World Bank gets its audit numbers wrong

Will heads roll? The Bangladesh office of World Bank has got a key figure completely wrong in its rejoinder to New Age's article which was published on 29 June, titled 'World Bank health programme: Audit finds $70m spending irregularities'.

In its rejoinder, which is printed in full below (an edited version was published in New Age along with the paper's response), the World Bank claimed that there were a number of errors in the article - the main one being that the 2012/13 audit of the health program did not find $70 million of irregularities but instead $25.6 million.

$25.6 million is of course a large number, but nowhere near as large as $70 million, and if the World Bank was correct, would indicate that the article had made a serious error.

However, the World Bank was not correct.

Below is a table setting out each of the observations (dealing with expenditure) which is set out in the audit along with the amount of Bangladeshi taka involved and then in US dollars. The taka/dollar exchange rate used was Tk77.75 = $1, which is the exchange rate used in the audit itself.

As you will see the total amount of these financial irregularities is Tk 533.02 crore which is equivalent to $69.44 million.

Here is a first of a number of opinion pieces published today in New Age, relating to the two previously published reports on financial irregularities in the World Bank and donor supported health sector programmes. The two articles are:  'Audit finds $70m irregularities' and '$428m or irregularities in 8 years'.

The article below contains links to relevant documents:

Donors and audit transparency

July 5, 2014 12:05 am·

by David Bergman

THE financial irregularities identified in the donor-supported ministry of health programmes, implemented between 2003 and 2012, involve mind-bogglingly large numbers.
In the recently completed eight-year programme, irregularities involving $470 million were identified (‘428m irregularities in 8 years’, New Age, June 30) and in 2012–3, the most recent audit of the current health programme identified $70 million, which is nearly a third of the total audited expenditure. (‘Audit finds $70m spending irregularities’, New Age, June 29).
This does not mean that all the money was gobbled up by greedy ministry officials — some of it was also wasted, or spent on contracts given through illegal procedures.
The audits themselves raise a number of important questions about the integrity of development programmes in Bangladesh and how donors should respond to information about financial irregularities. However, this first article considers the transparency of donors towards the audit reports which they receive from government.

World Bank health program - $428m of irregularities in 8 years

In the second article in the series, New Age has published a report on financial irregularities in the 2003-2010 donor supported health program. Audit documents show that there were $428 million of irregularities. Below is a copy of the article.

(See first article: 'Audit finds $70m spending irregularities')

Also see end to access key original audit referred to in this article

WB-SUPPORTED HEALTH PROGRAMME

$428m of irregularities in 8 years

June 30, 2014 12:45 am·

David Bergman

Annual audits of a ministry of health development programme, funded jointly by international donors and the government of Bangladesh, identified financial irregularities amounting to $428 million between 2003 and 2010.
The $428 million (Tk3,287 crore) represents about one third of the $1.3 billion of expenditure audited by the Comptroller and Auditor General during the eight year period – a total which, according to the audit report comprised $526 million provided by international donors, and $728 million given by the government.
The major financial contributors included the World Bank which loaned $300 million, the European Union which gave $105 million, the British government $110 million and the Swedish government $68 million.
Although the World Bank and other international donors were aware of these irregularities, set out in a total of 435 audit observations, they went on to commit a further $2.13 billion for a new five-year ministry-implemented programme which has just completed its third year.
On Sunday, New Age revealed that the last year of audited accounts of this current donor-supported health programme had identified $70 million of expenditure irregularities, including illegal procurements, unauthorised use of money and unverifiable payments.
The extent of the financial malpractice in the now completed health programme is set out in an audit report relating to its final financial year 2010-11 which New Age obtained under the World Bank’s access to information policy.
The Foreign Aided Project Audit Directorate, a part of the Comptroller and Auditor General, completed the audit for the multilateral agency.
This audit set out that in 2003-4 the financial irregularities amounted to Tk 134 crore ($17.5 million); in 2004-5 it was Tk 8.9 crore ($11.6 million);  in 2005-6 it was Tk 702 crore ($91.5 million); in 2006-7 it was Tk 1,565 crore ($204 million); in 2007-8 it was Tk 562 crore ($73 million); in 2008-9 it was Tk 73 crore ($9.6 million); in 2009-10 it was Tk 53 crore ($7 million); and in 2010-11 the amount was Tk 106 crore ($14 million).
The audit report stated that out of the 392 audit observations identified between 2003-4 to 2009-10 (not including the 43 from the 2011-12 audit itself), only 88 had been ‘settled’, leaving Tk 3,222 crore ($420 million) as outstanding irregularities.
Not all of the $428 million irregularities relate to improper or illegal expenditure, as some of them concern the failure of ministry officials to collect tax from companies or to transfer
money from a programme to a government bank account.
An analysis of the details of the 43 audit observations identified in the year 2010-11, found that only 3.6 million out of the $14 million involved non-expenditure irregularities. Though, in the 2005-6 audit, nearly two thirds of the identified irregularities were not expenditure related.
The World Bank only provided New Age with three out of the eight audit reports covering the period between 2003 and 2010, so a full analysis of the nature of the irregularities has not been possible. The Bank told New Age that the five other reports could not be found.
The 2011-12 audit states that the $428 million of irregularities only involves the government of Bangladesh, not donor money.
Following its own examination, the World Bank concluded that only a small number of the identified irregularities over the eight year period were significant.
In its 2012 ‘Implementation, Completion and Results’ report assessing the success of the programme, the World Bank stated that ‘Between fiscal years 2006 and 2011, the World Bank 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 World Bank has not been willing to provide New Age with any further information on why it did not consider the remaining 356 audit observations to have been ‘material and substantive’.
In terms of achieving its objectives, the eight-year progamme is considered to have been relatively successful with many of its health indicators having been achieved. ‘It is fair to assume that the HNPSP has contributed significantly to the very positive achievements in the sector,’ the World Bank states in its report.
The Bangladesh government’s IMED report, however, stated (as quoted in the World Bank report) that ‘It is not possible to apportion these improvements to health sector interventions or specifically to HNPSP alone. A number of socio-economic factors seem to have influenced the outcome.’
Iftekharuzzaman, the executive director of Transparency International, Bangladesh criticised the World Bank for acting ‘inconsistent[ly] with the anti-corruption policy it preaches.’
‘If the World Bank can downplay the importance of the reported types of audit observations, a question may be raised if in effect they are also colluding with such practices and benefitting from [them],’ he said.

