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Annual Report 2003 : Governing Structure

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Board Committees

The Board of Directors had four standing committees and one working committee. (For membership, see Appendix 4.)

Audit Committee

In accordance with its mandate, the Committee reviewed the adequacy of ADB’s internal controls, particularly for financial reporting, and of internal and external audits. Monitoring continued of ADB’s decision to provide parallel reporting for derivative instruments before and after the introduction of Financial Accounting Standards (FAS 133) and related amendments in 2001. ADB’s financial statements refer both to pre-FAS 133 reporting practice and to the new, currentvalue reporting practice. Parallel reporting and the need for close monitoring of accounting and reporting practices were Committee priorities. In this context, the importance of cooperation among the multilateral development banks (MDBs) and of the professional partnership of the outside auditors who provided experience and advice were emphasized.

The Committee also monitored the development of ADB’s institutional risk management capability, again in close consultation with other MDBs. Using the Audit Recommendations Implementation Report and the report of the auditors, monitoring of theeffectiveness and efficiency of control systems, including access control procedures, continued. The Committee also reviewed and endorsed the following: (i) the 2003 work program of the Office of the Auditor General (OAG); (ii) the Audit Recommendations Implementation Report with a focus on highly critical items associated with risk management in both operations and financial management; and (iii) the annual report of the Anticorruption Unit of OAG with close attention to ADB’s handling of debarment of firms and individuals to ensure sanctions against them were effective.

Budget Review Committee

The Committee recommended approval of ADB’s proposed 2004 budgets for internal administrative expenses and annual capital expenditures. The proposed internal administrative budget is higher than in past years though without the additional initiatives it included, growth could have been kept below past averages. The increase in the provision for the Board of Directors was mainly due to the inclusion of the costs associated with the new accountability mechanism. The Board’s budget may increase significantly in future years should it include the cost of the independent OED. (For a summary of the budget for 2004, see Appendix 8.)

The Committee supported continued delegation to resident missions and stressed the need for cost-effectiveness in their establishment and in managing their operating costs. The Committee also emphasized the importance of resident missions in portfolio management and the need to ensure that adequate resources are allocated to project administration both in resident missions and at headquarters.

The Committee raised several questions regarding the adequacy of staff resource allocations and was informed that staff and budget resources were extremely tight in part because work has become increasingly complex in recent years as a result of multiple policy mandates and compliance requirements. It recommended developing in-house capability and institutional memory and that consultants be used prudently and judiciously. The Committee also queried the regional directors on how they proposed to motivate staff in a resource-constrained environment; they said that changes arising from a new human resource strategy and implementation of managing-for results would improve staff morale.

A series of meetings was held in November to discuss the work programs of departments and offices of the ADB Institute (ADBI) and to review the budgets of ADB and ADBI. As part of the deliberations, the Committee met with the Dean of the Institute and the heads of departments and offices and their staff, resulting in better understanding and appreciation of the activities of ADB and ADBI. The Committee also reviewed the progress on implementing the recommendations it made during the 2003 budget deliberations.

The Committee recommended approval of the proposed ADBI 2004 budget. It noted the contributions and achievements of ADBI and welcomed the increase in resources allocated to capacity building and training and the enhanced internal coordination among ADBI, the Economics and Research Department, and the Regional Economic Monitoring Unit. The need for further institutionalized coordination among the three research bodies to avoid duplication was stressed.

The Committee noted the progress made to date on the reorganization of ADB but expressed concern on the operational support, quality assurance, and compliance roles of the Regional and Sustainable Development Department and suggested that necessary changes be implemented as early as possible.

To make its work more meaningful and effective, the Committee proposed periodic meetings and also requested that the Budget, Personnel and Management Systems Department and the Office of the Secretary schedule the Committee’s annual budget meeting before the budget document is circulated. Several changes to improve the format and presentation of the budget were suggested, and the need for more communication with the Board on budget matters was stressed.

