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The Department of Institutional Integrity

Strategic Directions and Business Plan: A Summary

July lo,2003

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ACS AFCIU CAS CRS EXT FY HR IAD IFC IF1 INT LEG NGO OPCS PREM VPHR WBI

ABBREVIATIONS AND ACRONYMS

Administrative and Client Support Anti-Corruption and Fraud Investigations Unit Country Assistance Strategy Conflict Resolution System External Affairs Fiscal Year Human Resources Internal Auditing Department International Finance Corporation International Finance Institution Department of Institutional Integrity Legal Non Governmental Organization Operations Policy & Country Services Poverty Reduction and Economic Management Network Vice President, Human Resources World Bank Institute

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Department of Institutional Integrity

Strategic Directions and Business Plan: A Summary

Contents

Executive Summary **~..*.*.*.*.*.......*.****.............*.....*..ooooooooooooooooo~~.~o~~o.o. i

I . Introduction and Background ..**‘.....................ooooooooooo*oooooooooooooooo~ 1

A. The World Bank and the Anti-Corruption Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 B. Fighting Corruption - An Idea Whose Time Has Come ........................ 2 C. INT: A Start-up Operation in a Growth Industry ............................... 2

II . Evolution of the INT Business Model l oooo*oo~oooooo*oo~oooo*oooo*ooooo*o~ooo~oo~oo 3

A. The Mission and the Mandate ...................................................... 3 B. Early Experience: Building the Capacity to Respond . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 C. From Reactive to Proactive: Intensive Implementation Reviews ............ 4 D. From Reactive to Preventive: Incorporating Lessons Learned ................ 5 E. Closing the Loop: The Importance of Collaboration ............................ 5

III l The Vision and the Challenges *e*o~~eo~oo~~.~*...*.....oooooe~oooo.~e~o**~.~~**~~oo* 5

A. Where Do We Want To Be ......................................................... 5 B. What Are the Strengths We Can Build Upon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 C. What Else Do We Need To Get There ............................................ 6

IV . Getting From Here To There: Strategy and Resource Requirements l o**.o 7

A. Dealing with Staff Misconduct ..................................................... 7 B. Dealing with Fraud and Corruption in Bank Projects ........................... 9 C. Staffing and Budget Requirements ................................................ 11

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Tables:

Table 1: Internal Investigations Case Load . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Table 2: External Investigations Case Load ........................................... 9

Attachments:

Attachment 1: The Processing of Allegations Received by INT Attachment 2: INT Terms of Reference Attachment 3: Flags: Indicators of Possible Fraud or Corruption Attachment 4: The Investigative Process: Allegations of Staff Misconduct

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Department of Institutional Integrity

Strategic Directions and Business Plan: A Summary

Executive Summary

In 1996, President Wolfensohn launched the Bank into new and uncharted territory, declaring war on the cancer of corruption. Since then, much has been accomplished both within the Bank and with our borrowers in tackling the underlying issues. Support for the movement to tackle corruption more aggressively has grown apace. Indeed, fighting against corruption has become recognized as central to the fight against poverty. Like the environment movement of the early 1980s this is clearly an idea whose time has come.

Within the Bank, the public sector management group in PREM units, along with WBI and the greatly strengthened procurement and financial management groups, have led the charge, working with our borrowers to improve governance and accountability and to strengthen their capacity for sound fiduciary management. At the same time, the Bank introduced a new function (initially in IAD) to investigate fraud and corruption in Bank projects, and established hot lines, web pages and other channels to collect those allegations. From a small beginning, and in response to a growing number of allegations, the Bank’s investigative function has expanded rapidly. Subsequently, in 2001, it was established as a separate department - the Department of Institutional Integrity.

INT has been very much a start up operation, with some major successes, along with the inevitable growing pains. As a function that was very new to the Bank, and staffed with outsiders who lacked experience with the Bank’s business processes and familiarity with its culture, there were also some adjustment problems. Overall, however, there has been considerable progress in developing effective approaches and close working relationships with TNT’s partners in the Regions. Based on this early experience, and looking ahead to likely developments over the next 3-5 years, it is both timely and important to review what is expected of INT, how it should operate, and what it needs in terms of staff and resources to carry out its mandate. Hence, this paper.

What follows is a summary of the key points of INT’s agreed strategy. An earlier draft was reviewed by a broad cross-section of INT stakeholders, followed by a period of intensive consultations. This version reflects the outcome of those consultations, and has subsequently been reviewed and endorsed by Bank Management. In reviewing INT’s role and its future, the importance of adopting a more systematic approach to prioritizing the investigation of allegations of fraud and corruption in Bank projects through a triage methodology was widely recognized and accepted. It was also agreed that we should move to a more strategic approach to the allocation of INT’s investigative resources by Region and by country within each Region.

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The Vision - Where Do We Want To Be?

l A reputation for Bank projects within the business community of being well-above- average in their ability to prevent and detect fraud and corruption.

l Borrowers strengthening public sector accountability and controls and adopting standards of ethical behavior, stimulated in part by the results of INT investigations.

l Within the Bank, clarity on what constitutes ethical behavior, with cases of fraud and corruption nearly unheard of and cases of staff misconduct increasingly rare.

What Do We Need To Get There?

l A clear mandate, agreed with stakeholders, that confirms INT’s role and responsibilities for the investigation of fraud and corruption and staff misconduct.

l An agreed strategy to guide INT’s business development and expansion over the next few years, including a staffing plan and corresponding budget envelope.

l Better integration: adjustment of Bank staff/managers to the investigative function, and adjustment of new INT staff to the Bank’s culture and operations.

l Improved understanding among Bank staff of INT’s investigative processes and the priority which INT attaches to due process and the protection of staff rights.

