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Annual Report 2003 : Maximizing Institutional Effectiveness

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Strengthening Accountability

In 2003, ADB continued to review the new business processes as a way of improving accountability and internal governance. Reviews of the 1994 Policy on Confidentiality and Disclosure of Information and the 1994 Information Policy and Strategy were also begun. In May, ADB appointed a senior-level steering committee to oversee the reviews. The committee set up a working group to study ADB’s experience with the policies; to examine international trends in transparency and communications; to analyze the practices of comparable institutions; and to confer with the Board of Directors, Management, and staff.

In mid-August, ADB actively solicited public comment on the policies and asked for suggestions on how to improve them. About 70 individuals and organizations in more than 20 countries contributed feedback which was posted on ADB’s web site (http://www.adb.org) to encourage informed public debate. The working group then began formulating an entirely new, unified Public Communications Policy that emphasizes proactive sharing of operational information, seeking feedback, and demonstrating results. All departments and offices were involved in the process to ensure that the new policy would take into account business processes and the project cycle, would protect confidential information and the deliberative process, would broaden public understanding of ADB’s role, and would support effective consultation, promote public participation, and ultimately contribute to poverty reduction.

As 2003 drew to a close, ADB continued work on the Policy with the aim of circulating a public draft and holding face-to-face consultations with stakeholders in 12 countries.

At the project level, ADB approved a new accountability mechanism and appointed a Special Project Facilitator to address concerns of persons affected by ADB projects. The new mechanism consists of two complementary functions, a consultation phase and a compliance review phase. The Facilitator will be responsible for the consultation phase. The accountability mechanism will replace the inspection function approved in December 1995 (see page 3 and http:// www.adb.org/Documents/Policies/ ADB_Accountability_Mechanism/).

Audit and Anticorruption

The Office of the Auditor General (OAG) conducts periodic, independent, and objective appraisals of ADB activities to ensure adequate and effective internal controls and to improve economy and efficiency in the use of resources. OAG is also the focal point in the drive against corruption, addressing alleged incidents of corruption or fraud in ADB projects or by its staff. OAG reports directly to the President. The Audit Committee of the Board of Directors reviews OAG’s activities.

OAG completed 28 audits in 2003 that resulted in, among others, the following recommendations:

1. enhance the monitoring of compliance with loan covenants;
2. establish criteria and methodology for prioritizing and allocating funds for interregional technical assistance projects;
3. strengthen internal controls in financial, administrative, and operational areas at the resident missions;
4. strengthen internal controls relating to treasury services by monitoring applicable diversification limits for corporate investments, executing proper deal tickets for interest rate and currency swaps, monitoring counterpart risk exposure for foreign exchange transactions, and maintaining segregation of duties in all treasury functions; and
5. enhance the process of monitoring the performance of maintenance contractors and ensure the accuracy of their invoices.

Information technology audits recommended (i) improving response time to ensure prompt action in case of critical system events and (ii) taking appropriate virus control measures. Recommendations also included enhancing procedures to monitor the use of software and to ensure compliance with licensing agreements. OAG also participated in local and offshore fallback tests of the mainframe computer to ensure continuity of operations in case of a disaster and in monitoring the implementation of the Treasury Risk Management System, including reviewing the results of user acceptance tests.

The audit of six consultants’ contracts by OAG resulted in the recovery of overpayments and in the sanction of one consulting firm. OAG initiated the analysis of new legislation and guidelines related to auditing and oversight to consider best practices to strengthen internal procedures.

OAG also participated in the review of several audit firms in Viet Nam along with the World Bank and the Japan Bank for International Cooperation, which resulted in shortlisting firms considered acceptable to audit externally funded projects. OAG also maintained close liaison with its counterparts working in various MDBs and United Nations agencies. OAG provided integrated assistance to ADB’s external auditors in their audit of ADB’s annual financial statements and their review of interim financial statements for ADB’s bond offerings.

ADB’s Anticorruption Unit is the contact point for reporting allegations of fraud and corruption in ADB projects or among its staff members. In 2003, the Unit opened 88 investigations for a total of 360 investigations since ADB adopted the Anticorruption Policy in 1998. ADB reprimanded 2 firms and 1 individual and declared 21 firms and 10 individuals ineligible to participate in ADBfinanced activities. A cumulative total of 49 firms and 50 individuals had been declared ineligible by the end of 2003. With 8 firms and 11 individuals having regained eligibility, 41 firms and 39 individuals remained ineligible at the end of the year.

In 2003, the Anticorruption Unit performed procurement-related audit of a road development project in South Asia. It assessed the control risks of the executing agency and its compliance with ADB’s procurement guidelines, its opportunities for operational improvements, and other concerns that required further investigation under ADB’s Anticorruption Policy. The Unit increased awareness of the Policy and of itself through presentations, workshops, and publications. (See http://www.adb.org/anticorruption for information on ADB's anticorruption efforts, including how to report fraud and corruption, procedures for dealing with allegations, and the sanction and appeal processes.)

OAG further contributed to upgrading the audit capability of supreme audit institutions in DMCs. In 2003, OAG was involved in training programs for the Asian Organization of Supreme Audit Institutions and the South Pacific Association of Supreme Audit Institutions. OAG also continued to exchange information on anticorruption issues, capacity building, and auditing with supreme audit institutions and MDBs through meetings, awareness seminars, international conferences, and meetings of the heads of audit of MDBs.

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