Business Integrity Conference, Jakarta, Indonesia, November 2016

Ensuring Development Resources Reach Beneficiaries

Development and Corruption: Why We Care

CORRUPTION- impacts delivery - diverts development finance and work from intended purposes, - distorts competition, - and undermines the rule of law

From the Annual Report of INT

Included a review of investigations over the last seven years: 292 final investigative reports finalized between July 2008 and Dec 2015 involved approximately 6 core schemes: 1) bribery and kickbacks; 2) solicitations through agents; 3) embezzlement during contract execution; 4) conflict of interest (steering contracts; 5) document fraud; 6) material misrepresentations of experience and qualifications

Misrepresenting past experienceFalse financial guarantees Substitution of key personnel without prior clearance

Failure to disclose an agent/agent feesUsing others’ experience without their consent

Misconduct Types: Fraud …

A “fraudulent practice” is any act or omission, including a misrepresentation, that knowingly or recklessly (To act “knowingly or recklessly”, the fraudulent actor must either know that the information or impression being conveyed is false, or be recklessly indifferent as to whether it is true or false) misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation.

6

: Corruption

MoneyVacation/Fake Study ToursCars / GoodsServices Illegal Goods Favors

[…] the offering, giving, receiving or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another

party.

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Price Fixing

Market distribution

Bid Rotation

Sub-contracting

: Collusion

A “collusive practice” is an arrangement between two or more parties designed to achieve an improper purpose, including to

influence improperly the actions of another party.

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Impede participation in procurement Threaten RelativesDamage PropertyFire employeeRefuse Services

: Coercion

A “coercive practice” is 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.

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A spreading issue: Shell Companies

“International corporate headquarters”Located by simple on-line background checks

Prevention Activities: Addressing Integrity Issues in Bank Projects/ProgramsEngagement Type Activities (examples)

1. Advisory Engagements

Advice on integrity management in high-risk operations Input into Country Strategies and analytical work Technical assistance to client countries on building national

integrity systems

2. Thematic IntegrityReviews

Sector/Practice: agriculture, roads, health Country: country integrity profiles and surveys Region: Overviews of INT results from investigations, allegations,

advice

3. Staff Training Integrity Clinics (including for Executive Directors and staff) On-boarding (Bank-wide) Outreach and training of field staff

4. Capacity Building

Training of Project Implementation Units in detection of red flags Capacity building for national oversight agencies Training and awareness raising among private contractors and

CSOs

5. Knowledge Products

Fraud and Corruption Awareness Handbook Red Flags Brochures and Online Red Flag Tool Self-Assessment of GAC Risks Checklists

6. Follow-up on Investigations

Prepare recommendations in Investigation Reports for operations’ follow-up

Input into the intake prioritization process Follow-up on complaints not being investigated

TIP: Contract awardsor execution risks:(The “SPQQD” factors)

S Improper selection P Inflated price Q Inflated quantitiesQ Substandard quality D Short delivery

…and finallyF fraud

General Fraud and Corruption Prevention Strategies

Basic approaches: Assess credible independent

Oversight and Monitoring – build if missing

Better procedures and controls Enforcement

Key concepts:• Transparency Accountability Independence

“Tone at the Top” that prioritizes Integrity is a crucial factor

Fraud awareness training Ethics and disclosure policies Fraud controls: segregation of duties,

rotation of assignments, enforced leave, etc.

Ensure independent inspections and monitoring

Capturing integrity issues in supervision reporting

Regular fraud audits – Be aware of and follow up on red flags– Exercise “professional skepticism”– Look behind the documents: triangulate

the information

Exercise contract audit rights Community involvement