* Better balance between priorities and staffing and resources, to deal with current workloads (and work/life balance) and to manage client expectations.

GOING FORWARD - THE AGREED STRATEGY

In many respects, the investigation of staff misconduct (about 30% of INT’s work) and the investigation of fraud and corruption in Bank projects (about 70% of INT’s work) are separate and distinct activities. They have very different growth prospects, and thus staffing and budget requirements, and they represent a very different set of challenges, and risks, for the Bank. Because of those differences, the related issues of strategy and staffing for internal and external cases are dealt with separately below, and in the main text.

THE STRATEGY FOR DEALING WITH STAFF MISCONDUCT CASES

Work closely with counterparts in Conflict Resolution System (CRS) to reduce the incidence of staff misconduct through outreach, education and awareness programs. Accept only those cases for which formal investigations are necessary, and refer other cases to CRS, HR or management, as appropriate, for resolution. Conduct full investigations wherever necessary, and do so in an efficient, impartial and professional manner, with the highest regard for fair processes and staff rights. Assign all field office misconduct cases to the Internal Investigations Unit, rather than to the respective Regional Teams, to reduce the excessive delays that have occurred when they are held hostage to the mission schedule for external cases. Ensure that INT’s Internal Investigations Unit has the right skills mix and the right number of Investigators to carry out investigations efficiently and effectively. Monitor work flows, report regularly on case loads and performance standards, and reflect results in future updates of our strategy, staffing plans and budget proposals.

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THE STRATEGYFORDEALINGWITH FRAUD ANDCORRUPTIONINBANKPROJE~TS

l Support country team efforts to prevent fraud and corruption in Bank projects and detect and identify it as early as possible through dissemination of lessons learned from INT investigations.

a Conduct preliminary investigations on all allegations received, but conduct full investigations only on cases rated high priority under the new rating system; low priority cases would be filed for information, but not investigated.

0 Medium priority cases would be kept under active review, but their place in the work program would depend on further developments and/or additional information that would lead to a decision either to drop them or to launch a full investigation.

l Wherever feasible, refer allegations of fraud and corruption to national authorities for investigation and the imposition of appropriate sanctions.

l Where such referrals are not feasible, work closely with Regional counterparts to implement the new approach to case management, and with EXT to manage the risks inherent in the adoption of that approach.

0 Ensure that INT’s External Investigations Teams have the right skills mix and the right number of Investigators to carry out investigations efficiently and effectively.

0 Monitor work flows, report regularly on case loads and performance standards, and reflect results in future updates of our strategy, staffing plans and budget proposals.

STAFFINGANDBUDGETREQUIREMENTS

In line with the agreed strategy, INT’s business plan calls for an increase in both staff and budgetary resources. Consistent with Management’s endorsement of that strategy, INT has received a significant budget increase for FY04.

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I. Introduction and Background

A . The World Bank and the Anti-Corruption Agenda

1 The fight against corruption by the World Bank was launched by President Wolfensohn in his Annual Meetings speech of October 6, 1996:

We need to address transparency, accountability, and institutional capacity. And let’s not mince words: we need to deal with the cancer of corruption. Let me emphasize that the Bank Group will not tolerate corruption in the programs we support; and we are taking steps to ensure that our own activities continue to meet the highest standards ofprobity.

2 . Before then, corruption was regarded primarily as a political issue and thus not within the mandate of the World Bank. Over time, however, there was increasing concern about the social and economic impact of corruption, including its impact on the effectiveness of development assistance. As a result of the Bank’s leadership, governance and accountability issues are now squarely on the development agenda. Dealing with corruption is recognized as a vital element in the fight against poverty - to ensure that development expenditures actually go to help the poor and that an efficient private sector is able to contribute to poverty reduction through rapid and sustainable growth. Attacking corruption, therefore, is essential to the Bank’s overarching mission of poverty reduction.

3 In September 1997, the Executive Directors endorsed the paper Helping Countries Combat Corruption: The Role of the World Bank which set out the basic framework of the Bank’s anti-corruption strategy. This strategy has four components:

* Preventing fraud and corruption in World Bank-financed projects; * Helping countries that request the Bank’s support in their efforts to reduce

corruption; * Mainstreaming anti-corruption in all aspects of the Bank’s relations with its

borrowing member countries; and l Adding voice and support to international efforts to reduce corruption.

4 Since 1997, the Bank has made significant progress in incorporating this agenda in its Country Assistance Strategies. Along with other donors, the Bank is supporting it through lending, policy analysis and advice, and direct technical assistance.

5 The Bank’s current investigations function grew from the first component of this strategy - preventing fraud and corruption in Bank projects. This function began with a small unit in IAD in 1997, and was established as a new and separate department - the Department of Institutional Integrity - in 2001.

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B . Fighting Corruption: An Idea Whose Time Has Come

6 The development of the governance and anti-corruption movement has many parallels with the environment movement of the early 1980s. Like that movement, fighting corruption is clearly an idea whose time has come. It, too, has often been driven by NGOs through their demand for social justice; it, too, has had to struggle early on to establish legitimacy, in part through rigorous analysis of economic impacts; it, too, has encountered powerful resistance from entrenched interests in government and business; but it, too, is gradually winning converts as the momentum shifts in favor of doing the right thing, especially for those most vulnerable - the poor and the disadvantaged.

