Tuesday, July 8, 2014

World Bank scrutiny of government audits - a tip of an iceberg?

Below is the second op-ed in New Age relating to the audit reports of the donor supported health program. You can read the first one here looking at the transparency of donors in providing access to these audit reports.

The relevant New Age articles upon which this op-ed is based are:
'Audit finds $70m irregularities' and
'$428m or irregularities in 8 years'.

WB scrutiny of govt audits: a tip of the iceberg?

by David Bergman
Whilst the World Bank can certainly be applauded for making public the government audits on donor-supported health programmes (‘Donors and audit transparency,’ New Age, 5 July), a more pressing question is how well it, and, indeed, other donors, responded to the reports themselves.
The audit reports would not have made easy reading for donors, suggesting as they do, that millions of dollars were stolen or misused on these two  programmes.
So what did the World Bank, which is not only responsible for its own money but also that of other donors, do when it received these reports?

The World Bank says, ‘When the final audit report is shared with the World Bank each year, the bank fiduciary team does a detailed review and flags those observations which are considered “material” to the [ministry] for clarification and resolution. Based on clarifications received and supporting documents, further scrutiny may be considered necessary. The audit review carried out by the Bank fiduciary team may lead to a withholding of disbursements and/or declaration of ineligible expenditures.’
In relation to the 2006-2011 programme, the audit reports identified 266 audit observations involving $308 million in irregularities.
The World Bank subsequently stated that in these five years, it had ‘identified 36 audit observations (worth $68.14 million) as material and substantive from the observations raised by the Foreign Aided Projects Audit Directorate (FAPAD) auditors.’
The most recent audit of the current programme identified 97 observations involving $70 million of expenditure irregularities. The World Bank has stated that 22 of these observations amounting to $10 million were considered to be ‘material.’
So in relation to 2006-2011 and 2012-13 respectively, the World Bank considered that 230 observations amounting to $240 million of irregularities, and 71 observations amounting to $60 million were not ‘material.’
That is a lot of irregularities that the World Bank has put aside. Is that justified?
It is difficult to answer this question as the World Bank has not been willing to provide any information on which of the audit observations it considers ‘material’ and why it considers other observations not to be significant. The lack of openness is troubling. It is not sufficient for the World Bank to make the audits public, it needs to be open about its process in dealing with these alleged irregularities.
One issue that remains unclear is whether in assessing which audit observations to take up with the Bangladesh government, the World Bank is only concerned with those involving donor money or whether it also raises with the government those observations that relate to government money as well.
The World Bank has not yet responded to a query about whether, for example, the 22 audit observations it has taken up with the government in relation to the 2012–2013 audit only involves donor money
It is, of course, also possible that some or, indeed, many of the audit observations may not be up to scratch — that is to say that the World Bank does not view the CAG reports to be wholly reliable so that although the observations appear serious, when looked into, they are not. If this is the case, this then raises questions about whether the World Bank and donors should be relying on the CAG to undertake the audit in the first place.
Apart from the way it deals with the audit observations, there are other issues about the World Bank’s response to the overall scope of the audit.
The 2012–2013 audit report stated that its financial review did not cover 30 per cent of the expenditure, which amounts to about $101 million. Even if this in part comprises $60 million of the money given by what is known as direct project aid (which will usually be audited by the donors themselves), this still means that $40 million of programme expenditure has not been audited.
In light of the widespread financial irregularities identified by the audit, why has the World Bank not required that this additional expenditure be scrutinised?
Also, the audit report makes clear that the auditors only scrutinised a sample of the vouchers, which means only about 10 to 20 per cent of the total. This is apparently standard practice and, no doubt, is sufficient when an audit finds in the sample that there are no or very few irregularities. But when such serious irregularities are identified following the scrutiny of only a small percentage of the vouchers, should not the World Bank then seek a more rigorous audit involving a much greater number of vouchers?
And this raises the question as to whether six months, which is the time which the World Bank gives the CAG to undertake the audit and complete its report, is sufficient. Understandably, the World Bank  wants the audit done quickly. However, auditors at the office of the comptroller and auditor general say that it is very difficult for them to do a proper audit of such a huge programme in this short period of time.
Apparently the CAG has asked the World Bank for more time but it has not been allowed.
And there is one further important point. The audit given to the World Bank only involves the government’s development budget and does not include the normal health ministry expenditure which amounts to around an additional $4 billion, and which is technically part of the programme. Are the World Bank and donors not interested in whether this $4 billion, which amounts to more than the total expenditure that is audited annually over the five years of the programme, is expended correctly?
Altogether, the points above raise the question of whether the World Bank is really interested in getting to the bottom of financial irregularities in its programme.
World Bank officials, no doubt, would throw their hands up aghast at such a suggestion.
But they only have themselves to blame for people wondering whether this might be the case.
First, there is the lack of transparency in how the bank has come to its conclusion that so few of the audit observations are considered significant.
Second, there is the failure of the World Bank to ensure that all of the programme development budget expenditure is audited.
Third, in light of the significant irregularities identified in the programme, there is the failure, to require that more than just a sample of vouchers were scrutinised in the audit.
Fourth, there is the issue of whether the World Bank has given the government’s audit team enough time to do a proper job.
And then finally, there is the matter that the audit received by the World Bank and donors does not include scrutiny of the government’s non-development budget contribution to the programme which will amount to about $4 billion.
It may seem unlikely that an organisation like the World Bank, wiling to rescind the Padma bridge loan because of corruption allegations, would be willing to go light on financial irregularities, but at the same time one needs to appreciate that the organisation is a conflicted one.
Yes, there is a genuine commitment within the bank against corruption and irregularities but there are reasons to believe that its governance concerns can get overshadowed by those in the bank who want to make loans and those who want to keep the projects going without interruption, particularly those programmes that seem to be having a positive impact.
In the first New Age report, an audit official is quoted as saying that the audit is ‘the tip of an iceberg.’ (‘Audit finds $70m spending irregularities,’ New Age, June 29).
One must wonder whether the World Bank really wants to see the full iceberg?

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