The Bank is committed to the highest standards of conduct in its operations, administration and management. In 2001 it consolidated its Systemic Framework Against Corruption to ensure the integrity and transparency of its operations, foster an ethical work environment for its employees and safeguard Bank-financed activities from fraud and corruption. Noteworthy among ongoing activities in this connection in 2004 were the startup of the Office of Institutional Integrity (OII), establishment of the Audit Committee of the Board of Executive Directors and implementation of the new Policy on Information Disclosure.
The OII was created in October 2003 as an independent unit reporting directly to the President, responsible for receiving allegations and conducting all investigations of alleged fraud and corruption in Bank-financed activities and violations of the Bank’s Code of Ethics or policy on Respect in the Workplace.
The OII complies with its mandate through education and training, as well as through the detection, investigation and prevention of fraud, corruption and other misconduct. Allegations of such misconduct involving Bank-financed activities or Bank staff may be reported to the OII in person, by telephone, e-mail, facsimile, regular mail, or through the forms available on the Bank’s website at www.iadb.org/oii. Allegations may be made anonymously.
The OII began operations in the first quarter of 2004, adopting a three-pronged strategy to accomplish its mission. First, given that staff must be the front line in the effort to ensure integrity in Bank operations, it developed methods and conducted activities to promote awareness and educate Bank staff about their responsibilities in combating corruption.
For the second prong of the OII strategy, detection and investigation, 2004 was a year of transition. Prior to 2004, all investigations were conducted by the Office of the Auditor General (AUG). The OII has now assumed responsibility not only as the central portal for allegations but also for conducting the investigations themselves.
During 2004, 142 new allegations were received, a 50 percent increase over the same time period the previous year. The OII conducted numerous investigative missions in 2004, including missions to Argentina, Bolivia, Guatemala and Honduras. OII completed investigations of 67 of the new allegations received during 2004. Numerous individual reports of investigation and 12 summaries of new and ongoing investigations were submitted to the Oversight Committee on Fraud and Corruption, which is responsible for ensuring that any allegations of fraud or corruption involving Bank staff or Bank-financed operations are properly addressed. Moreover, working closely with AUG, OII was also able to resolve 48 matters in which investigations had begun prior to 2004.
OII has also focused on improving its capacity and procedures for accomplishing its new investigative function fairly and transparently. During 2004, a new Chief and a new staff member joined OII, each with considerable experience investigating fraud and corruption. Internal rules, procedures and policies developed during the year will improve OII’s access to relevant information and enhance the investigative process, while ensuring whistleblower protection. In December 2004, after a meeting at IDB headquarters, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the World Bank and the IDB issued a joint statement reaffirming their commitment to the fight against corruption and to whistleblower protection and took steps to identify opportunities for harmonization of policies and practices.
The Bank policy on Protection for Whistleblowers and Witnesses approved in October 2003 expressly consolidated protections afforded to employees under other Bank policies in exercising their right to report information concerning fraud, corruption and other wrongdoing in Bank activities and to provide evidence in investigations and other administrative proceedings. Bank employees are protected from reprisals or other adverse action for their support of the Bank’s environment of institutional integrity.
OII has played a significant role in finalizing procedures for debarment and sanctioning of private firms and individuals found to have engaged in fraud or corruption in Bank-financed activities (see Box 14). Additionally, the Office participated in efforts to finalize a revised Code of Ethics for Bank staff, expected to be issued in early 2005. The new Code will be followed by a Bank-wide training and ethics awareness program developed and delivered under the direction of OII.
OII has begun laying the groundwork for the third prong of its strategy, proactive risk prevention and identification. Lessons learned from investigations are being examined to determine how internal controls and practices can be improved to reduce the likelihood of fraudulent or corrupt practices.
In 2004, the Board of Executive Directors established the Audit Committee to take over certain audit-related functions previously carried out by the former Budget, Financial Policies and Audit Committee of the Board. The primary functions of the Audit Committee are to assist the Board of Executive Directors in overseeing the Bank’s financial reporting, risk management and internal controls, internal and external auditing, institutional integrity and communications by senior management and the Board of Executive Directors with the external auditors.
During the year, the Office of the Auditor General (AUG) continued to support the Bank’s initiatives on corporate governance, retooling of Bank operations, Bank-wide risk management, control self-assessment and related activities. At headquarters, AUG continued to monitor and review the selection, implementation, upgrading and operation of significant computer applications and network infrastructure, such as the Budget and Financial Management System, the new Investment Management System, the Data Warehouse and the Events Management System.
In the operations departments and Country Offices, the Auditor General’s Office focused on the management oversight system and reviewed the key elements of the Bank’s project supervision system, both at headquarters and in the Country Offices, while continuing to review the performance of key operational control functions in specific Country Offices. In addition to its regular Country Office audits, and as requested by the Board, the Office assessed compliance with management’s action plan for the implementation of AUG recommendations on procurement and disbursement transactions.
AUG also continued to review the effectiveness of key control features for highly decentralized projects; the adequacy and timeliness of Bank supervision; the responsibilities of external auditors and consultants regarding projects; and the adequacy of current reporting requirements, processes and risk-management issues. In January 2004, AUG began the transfer of responsibility for all fraud and corruption investigations to the OII, but continued to perform investigations related to ethics and potential fraud and corruption, as needed.
In January 2004, a new Policy on Information Disclosure became effective, considerably expanding the scope of information regarding Bank activities to be made available to the public. The Policy is based on the principles that information concerning the Bank and its activities will be disclosed in the absence of a compelling reason for confidentiality and in a form and at a time that enhances the transparency and therefore the quality of Bank operations.
For the first time, the Policy explicitly provides for the disclosure of Bank financial and institutional information, as well as information on its projects and operational activities (see Box 15). Instructions were issued in 2004 on implementation of the Policy, stipulating that staff should disclose information concerning the Bank and its activities unless specific restrictions preclude its release. The vast majority of documents subject to the policy is being posted on the IDB website at www.iadb.org through the new document management system, IDBDOCS.
