraisals include incentives to report F&C;
- Improprieties reported by staff are not addressed and resolved in a timely manner;
- Management also routinely fails to take timely actions to follow up on audit, investigatory, and evaluation findings of impropriety.
IEG and an Advisory Panel, which completed this final review of internal controls at IDA after Bank management and the Internal Audit Department provided their assessments of controls, disagreed with both sets of internal conclusions about the seriousness of the lapses. Management acknowledged a deficiency in addressing F&C but did not assign it significance sufficient to require reporting beyond IDA itself. Independent evaluators and the Advisory Panel, however, who prevailed over management's objections after months of internal battling, assessed the cumulative effect of the lack of safeguards and staff fear of reprisal as sufficiently serious as to place Bank funds and objectives for IDA at significant risk. The problem, according to IEG "rises to the level of material weakness," the most deficient of four possible ratings.