 Table listing irregularities in Health Sector Development Program

Year	Nos Paras	Financial involvement (GoB only) – Taka currency	Financial involvement in $*
2003/4	38	1,342,003,000	17,492,218
2004/5	68	892,683,000	11,635,597
2005/6	63	7,022,996,000	91,540,615
2006/7	58	15,659,407,027	204,372,785
2007/8	88	5,629,877,000	73,382,130
2008/9	46	734,033,000	9,567,688
2009/10	31	530,121,000	6,909,815
2010/11	43	1,058,843,438	13,801,400
TOTAL	435	32,869,963,465	428,702,248

* Exchange rate $1 = 76.72. This is the exchange rate given in  the 2010/2011 audit report

To see the page from the 2010/2011 audit report which contains this information, click here (please note that the doc does not include 2010/11 observations To download the whole 2010/2011 audit report, click here (big document)

'World Bank Health Programme: Audit finds $70m spending irregularities'

For those unable to access the New Age article on the website relating to financial irregularities in donor supported health program me, it is set out below.

Also see: (a)  Details of the illegal procurement, unsupported spendings, misuse of funds etc

               (b) Access the Audit report and other documents


[To see second article in the series: World Bank health program - $428m of irregularities in 8 years]

---------------

WB-SUPPORTED HEALTH PROGRAMME

Audit finds $70m spending irregularities

June 29, 2014 12:52 am·

David Bergman

In just one year, health ministry officials have misused at least $70 million of funds provided for a major development programme primarily financed by the World Bank and the governments of Britain, Canada, Sweden and the United States, according to an official audit report.
The audit of the Health Population and Nutrition Sector Development Programme found that between July 2012 and June 2013, $69.8 million (Tk 542.9 crore ) was spent either on irregular procurements, unverifiable expenditure, or on medicine and equipment which was excess of requirement.
The audit, seen by New Age, refers to ‘collusive’ tendering, ‘fictitious’ documents, ‘fraudulent practices,’ ‘misappropriated’ money, ‘useless’ purchases, ‘misuse’ of money, ‘lack of financial propriety’ ‘violation of fundamental accounting practices’ and inability of officials ‘to justify the genuineness of payments’.
The identified financial irregularities represent over 20 per cent of the total $321 million (Tk 2,498 crore) which the programme spent that year but since $102 million (Tk 796 crore) of the expenditure was not scrutinised in the audit, it reflects as much as one third of the amount of expenditure that was audited.
‘The audit is a tip of an iceberg,’ one senior auditor told New Age.
Md Neazuddin Miah, the secretary to the ministry of health and family welfare, accepted that there were many audit observations, but claimed that many ‘are very minor in nature.’
He said that the audit for 2012-2013 was ‘not finalised as we have asked the officers concerned to answer why they have made such irregularities’. He added that the ministry was waiting for a response from the audit office about the explanations ‘before taking necessary action against the line directors’.
According to the audit report, in 2012-2013, the project was financed by $220 million (Tk1,710 crore) from international donors with the remaining $101 million provided by the government of Bangladesh.
The audit was undertaken for the World Bank by the Foreign Aided Project Audit Directorate, which is part of the government-run Office of the Comptroller and Auditor General. The World Bank not only loaned $359 million (Tk 2,791 crore) for the five-year programme but also was given fiduciary oversight of how most of the international donor money given to the programme was spent.
New Age obtained a copy of the audit relating to the programme following a request to the World Bank under its access to information policy. World Bank considers the Comptroller and Auditor General, as the ‘independent auditor for all Bank projects’.
The audit report for the year 2012-2013, which was sent by FAPAD to the World Bank in December 2013, sets out 99 different audit ‘observations’ of which 33 were categorised as particularly serious. It is not stated how much of the $70 million relates to donor as opposed to Bangladesh government money.
An analysis by New Age of the audit observations found that improper procurement of goods, amounting to $29 million (Tk 224 crore), was the biggest contributor to the total amount of financial irregularities.
The audit detailed 25 apparently unlawful procurements involving contracts worth as much as Tk 132 crore ($17 million).  In one contract involving the expenditure of Tk 99 lakh ($129,000), the audit found strong evidence of ‘collusive practice’ between the ministry officials and the supplier.