7 As with the initial change efforts on the environment front, the experience of the Bank’s investigations function was very much that of a start up operation: rapid growth from almost nothing; external hiring to secure badly needed new skills and experience; developing operational policies and procedures on the go and adjusting them in the light of subsequent experience; new initiatives leading to some major early successes, along with the inevitable growing pains; with strong support in certain key quarters and less than a fully enthusiastic reception in others; but with a growing recognition that fighting fraud and corruption is not a flavor of the month phenomenon - that it is not going to go away, it is not optional, and we are not going to declare victory anytime soon.

c l INT: A Start Up Operation in a Growth Industry

8 . If the Bank’s experience with environmental issues is any indication, we can expect at least three stages of business growth and development. The first, noted above, is a naturally somewhat chaotic start-up phase which has characterized much of the past six years and is now essentially behind us.

9 The second stage (the next 3-5 years) is expected to be a more structured and orderly process as we: (a) shift from a largely reactive mode to a more preventive and strategic approach; (b) define more effective ways of integrating our work into anti- corruption strategies at the Regional and country level; (c) expand and regularize (as appropriate) staff, and adjust the skills mix to improve efficiency in the face of continued growth in demand, with a focus also on greater diversity; (d) enhance outreach programs of education and awareness to help mainstream an anti-corruption culture within the Bank; and (e) work closely with OPCS, WBI, PREM, IAD, LEG, Ethics and others across the Bank to achieve complementarity, avoid overlaps, and incorporate lessons learned from INT investigations into the Bank’s operating policies and procedures and into the Bank’s training program in core skills for Task Managers.

10 The third stage, which will no doubt overlap with the second; involves the progressive mainstreaming of these lessons of experience into the Bank’s operations, from core diagnostics and CAS documentation to sector strategies and the design of lending operations, to the measurement of results, including, hopefully, an improvement in the anti- corruption climate in our borrowing member countries.

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II. Evolution of the INT Business Model

A l The Mission and the Mandate

11 . In pursuing its mission of promoting development and reducing poverty, the Bank strives to ensure that its funds, as well as those funds entrusted to it, are used for their intended purposes. An effective program to fight fraud and corruption is important, therefore, both for poverty reduction and for ensuring the continued support of our member countries and other key stakeholders. To work effectively with others on this issue, we need to ensure that we have the proper mechanisms in place to minimize fraud and corruption within our own organization - and to respond swiftly and effectively when it does occur. As noted by President Wolfensohn in a note to all staff:’

I want to emphasize that I have full confidence in the integrity of the staff of our institution. Those instances where staff have not conducted themselves in accordance with the World Bank Group’s ethical standards are very rare. I do not believe we have a widespread problem in this regard but we cannot be complacent. As I have said before, even one case offraud or corruption is one too many.

12 Our core values as an institution, of course, go well beyond personal honesty and integrity. As a multi-national and multi-cultural organization, we are equally committed to promoting a positive work environment where respect and understanding are key to valuing our differences. Ensuring a workplace free of harassment, discrimination and other forms of inappropriate behavior helps to build this respect and understanding. Misconduct by Bank staff, therefore, is not limited to cases of fraud and corruption but extends to a variety of other aspects of behavior as well.

13 l Reflecting these concerns, INT’s original instructions were simply to investigate allegations of fraud and corruption in Bank projects and allegations of staff misconduct including, but not limited to, fraud and corruption. With time and experience, however, that original mandate has evolved. From a purely reactive and remedial effort to detect problems after they have occurred, with sanctions applied as a deterrent, we are beginnii to move toward a more proactive approach designed to prevent (or at least reduce) such problems before they occur. Our current mission, therefore, includes working closely w other agents of change across the World Bank Group to:

ith

l Reduce the risk of fraud and corruption in Bank-supported projects through a combination of investigations and sanctions in response to allegations and proactive measures for earlier detection and prevention; and

l Encourage the highest standards of personal honesty, integrity and ethical behavior within the Bank through a combination of investigations of allegations of staff misconduct (with referral to the VPHR for appropriate disposition) and outreach programs (led by the Ethics Office) incorporating the lessons learned.

’ James D. Wolfensohn, Memorandum To All Staff: New Measures To Combat Fraud and Corruption, October 15, 1998.

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B . Early Experience: Building the Capacity to Respond

14 Prior to President Wolfensohn’s 1996 Annual Meetings speech, investigations of fraud and corruption in Bank projects were normally limited to a review of procurement irregularities. Investigations of staff misconduct were handled by HR, but there was essentially no in-house capacity to investigate more serious allegations such as fraud and corruption. Following the President’s 1996 speech, professionals with expertise in fraud and corruption investigations were recruited, initially in IAD and subsequently in the Secretariat to the Oversight Committee on Fraud and Corruption. These two groups were combined in 1999 into the Anti-Corruption and Fraud Investigations Unit (ACFIU). Following a review by outside experts, it was decided to establish a separate department for this function - the new Department of Institutional Integrity - in 2001.

15 . In the same period, efforts to establish more effective channels for the receipt of allegations of fraud and corruption - international and local hotlines, a web page, etc., began to bear fruit. A tip from the hotline, for example, led to an investigation of Bank staff involvement in the receipt of payoffs in exchange for steering contracts funded by Bank-managed trust funds to specific consulting firms. This case has resulted in the terminations of three staff members, two criminal convictions, two additional indictments, and the debarment of three individuals and ten consulting firms. More importantly, the case has led to substantial changes in the Bank’s management of trust funds in an effort to prevent similar problems from occurring in the future.

