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Annual Report 2004 : Part 1: Institutional Effectiveness
AccountabilityAccountability MechanismADB's new accountability mechanism was approved in May 2003 and became effective on 12 December of that year. It replaced the Inspection Function. The aim was to improve development effectiveness, project quality, and transparency in operations. Its two functions—consultation and compliance review—provide for problem solving and for investigating alleged violations of ADB's policies and procedures, respectively. People who are directly, materially, and adversely affected by an ADB-assisted project in the course of its formulation, processing, or implementation can file a complaint with the Office of the Special Project Facilitator (OSPF) headed by the Special Project Facilitator (SPF) who reports directly to the President of ADB. This initiates the consultation function of the mechanism, the goal of which is to seek agreement among all parties involved on solutions to the problems identified in the complaint. After determining whether a complaint is eligible for consultation, OSPF provides a venue and process for problem solving that can include fact-finding reviews, meetings, roundtable discussions, stakeholder consultations, and other means appropriate to the situation. Consultations are successful when remedial actions are agreed. The SPF is responsible for monitoring and reporting implementation of any agreement. The SPF’s functions do not supplant the project administration and problem-solving functions of the operations departments and will not interfere in the internal matters of a DMC. In 2004, the OSPF finalized its operational procedures and established office procedures, systems, and a website (www.adb.org/spf). OSPF met with a wide range of civil society groups and government representatives at headquarters and in Australia, Germany, Indonesia, the Netherlands, the Pacific, and Sri Lanka to create awareness on the consultation phase and to discuss stakeholders' roles and responsibilities in dealing with complaints. OSPF received three complaints: (i) Melamchi Water Supply project (MWSP) in Nepal on 3 May 2004, (ii) Southern Transport Development project (STDP) in Sri Lanka on 9 June 2004, and (iii) Sixth Road Project in the Philippines on 27 September 2004. Both the MWSP and STDP complaints were declared eligible. The complaint on the Sixth Road Project was ineligible. The review and assessment of MWSP was completed. SPF arranged with the executing agency to attend to the grievances of the complainants; however, they withdrew from the consultation phase and filed for compliance review on 8 October 2004. SPF then closed the consultation phase. After review and assessment and agreement on a course of action of the parties involved, the STDP complaint is in an intensive phase of conflict resolution/problem solving with an independent facilitator. The complainants have also filed for compliance review as allowed under the accountability mechanism. The Compliance Review Panel (CRP), supported by the Office of the Compliance Review Panel (OCRP), carries out the compliance review phase. It is a three-member independent body that investigates whether any harm suffered by people in a project area was caused by a violation of ADB policies and procedures. CRP reports directly to the Board of Directors except for two matters when it reports through the Board Compliance Review Committee, a standing Board committee that clears its terms of reference and time frame and reviews its draft monitoring reports before they are finalized by the panel. CRP determines whether a request is eligible and with the Board's authorization carries out an investigation. If there is any violation of ADB's policies and procedures, CRP recommends remedial actions to the Board to ensure compliance. In August 2004, the Board of Directors mandated CRP to monitor the implementation of remedial actions for the Chashma Right Bank Irrigation Project (Stage III) in Pakistan approved by the Board of Directors under the inspection function. In addition to annual reporting under this Board mandate, CRP provides the Board of Directors with progress reports on implementation. In December 2004, CRP carried out eligibility review missions for the STDP and MWSP requests; it determined that the STDP request was eligible but that the MWSP request was not. The Board of Directors authorized the CRP to carry out a compliance review of the STDP request in January 2005. CRP finalized its operating procedures in 2004 after inviting comments from interested parties. CRP members, OCRP, and OSPF attended the Meeting of Accountability Mechanisms in May 2004 hosted by the World Bank and agreed that ADB would host the second meeting in Manila in April 2005. A separate database of consultants was created to assist CRP. Information dissemination and outreach activities included translating the accountability mechanism information brochure into Bahasa Indonesia, Bangla, Chinese, Hindi, Khmer, Lao, Nepali, Russian, Sinhala, Pilipino, Tamil, and Urdu and translating the CRP's operating procedures into Bahasa Indonesia, Chinese, Hindi, Khmer, Nepali, Russian, Sinhala, Tamil, and Urdu. The OCRP developed and launched an independent CRP website (www.compliance.adb.org) to ensure transparency in its operations, including making reports, publications, and information materials accessible to the public. Audit and AnticorruptionThe Office of the Auditor General (OAG) conducts periodic, independent, and objective appraisals of ADB activities to ensure that internal controls are adequate and effective and to improve economy and efficiency in the use of resources. OAG also addresses 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 undertook 20 audits in 2004 that resulted in recommendations for strengthening internal controls and for improving effectiveness and efficiency, in regard to (i) project contract awards/commitments and disbursements, (ii) staff retirement fund bond issues, (iii) investment decisions, (iv) interregional technical assistance projects, and (v) financial and administrative operations of resident missions (RMs) and a representative office. Information technology (IT) audits recommended (i) modifying system setups, redefining system authorities, and activating alerts and audit trails; (ii) comprehensive testing of systems under development; and (iii) setting priorities for the systems to be recovered in case of disaster. OAG also reviewed eight randomly selected consultants' contracts, a function previously conducted by the external auditors, to confirm the authenticity of documentation submitted during negotiations. These audits resulted in recovery of overpayments and led to strengthening ADB's internal control procedures. ADB took the initiative of reviewing and adopting best practices as recommended by the Sarbanes-Oxley Act of the United States Congress, even though ADB is not required to comply with provisions therein. OAG assisted PricewaterhouseCoopers, ADB's external auditors, in its audit of ADB's annual financial statements including the review of selected transactions on loan disbursements, investments, borrowings, and administrative expenses. OAG also provided administrative support in processing management representation letters related to the audit and bond offerings. The selection of ADB's external auditors for fiscal year 2005–2008 was coordinated by OAG and followed the prescribed procedure for inviting and reviewing technical and financial proposals of accounting firms of international reputation (four accounting firms were invited; however, only two submitted proposals). PricewaterhouseCoopers was again appointed for 4 years. The Anticorruption Unit (the Integrity Division effective 1 January 2005) is the contact point for reporting allegations of fraud and corruption in ADB projects or among its staff members. In 2004, the unit opened 99 investigations for a total of 463 investigations since the adoption of the Anticorruption Policy in 1998. ADB reprimanded 2 firms and declared 59 firms and 66 individuals ineligible to participate in ADB-financed activities. A cumulative total of 108 firms and 116 individualswas declared ineligible through 2004, but 20 firms and 14 individuals upon expiration of their sanction periods and with the approval of the oversight committee regained eligibility, leaving 88 firms and 102 individuals ineligible at the end of the year. The Anticorruption Unit conducted procurement audits of two road projects, one each in South Asia and Southeast Asia, andincreased awareness of the Anticorruption Policy and itsfunctions through presentations, workshops, publications, and a series of presentations to all staff members on ADB's principles of behavior and conduct. OAG completed a technical assistance project for strengthening the training capability of the Asian Organisation of Supreme Audit Institutions. This project produced regional guidelines on fraud and corruption and 25 new training specialists in DMCs. In addition, a workshop in the People's Republic of China (PRC) on public debt and one in Papua New Guinea on ADB requirements on submission of audited project accounts and financial statements were conducted, including a module on fraud awareness and anticorruption. OAG publishes an annual report on its anticorruption activities, which is posted on its website, www.adb.org/anticorruption.
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