The audit also identified $18 million (Tk 139 crore) in spending where there were no documents to support the legitimacy of programme payments. One example involves $6 million (Tk 46 crore) which was supposedly spent on training but where there were no ‘basic records or documents’ to support the claim, and another $1.7 million (Tk 13 crore) which was supposed to have been spent on foreign training but which the auditors said was only justified by ‘fictitious’ vouchers.
‘Unauthorised’ expenditure amounted to $12.1 million (Tk 94 crore) , and excess or ‘useless’ spending added up to a further $6.8 million (Tk 52 crore) – with the auditors giving examples of  the purchase of $1.5 million (Tk 13 crore) worth of vitamins, and $924,000 (Tk 72 crore) of hospital equipment which were not required.
In addition, $4.3 million (Tk 3.5 crore) had been spent on goods that were not received or, if they were, did not function properly.
The audit for 2012-2013 was no aberration. The previous year’s audit for 2011-2012, the first year of the programme, identified that $21 million (Tk169 crore) of the spending – just short of 10 per cent of that year’s total expenditure – was irregular.
In that audit, irregularities included $2.4 million (Tk 20 crore) given to suppliers although no goods were received, $1.3 million (Tk11 crore) supposedly spent on training sessions though there was no supporting authorisation or documentation, and $215,000 (Tk2 crore) spent on buying materials without any open tender.
The secretary to the ministry told New Age that in relation to the 2011-2012 audit, three or four ministry officers had given back about Tk 2 crore to government accounts, and that departmental action was being taken against them.
Internal donor documents show that before agreeing in 2011 to commit money to the five- year health programme, the donors recognised that there were significant financial risks involved.
An appraisal document written that year by the World Bank stated that the financial risks were ‘substantial’.
And the UK government also stated that the project’s fiduciary risk was ‘high.’
However, both reports went on to state that they considered sufficient safeguards were in place to minimise the risks.
In a statement to New Age, the World Bank stated, ‘The program is subject to annual audits and any allegations, or suspicions, of fraud and corruption have been shared with the program’s other donors and the Bank’s Integrity Vice Presidency.’
‘With respect to the fiscal year 2013 audit report, the World Bank fiduciary team is currently engaged in the due diligence process with the Ministry regarding observations made in that report.’
In an earlier meeting with New Age, the World Bank played down the significance of the 2012-2013 audit claiming that only 22 out of the 99 audit observations, amounting ‘to about $10 million’, was ‘serious from the World Bank’s perspective’.
The Bank declined to provide any details of which particular audit ‘observations’ the Bank considered were ‘serious’, and the details of why it did not consider the audit’s other 71 observations to be significant.
The $3.1 billion five-year Health Population and Nutrition Sector Development Programme, which started in 2011, is implemented by the ministry of health through 32 separate line directors.
The World Bank and international donors have committed to providing the ministry $2.16 billion over the period, two thirds of the total cost, with the Bangladesh government responsible for the remaining $1.17 billion.
Other than the World Bank, the programme’s main contributors are the United States government which is committed to giving $450 million, the UK government which will provide $191 million, the Canadian government which will give $102 million, the Swiss government is committed to providing $80 million and the German government $31 million.
Most of this donor money is pooled together and the World Bank has been given responsibility for the fiduciary oversight of its use in the programme.
In addition to the pooled money, there are a number of other donors, including the Japanese government, UNICEF, the European Union and other UN bodies, who give money directly to the ministry of health for use in the programme. This direct project aid, which in 2012-2013 amounted to $60 million was not audited by FAPAD, and the World Bank has no fiduciary responsibilities relating to its use.
The World Bank requires that FAPAD completes its annual audit of the programme’s activities within six months of the end of each financial year.
The $70 million of financial irregularities in the 2012-2013 audit do not include a further $3.7 million of irregularities which are ‘non-expenditure’ related – that is to say, involve ministry officials’ failure to collect tax from contractors, or their failure to transfer money from one account to another, as government rules require.
The audit report stated that it had only audited 70 per cent of the total $321 million expenditure, leaving about $100 million unaudited.