16 Allegations received about possible fraud and corruption in Bank-funded projects have also been investigated, leading to additional sanctions. Since the launch of the Bank’s anti-corruption drive, investigations by the Bank have led to some 93 firms and individuals being debarred or otherwise sanctioned.

C 0 From Reactive to Proactive: Intensive Implementation Reviews

17 A milestone effort to become more proactive was launched last year in cooperation with the Indonesia Country Team. Building on TNT’s initial work in responding to allegations of fraud and corruption in Bank projects in Indonesia, and the Country Team’s effort to take a more risk-based approach to portfolio management, INT undertook a joint review with Jakarta Office fiduciary staff of an Urban Project - focused on procurement, implementation and financial management practices, accompanied by an intensive review of a sample of contracts in four cities. The overall conclusion was that the procurement process had been manipulated to give the appearance of competition, with the winner prearranged. Weaknesses were also identified in contract management, implementation and financial management. As a result of this review, a number of firms are facing debarment procedures and, at the recommendation of the Bank, the Government put the project on hold until a decision could be made on the future of the project and agreement reached on a credible action program to help prevent similar problems in the future. Similar intensive implementation reviews are now underway or planned in several other countries.

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D . From Reactive to Preventive: Incorporating Lessons Learned

18 . One of the most critical aspects of moving to a more preventive approach is the need to extract the lessons learned from INT investigations and incorporate those lessons in how the Bank does business. Opportunities in this area include: identifying project/sector- specific flags (indicators of possible fraud or corruption) that Task Managers and fiduciary staff should watch for during project supervision to enhance the prospects for early detection (see Attachment 3); defining principles to consider in the design of future projects that can help to minimize the opportunities for fraud and corruption; contributions to core diagnostics, including country-specific procurement, financial management, and portfolio performance reviews; and contributions to the review of operational policies/procedures, including possible refinements to project preparation, appraisal, and supervision.

19 . In reality, more than half of the value-added from INT’s investigations of fraud and corruption lies in the lessons learned - provided we are able to extract and disseminate those lessons. Unfortunately, the rapid growth in demand for INT’s investigative services has absorbed nearly all of our available resources up until now, making it difficult to achieve much progress in this important area. Our plan, therefore, is to recruit a full-time knowledge management specialist in FY04 to help get this initiative off the ground.

E . Closing the Loop: The Importance of Collaboration

20 . To enhance our contributions in this area, we are collaborating with key partners across the organization, including: Regional Management Teams (Country and Sector Managers); Task Team Leaders and procurement and fmancial management specialists; PREM specialists working on governance and anti-corruption initiatives; OPCS staff (Procurement and Financial Management Boards and those responsible for operational policy and procedures and the design of core-skills training for the Bank’s Task Managers); WBI staff working on governance and anti-corruption; and IAD, which focuses on the Bank’s overall control environment, including compliance with policies.

21 . Similarly, to enhance our effectiveness in dealing with staff misconduct issues, including preventive activities, we are collaborating with others involved in such issues: IAD; the Trust Funds Quality Assurance and Compliance Unit; the CRS network (Ethics, the Ombudsman, and Mediations); as well as HR, LEG, and the Staff Association on issues such as staff rights and due process in the handling of allegations of staff misconduct.

III 0 The Vision and the Challenges

A . Where Do We Want to Be?

22 In the longer term, the ideal outcome would be for INT to work itself out of a job. This is not likely to happen any time soon. The factors conducive to fraud and corruption in our borrowing member countries will take a generation or more to resolve even with the full commitment and energy of government and civil society. And, as can be expected in any large organization, we will in all likelihood continue to have to deal with a range of staff behavioral issues as well. Notwithstanding these realities, our vision of substantial progress in implementing our mandate would include:

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* A reputation for Bank-financed projects of being well-above-average in the extent to which control systems are in place that can detect fraud and corruption, with a credible threat of sanctions for transgressions as an effective deterrent.

l An increasing number of the Bank’s borrowers working to enhance public sector accountability, strengthen procurement, financial management and auditing capacity, and adopt transparent standards of ethical behavior for both government and the private sector, stimulated in part by the results of INT investigations.

* Within the Bank, a higher degree of clarity on what constitutes ethical behavior, with cases of fraud and corruption nearly unheard of, and cases of misconduct arising from other forms of misbehavior being increasingly rare.

B l What Are the Strengths We Can Build Upon?

23 INT is fortunate in having a critical mass of first-rate professionals with substantial expertise and experience in the kinds of investigations that are needed, energized by the Bank’s mission of fighting poverty, and passionate about their own contributions to the fight against fraud and corruption. Teamwork is another hallmark of the staff, with very little need for hierarchy and a truly remarkable esprit de corps. INT staff have a well- deserved reputation for working extremely long hours and for undertaking long missions on relatively short notice. This dedication and stamina have made a huge difference over the past few years in INT’s effort to deal with the very rapid growth in demand for its services in the face of relatively modest increases in staff and other resources.

24 Significant progress has also been made in defining INT’s internal policies and procedures. This is especially important for ensuring consistency and professionalism in our investigations and a high degree of quality in the final products. In conducting investigations into fraud and corruption in Bank projects, INT staff have gained the respect of the operational staff with whom they have worked most closely, and with whom they have achieved a number of successes. At the same time, the Bank’s overall program and the standards that INT has established for conducting investigations are already considered best practice among our peers in the IF1 community and within the United Nations family. Investigations of misconduct by Bank staff have been somewhat more controversial, understandably so, but there have been positive developments on that front recently as well.