The Committee also met to discuss the Information Systems and Technology Strategy II paper and raised numerous issues and concerns. These included assessment and incorporation of lessons learned from INTEGRA (an integrated web-enabled information system); more rigorous benefit analysis; improved accounting for project components; more detailed definition of project components; and inclusion of systems audits. These issues are being studied in detail by staff for incorporation in a revised paper.

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Development Effectiveness Committee

The Committee reviewed a balanced selection of OED evaluation studies (see box) and presented its assessment to the Board of Directors in the annual report. The report also presented overall conclusions and recommendations from discussions on (i) the status of actions taken by ADB on key committee recommendations made in 2002; (ii) the Annual Report on Loan and Technical Assistance Portfolio Performance for the Period Ending 31 December 2002 (see http://www.adb.org/Documents/Reports/ Portfolio_Performance/2002/2002_12.pdf); and (iii) the Annual Review of Evaluation Activities in 2002 (see http://www.adb.org/Documents/PERs/RPE_OTH_2003_12.pdf). The Committee expressed its satisfaction that evaluation activities had generally been adequate and efficient but at the same time noted areas for improvement.

Loan portfolio performance indicators in 2002 had improved since 2001 for all but 5 of the 18 DMCs with at least 5 active loans and a portfolio of more than $100 million. Areas that required further attention included the time taken for effectiveness of loans after approval, the need for extensions to loan closing dates, and the increasing proportion of loan cancellations. In its assessment of technical assistance portfolio performance, the Committee intended to closely monitor actions taken by ADB to improve management and effectiveness.

The Committee noted that the total number of evaluation reports in 2002 increased by almost 50% over the previous year, and that the scope of the program had also increased substantially. In addition to 31 individual project/program and 6 technical assistance performance audit reports, 9 thematic evaluation studies were carried out. In particular, three country program evaluations and a special evaluation study of ADF VI–VII operations were completed. The Committee also commended the first-time inclusion in OED’s annual report of a chapter on long-term trends in evaluation results. This new analysis showed that the downward trend in the proportion of projects and programs rated successful was halted and reversed in 1989, and that subsequently a slow improvement in the social and agriculture sectors had been reinforced by higher success rates in economic infrastructure projects and with new borrowers. The Committee recommended that future reports go beyond statistical reporting to identify lessons for development effectiveness.

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Inspection Committee

In 2003, the Inspection Committee held six formal meetings, several informal meetings, and considered one request for inspection. In January, the Committee created a matrix for requests for inspection which provides a tracking system for monitoring the progress of ongoing requests and a depository of publicly available documents related to specific requests.

At the beginning of 2003, the Committee considered the request for inspection of the Chashma Right Bank Irrigation Project (Stage III) in Pakistan and forwarded it to Management for response. As permitted by the Inspection Policy, the Committee decided to consult a member of the roster of experts in deciding whether to recommend that an inspection be authorized.

In March, the Committee submitted its report to the Board; it recommended that the Board authorize an inspection of the Project with a deferred start to allow the process for grievance redress put in place by the Government in consultation with ADB to take place. However, the Committee reserved the right to bring forward the proposed timetable for commencement of the inspection should it become evident to the Committee that the grievance redress process was unlikely to be successful. As a basis for making such a determination, the Committee requested Management to prepare two reports on grievance redress activities—one in July 2003 and one in January 2004.

The Board approved the Committee’s recommendation. The Committee received the midterm report on the grievance redress process from ADB Management in July. Comments and additional information were sought from the requesters. The Committee considered the material provided at its meeting in September and published it on the ADB web site in October (see http://www.adb/org/Inspection/Projects/chasma_right.asp). The inspection commenced in December 2003 with the selection of a Panel of four members from the roster of experts and the preparation of a consultation draft of the terms of reference for the Panel.

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Working Group on the Annual Report for 2003

The Board Working Group set the general direction for 2003 working closely with Management and staff and taking into account the responses from the Annual Report Readers’ Survey. This year’s report clearly demonstrates how ADB is optimizing its institutional effectiveness and resources, how it is progressing toward achieving the MDGs, and how it is moving the poverty reduction agenda forward.

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