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Annual Report 2004 : 2004 in Review: Board of Directors' Report : Governing Structures
Board CommitteesFor membership of the Board of Directors standing committees and working committee, see Appendix 4. Audit CommitteeThe committee identified and reviewed a range of issues within its mandate representing a broad cross section of ADB operations and activities. These included ADB Institute and private sector operations focusing on internal controls, financial reporting, and internal and external audits. The decline in ordinary capital resources (OCR) net income due to loan prepayments was a concern. The audit recommendation implementation report and the report of the independent auditors enabled the committee to monitor the effectiveness and efficiency of controls, including backup procedures, as part of the business continuity plan. Among other controls reviewed were measures taken to ensure accountability, cost-effectiveness, and authorization for mission travel. The committee also continued to monitor the implementation of Financial Accounting Standards (FAS) 133 and parallel reporting for derivative instruments in cooperation with multilateral development banks (MDBs) and independent auditors. Of particular significance was the need to assign fair values and to report embedded derivatives separately in compliance with FAS 133 and generally accepted accounting principles in the United States. The committee oversaw the selection of outside auditors for 2005–2008 which entailed evaluating financial and technical proposals. PriceWaterhouseCoopers was reappointed. The offices of the Auditor General, the Secretary, and the General Counsel and the committee reviewed the Audit Committee's terms of reference. In line with the priorities in other MDBs and with the reform agenda, the committee supported institution-wide coordination of risk management by establishing a focal point in a neutral department reporting to Management to be implemented early in 2005. The committee also reviewed and endorsed the 2004 work program of the Office of the Auditor General (OAG), the audit recommendation implementation report, and the annual report of the Anticorruption Unit 1 of OAG with particular focus on staff accused of fraud and sanctions against firms and individuals. Budget Review CommitteePrior to 2004, the committee met once a year to review the annual budget proposal and once or twice a year to review special topics such as capital expenditure programs. To involve the committee more extensively in the budget, it met quarterly, attended a series of meetings in November reviewing theproposed budget, and met on an ad hoc basis to review and discuss issues with significant cost and budget implications. Another new procedure was the committee's review of the draft budget in November. Previously, members received the budget after it had been finalized. This change required early completion of the work program and budget framework and of budget preparation. As the new accountability mechanism and OED now closely support functions of the Board of Directors, the committee decided that their expenses should be presented as sub-categories of the budget for the Board of Directors rather than as operational expenses. The committee also agreed that expenses in the three subcategories would not be fungible: any cost overruns can be met only from general contingencies. Three special meetings were held to discuss the proposed information systems and technology strategy and capital expenditure requirements for 2004–2009. The deliberations facilitated the Board of Directors’ approval of the strategy and investment proposal. In September, the committee reviewed the 2004 midyear budget review and recommended adopting a phased approach in implementing some form of activity-based costing. The committee also recommended approval of proposed 2005 budgets for internal administrative expenses and capital expenditures. The committee was updated on OCR and was informed that changes in loan terms and charges made to improve the competitiveness and marketability of ADB's products and prepayments affecting income levels in the short term had all been factored into income projections. The committee reviewed the ADB Institute's work program and the proposed budget of $14.4 million and met with the dean and the chief economist and representatives from the Regional Economic Monitoring Unit. The increase in resources allocated to capacity building and training was noted, and the need for further coordination among ADB's three research arms was stressed. The committee recommended approval of the ADB Institute's proposed 2005 budget. Inspection CommitteeAn inspection of the Chashma Right Bank Irrigation Project (Stage III) in Pakistan, previously authorized by the Board of Directors, commenced in December 2003 when a panel of four was drawn from the roster of experts. The panel submitted a draft report in April 2004 that was forwarded to Management, the relevant ADB Director, and the requesters for comment. Management contested a number of the panel’s findings. The panel’s final report was submitted to the inspection committee in June 2004. It held that ADB had breached a number of operational policies and procedures in the planning/ implementation of the project and made recommendations, including one to bring the project back into compliance. The committee consulted Management and the relevant Director and prepared a report for the Board that outlined the process that had been followed, reported the views various parties had expressed to it about the panel’s recommendations, and forwarded the panel’s report to the Board with a recommendation 2 for approval. The committee further recommended that the Compliance Review Panel should monitor the implementation of the Board’s decision under the new Accountability Mechanism. The Board accepted this recommendation in August 2004. The inspection committee then ceased to operate. Compliance Review CommitteeThe Board of Directors approved the new accountability mechanism in May 2003; it replaced the previous inspection function. The former inspection committee was restructured as the Board Compliance Review Committee (BCRC) when the mechanism took effect in December 2003 though the inspection committee continued to meet in 2004 to resolve an inspection that began in 2003. BCRC clears the Compliance Review Panel's proposed terms of reference and time frame for conducting compliance reviews and reviews the panel's draft reports on implementing remedial actions approved by the Board before they are finalized by the Panel. The Office of the Compliance Review Panel acts as the secretariat to BCRC. BCRC met twice in 2004, once in March to review and approve operating procedures, and once in July to approve the report on its first 6 months of operation (to become its annual report). Development Effectiveness CommitteeTo enhance its independence and effectiveness, in 2004 OED began reporting directly to the Board of Directors through the Development Effectiveness Committee (DEC). OED now is fully responsible for the content and recommendations in its reports. Management's role changed from approving to responding to recommendations made in evaluations, and the Board of Directors, through DEC, is directly responsible for the quality and independence of evaluations and for monitoring Management action on recommendations. In its new role, DEC supervised the selection of a director general for OED and with the President nominated a candidate for Board approval. For the first time, the committee reviewed OED's work program in a 3-year time frame (2005–2007). DEC submitted OED's 2005 budget for Board approval and encouraged OED to gradually increase and broaden its studies. DEC discussed more country and sector OED evaluations in 2004 than in previous years, commended the increase in content in OED's two annual reports, and identified lessons for sustaining successful performance and for improving development effectiveness. The annual report to the Board of Directors included assessments of actions taken on committee recommendations for 2002–2003, the annual report on loan and technical assistance for 2003, and the annual review of evaluation activities in 2003. Evaluations of ADB operations in 2004 were judged to be both satisfactory and efficient. The positive 5-year trend in the performance of public sector loans continued with the proportion of projects at risk in 2002–2003 significantly lower than that in 1999–2001 though there was also room for improvement. The committee recom-mended (i) pilot-testing annual reporting of an aggregate, results-based measure of the portfolio's performance; (ii) gaining a better understanding of reduced net resource transfers; (iii) setting mandatory project readiness criteria to reduce delays; (iv) specifying measures of effectiveness in private sector operations; (v) accelerating delegation to resident missions; (vi) allowing more flexibility in budget and staff reallocation to increase supervision of projects at risk; and (vii) making project implementation schedules more realistic. The committee once again recommended that Management specify a concrete action plan for improving oversight of the technical assistance portfolio, including adopting a more strategic, results-based approach to resource allocation, and placed high priority on recommendations made in OED's annual review to make technical assistance evaluations more discriminating and results-based so that lessons can be applied more effectively. Lessons from countries and sectors should be incorporated into new CSPs and sector strategies, and lessons from policy evaluations should be considered in policy reviews. In the future, annual reviews of evaluations should have a thematic focus. Working Group on the Annual Report for 2004The Board Working Group worked closely with Management and staff and set the general direction for the 2004 annual report. This year's report demonstrates how ADB is optimizing its resources and improving its institutional effectiveness through the reform agenda, how it is applying its policies, how it is assisting its DMCs to achieve the MDGs, and how it is moving the poverty reduction agenda forward.
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