C l What Else Do We Need To Get There?

25 The experience of the past six years has highlighted some important challenges to achieving INT’s vision for the future. These include: (i) the need for a clearly defined mandate and an agreed business strategy; (ii) the need to carefully integrate a professional investigations function into the Bank; (iii) the need for greater understanding of the efforts INT makes to protect staff rights in the process of investigating allegations of misconduct; and (iv) the need for staffing and other resources sufficient to deliver on the expectations set for INT in the context of an agreed mandate and business strategy.

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26 Much has been accomplished over the past two years in each of these areas. Terms of *Reference for INT were discussed and agreed with a wide range of stakeholders, and issued in November, 2002 by President Wolfensohn. Earlier versions of this paper were the subject of consultations with key stakeholders across the Bank. One outcome has been a broader understanding of INT’s mission and a consensus on the key elements of INT’s new strategy. We have also made progress on the integration front, although more remains to be done. INT’s work is still not familiar to many staff in operations, and vice versa. To overcome these challenges, we are emphasizing presentations and outreach to Regional Management teams and country offices, and we are working on the design of learning programs for INT staff to enhance their understanding of the Bank’s work.

27 Significant progress has also been made in getting the word out about INT’s concern for staff rights and due process in the investigation of staff misconduct. Presentations have been made to the Staff Association Executive Committee, Staff Association Counselors, the CRS community, and HR staff in the Bank and IFC. One outcome has been a much improved working relationship with the Staff Association. Indeed, a common reaction to these presentations is that the more staff know about how INT does its investigations, the better.

28 On the basis of INT’s Strategic Directions and Business Plan Proposal, as noted above, the Department has received a significant boost in resources for FY04. With the endorsement of our Strategic Directions and Business Plan Proposal, we are also now able to address some of the staff tenure issues that have been problematic up until now. These developments should go a long way toward improving staff morale and work/life balance, both of which have been a concern for INT staff.

IV 0 Getting From Here To There: Strategy and Resource Requirements

29 In many respects, the investigation of staff misconduct (30% of INT’s work) and the investigation of fraud and corruption in Bank projects (70% of INT’s work) are separate and distinct product lines. They have very different growth prospects (and thus staffing and budget requirements), and they represent a very different set of challenges (and risks) for the Bank. In view of these differences, the related issues of strategy and staffing for internal and external cases are dealt with separately in the sections below.

A . Dealing with Staff Misconduct

30 Staff misconduct covers a wide variety of ethical and behavior issues ranging from failure to make court-ordered child support payments, to allegations of sexual harassment. As noted above, incidents involving fraud or corruption by Bank staff are extremely rare. The total number of other types of misconduct cases, however, is not insignificant. More importantly, INT’s capacity to investigate those cases has not kept pace with the level of demand. As a result, the number of open cases has grown from less than 20 in FY99 to more than 100 in recent years, though down some - finally - this year (see Table 1, below).

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Table 1: Internal Investigations Case Load

FY99 Iwo0 FYOl FYo2 Iwo3 Carried Over -- 19 52 109 112 New Cases 91 160 176 139 125 Cases Closed 72 127 119 134 160 Year-end Total 19 52 109 112 77

Investigators 3 4 6 8 8 Cases/Investigator 6 13 18 14 10

31 In addition, the length of time it takes to close a case has reached unacceptable levels. In cases where INT has issued a formal notification of misconduct (an 8.01 notice), it has taken an average of 8.2 months to complete - 7.2 months for headquarters staff and 9.4 months for field office staff - four of which have taken more than a year. To achieve a more reasonable performance standard will require additional Investigators. The agreed strategy, however, also includes elements intended to help manage the level of demand, including efforts to reduce the incidence of misconduct and to refer misconduct cases to others whenever appropriate, as well as efforts to improve the efficiency with which INT carries out its investigations.

32 Demand Management: Prevention and Intake. While it is not possible to predict the level of future demand for investigations of staff misconduct, for planning purposes it is assumed that the number of new cases will not increase significantly over the next few years. The hope is that outreach efforts by the Ethics Office will help to reduce the incidence of staff misconduct, while greater staff awareness of the services offered by the Bank’s Conflict Resolution System (CRS) will help to reduce the number of cases referred to INT for investigation. Given the costs (and potential trauma) of formal investigations, it is important that such investigations are not initiated if there are less formal mechanisms available for their resolution. INT’s procedures, therefore (see Attachment 4), provide for the referral of cases to CRS, or to the relevant Bank managers, wherever appropriate.

33 . Improving Operational Efficiency. To improve efficiency, INT has reviewed its operating procedures and the elapsed time for each stage in the investigative process. Improvements already underway include more effective monitoring of the status of outstanding cases, streamlining the quality assurance review procedures, assigning all field office cases to the Internal Investigations Unit (to avoid the delays that occur when they are held hostage to the mission schedule of INT external teams), and improving the skills mix in the Internal Investigations Unit, including greater use of Investigative Analysts and ACS Staff, and less reliance on Short-term Consultants.

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B . Dealing with Fraud and Corruption in Bank Projects

34 INT has five External Investigation Teams that deal with fraud and corruption in Bank projects. As shown in Table 2, the number of new cases increased rapidly, from 76 in FY99 to more than 400 in FY02. This growth is due to several factors, including the increasing awareness of Bank staff, the business community, civil society, and our borrowers that the Bank has developed a capacity in this area. In response to the growing backlog of open cases, however, INT gave highest priority in FY03 to closing existing cases rather than taking on new ones - primarily by constraining the travel of Investigators. As a result, the number of new cases declined substantially. More recently, however, with the resumption of travel, the growth in new cases has begun to increase.

Table 2: External Investigations Case Load

FY99 Iwo0 FYOl FYo2 FYo3 Carried Over -- 47 175 366 318 New Cases 76 240 369 408 214 Cases Closed 29 112 178 456 288 Year-end Total 47 175 366 318 244

Investigators 4 9 14 15 16 Cases/Investigator 12 20 26 22 15

35 Given the nature of INT’s business, it is clearly not possible to predict future demand with any degree of confidence. What is clear is the need to reduce the current backlog of unresolved cases and to process new cases within a reasonable amount of time. To achieve this will obviously require an increase in the number of INT Investigators. It will also require a concerted effort to manage the level of demand and to improve operational efficiency. At the end of the day, however, the reality is that INT is unlikely to have the resources required to investigate every single allegation that it receives. To deal with this reality will require a new approach to case management, one designed to ensure that the highest priority cases - those involving the most serious allegations, those most closely aligned to our strategy for fighting corruption at the country level, and those with the greatest potential impact in terms of their deterrent effects - are fully investigated.

36 . Demand Management: Prevention and Early Detection. Preventing fraud and corruption in Bank projects is a long-term challenge. It is also very much a macro issue, and must be tackled as a part of the governance and anti-corruption efforts at the country level. While it may sometimes be possible to ring-fence a development project, and thus isolate it from an otherwise corrupt environment, that is clearly not a solution for the Bank or for its borrowers in the longer term. As noted above, INT’s contributions in this area arise from the dissemination of lessons learned, including the design of projects less susceptible to fraud and corruption, and the impact of specific investigations on the Bank’s dialogue with Governments regarding both specific and generic anti-corruption efforts.

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37 Early detection is also important so that minor problems don’t grow into major ones. Here, the use of flags - common indicators of potential fraud or corruption - can help Bank supervision missions detect problems early and signal to both implementing agencies and contractors that such behavior will not be tolerated. In the event such problems continue, then the Bank can take more drastic action, including the suspension of disbursements or, in extreme cases, recommending to Government that the project loan or credit be closed.

38 Demand Management: Intake and Referrals. As in the case of staff misconduct, it is important at the intake stage to reject allegations of impropriety that clearly fall outside INT’s mandate. To do so, INT is working closely with fiduciary staff in the Regions to separate out cases that involve procurement irregularities best handled by procurement staff and fmancial irregularities best handled by financial management specialists. In some cases, even when fraud or corruption are alleged, it may be possible to refer the allegation to Government authorities for investigation and follow up. The feasibility of such referrals, however, depends on both the nature of the allegations and the will (and capacity) of the Government to investigate and to apply appropriate sanctions.

39 Finally, as an important element of demand management, it should be possible to become even more strategic in the allocation of INT’s investigative resources. In particular, our intention is to align future mission travel by Region, and by country within a Region, with Region-specific anti-corruption strategies and priorities. In some instances, that may involve deferring travel to some countries in order to be sure that we have provided adequate coverage and responsiveness in countries where we are already engaged.

40 * Improving Operational Efficiency. As with internal investigations, work is already underway to improve efficiency, including a review of INT’s operating procedures and proposals for closer monitoring of the status of individual cases. Here also the skills mix can be improved to provide more effective support to INT investigators, and this is reflected in the staffing plan. While there is some scope for the selective use of consultant investigators for fraud and corruption cases, there are also significant risks in relying on short-term consultants whose knowledge of the Bank and how it operates is limited - especially in terms of procurement practices, but also in terms of country relations and the role of Task Teams in the implementation of Bank-financed projects.

41 Case Load Management: A New Approach. In recognition of the fact INT will never be resourced to deal with every possible allegation that may be received (indeed, no such agency anywhere is resourced in that manner), Bank Management has endorsed a more systematic approach to the INT’s case load management. This approach involves a preliminary inquiry for each new allegation INT receives. Working closely with its Regional counterparts, IN?: would determine the relative priority of each allegation. Those rated low priority would be closed without further investigation - subject, of course, to re- opening in the event that significant new information arises. Those rated high priority would receive a full investigation. Medium priority cases would be kept under review, and pursued to the extent possible, but their place in the work program would depend on further developments and/or additional information that would lead to a decision either to drop them or upgrade them to high priority.

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42 This new approach was broadly endorsed during INT’s consultations with the Regions. On the basis of that endorsement, a pilot exercise was launched to evaluate the existing portfolio. Preliminary results have been very positive, both in terms of client satisfaction with the process and in terms of results - a consensus on the relative priority of individual cases that will guide INT’s allocation of its investigative resources over the coming months. With INT’s initial ratings assessment now complete, we expect to begin the closure of low priority cases shortly.

43 . This approach to case load management carries with it certain risks. Perhaps the most obvious one is that some cases rated low priority, and thus not investigated further, may resurface subsequently in a highly publicized manner, calling into question the wisdom of the initial ratings. Those ratings, however, will have been reached in a disciplined and systematic manner, on the basis of all information available at that point in time, involving the best judgment of INT’s professional investigators and vetted with our Regional counterparts, and with the rationale for the priority rating fully recorded in the case file for future reference. A second risk is the potential for confusion about whether this new approach is in any way inconsistent with the Bank’s stated policy of zero tolerance for fraud and corruption. To the extent necessary, INT will work with EXT to ensure that this misconception is dealt with effectively. The important fact is that the Bank will continue to take seriously every single allegation it receives, conducting at least a preliminary inquiry on each and every one.

C 0 Staffing and Budget Requirements

44 As noted above, INT has received a significant boost in resources for FY04. With the endorsement of our Strategic Directions and Business Plan, we are also able to address the issue of conversions of fixed-term staff to open-ended appointments (subject, of course, to satisfactory performance). INT will continue the practice, however, of recruiting external staff on the basis of fixed-term appointments, simply to reflect the uncertainties that exist in the projection of future demand for INT services.

45 Indeed, since the number of high priority cases that may emerge over the coming years cannot be predicted with any degree of certainty, it will be necessary to put in place a process for managing the trade-offs involved between the number of new cases, the number of staff available to deal with those cases (and their work/life balance), and the standards of performance INT is able to achieve in terms of how long it takes to complete the highest priority cases. Going forward, INT’s intention is to monitor these developments on a monthly basis, review the results with Management in the context of our regular quarterly reviews, and adjust INT’s business plans on an annual basis in light of experience.

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Attachment 1

The Processing of Allegations Received by INT

Because of the nature of the work, every investigation is unique and has its own characteristics. Nonetheless, it is useful to present a generic model of the process that is followed in most cases, from the initial intake of an allegation through to the final disposition. There are four main stages in the process, though there may often be significant over-lap between the stages.

Stage 1 - Intake: Allegations can come from a variety of sources (hotlines, direct phone calls, the web page, faxes, letters, walk-ins, and direct referrals by Bank staff and managers). The toll-free international hotline is monitored by an outside contractor 24-hours a day, seven days a week, with qualified translators available for non-English speaking callers. An internal complaint line allows Bank staff to telephone INT directly, and an e-mail address was created for the same purpose. INT’s website includes an on-line complaint form. Complainants may file a report anonymously, or on a confidential basis. Each day an intake manager evaluates incoming communications and sorts them as either general correspondence/requests for information or allegations. Allegations are then assigned to one of six Investigative Team Leaders (five Regional Teams and one for staff misconduct) to conduct a preliminary inquiry.

Stage 2 - Preliminary Inquiry: All allegations receive a preliminary inquiry. During this stage, Investigators make an initial assessment of the credibility of the complainant, the likely veracity of the information alleged, and the resources that would be required to launch a full investigation. Allegations involving unethical conduct by Bank staff are given first priority. Others receive a preliminary inquiry as soon as possible, but subject to the availability of resources and the apparent seriousness of the allegation.

Stage 3 - Full Investigation: If the preliminary inquiry determines that the allegation involves (a) fraud or corruption within a Bank project, or misconduct of any kind by a staff member, and (b) that the underlying facts of the allegation are verified (or at least clearly credible), then the matter is considered for a full investigation. Full investigations require assembling and reviewing all relevant documents within the Bank and from the Borrower (if projects are involved), as well as interviewing relevant witnesses at Headquarters and in the field. Investigations vary widely in complexity and require varying levels of time and resources to complete. Because of the unpredictability of events and what may emerge during the investigation, it is rarely possible to predict accurately how long it may take or what resources may be required to come to closure. Careful planning, therefore, is needed, as well as close cooperation with all those who may be involved.

Stage 4 - Post-investigative Activities: Once the investigation has been completed, reports are prepared detailing the process and the findings, regardless of whether or not the allegation has been substantiated. In the case of staff misconduct, the results are forwarded to the VPHRS to determine whether misconduct occurred and, if so, what disciplinary measures should be taken. In the case of allegations of fraud or corruption in Bank projects, Notices of Debarment Proceedings may be prepared for submission to the Sanctions Committee. Reports are also made available to relevant Bank managers and staff (as appropriate) and to the relevant Government(s). In some cases, there may also be criminal referrals to national authorities and/or civil suits to recover defrauded funds. There may also be follow-up needed with Task Team Leaders, Sector and Country Managers and procurement or financial management staff on how to move forward with the project in the event that fraud or corruption has been confirmed. Ideally, this would also include a lessons learned process that would feed into the design and supervision of future projects in that sector and country.

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Attachment 2

The Department of Institutional Integrity

Terms of Reference

In pursuing its mission of promoting development and reducing poverty, the World Bank Group2 strives to ensure that its funds, as well as those funds entrusted to the Bank Group, are used for their intended purposes. The Bank Group is committed to working with Governments to fight fraud and corruption. The Bank Group is also committed to ensuring that Bank Group staff work in an ethical environment, free from discrimination, harassment, retaliation, and the misuse of Bank Group resources. The Bank Group has created the Department of Institutional Integrity (INT) to play a key role in pursuit of these objectives.

Authoritv

The Bank Group has charged INT with the responsibility for the investigation of fraud and corruption in Bank Group operations. The Bank Group has also charged INT with the responsibility for investigating allegations of misconduct against Bank Group staff. In both instances, INT reports its findings to Senior Management. In addition, INT assists in preventative efforts to protect Bank Group funds, as well as those funds entrusted to the Bank Group, from misuse and to deter fraud and corruption in Bank Group operations.

Independence

INT’s activities must be carried out in an atmosphere free of improper influence, or even the perception of improper influence. Therefore, to ensure the independence of its activities, the Director of INT reports directly to the President of the Bank Group.

Activities

INT maintains effective lines of communication to permit Bank Group staff and the public to submit to INT allegations of staff misconduct or allegations of fraud or corruption in Bank Group projects. INT ensures that allegations can be submitted on an anonymous and/or confidential basis. INT also conducts its investigations with a view to preventing false allegations from causing harm to the reputations of wrongly accused individuals or firms.

In carrying out its investigative work, INT uses its expertise and lessons learnedfrom its findings to recommend to Senior Management measures to prevent the misuse of Bank Group funds. INTparticipates in the training of Bank Group staffto prevent and detect fraud and corruption in the Bank Group and in Bank Group projects. In addition, INT devises pro-active efforts to ident&@ and eliminate fraud and corruption in the Bank Group and in Bank Group projects. When warranted, INTprepares notices of debarment proceedings recommending to declare firms ineligible to be awarded future Bank-financed contracts for engaging in fraudulent or corrupt practices.

2 The World Bank Group consists of the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes.

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INT respects the rights of Bank Group staff members by executing its responsibilities in a fair, impartial, and professional manner consistent with all applicable Bank Group rules. INT also takes steps to promote an environment whereby Bank Group staff can report misconduct without fear of retaliation. Like all staff members, INT personnel adhere to the Principles of Staff Employment, the Staff Rules, and other relevant Bank Group policies.

INT is responsible for establishing its internal procedures and for ensuring that such procedures are consistent with externally recognized practices for conducting investigations in international organizations. In its dealings with firms and individuals not employed by the Bank Group, INT acts in a fair and professional manner while maintaining its obligation to protect the Bank Group’s assets and reputation.

Access

When conducting its investigations, INT personnel have unrestricted access to all Bank Group records, documents, and physical properties with the following conditions:

* Access to the contents of computer files and other electronic records shall be in accordance with the Detailed Information Security Policy.

* Access to personnel records shall be in accordance with Staff Rule 2.01 (Confidentiality of Personnel Information).

* Access to individual medical records shall be in accordance with Staff Rule 2.02 (Confidentiality of Medical Information and Medical Records). Such records are not available to INT personnel without the express authorization of the staff member or person to whom the records relate.

l Access to the records of Conflict Resolution System providers such as the Ombudsman and the Mediation Office shall be in accordance with the Staff Rules establishing those offices. In the case of some of these providers, such records are not available to INT personnel without the express authorization of the staff member concerned.

* Access to any documents in the possession of the Bank Group that are covered by a confidentiality agreement with an external entity shall only be disclosed to INT in a manner consistent with such agreement.

INT personnel also have access to all Bank Group staff to obtain information relevant to investigations in accordance with Staff Rule 8.0 1.

Partnerships

INT works closely with the Legal Department on issues that relate to the legal status of the Bank Group and its staff or its privileges and immunities, including debarment proceedings and contacts with national law enforcement authorities. In addition, INT coordinates with the Internal Auditing Department and the Operations Evaluations Department to ensure efficiency and effectiveness in the work of the three departments. Finally, INT collaborates with the Ethics Office and the World Bank Institute to design and provide appropriate educational and awareness training for Bank Group staff and clients.

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Attachment 3 Flags

Indicators of Possible Fraud or Corruption

A classic case of fraud and corruption in a development project involves: (a) bribes and kick-backs; (b) bid rigging; and (c) fraud. Bribes are paid in order to secure contracts, and additional kickbacks may be required to secure payment of subsequent invoices. In order to ensure that only a firm willing to pay bribes wins over other bidders, bid-rigging by the contractors/ suppliers or bid manipulation by project officials is likely to be necessary. In order to recoup the costs of bribes and kickbacks, the contractor/supplier may commit fraud by inflating prices, over-billing for materials and labor, and/or under-delivering on quantity and quality in comparison with what the bid and the contract specifies.

Flags arising from bribes and kickbacks include: the appearance of local agents or consultants that provide ill-defined, generic, or unneeded services - especially in a country with a reputation for corruption; unjustified or repeat sole source awards; repeated selection of unqualified or high-priced contractors; a project official insisting on the use of certain local sub-contractors or suppliers; long and/or unexplained delays in contract execution after bid award, and a project official living beyond his means.

Flags arising from bid rigging include: bid specifications too narrow or too vague; unreasonable pre-qualification requirements; unreasonably short time to submit bids; selection of other than the lowest evaluated bidder; selection of low bidder followed by change order increasing price or scope; questionable disqualification of winning bidder and re-bidding; persistent high bid prices; the same (few) bidders bidding; apparent connections between bidders (e.g., same address, phone or fax numbers), etc.

Flags arising from fraud include: poor quality work; repeated failed tests or inspections; delays or refusals to allow tests or inspections; and complaints from users.

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Attachment 4: The Investigative Process

Allegations of Staff Misconduct

Develop Investigative Plan ID A Ilegations/Issues D ete rm ine Standards ID D ocum ents

Notify Subject, Interview & Obtain Written Response

Follow -up on rebutta 1 witnesses and/ or documents, as anuronriate

W itnesses Obtain Documentary Evidence Use of Subject M atter Experts

Evaluate Evidence

All A llegations Unfounded

Unsubstantiated

Prepare Report on Results of Prelim inary Inquiry Complainant, and Subject of Complainant of

Present subject with the findings

S ubm it final report to VP- HR for decision on misconduct and

_ discipline, if any