Catalog

2007 Accomplishments

Project Procurement-Related Audits and Other Activities

Project Procurement-Related Audits

The objectives of a PPRA are to

• Identify whether the procurement of project goods and works complied with ADB's Procurement Guidelines and covenants in the applicable Loan/Project Agreement;
• Determine whether project contracts were implemented according to their specifications;
• Ensure that ADB funds were used for their intended purposes; and
• Recommend improvements to internal controls to mitigate opportunities for fraud, corruption, or abuse in ADB-financed projects.

Poor Construction

As part of a PPRA, internal control weaknesses over project administration-areas that expose the project to potential misappropriation of resources-are identified. The overall objective of is to help prevent and detect corruption and fraud as defined under the anticorruption policy. This is achieved, in part, by increasing awareness on the importance of having robust financial and management systems and ensuring appropriate and efficient use of ADB resources.

Five were conducted in 2007 in the People's Republic of China (PRC), Indonesia, Lao Democratic Republic, Nepal, and Pakistan. Significantly, these were conducted jointly with the relevant DMCs' SAIs, thereby further consolidating the SAIs' skills and capacity. To date, OAGI has completed and issued four of these reports, with the fifth report due in early 2008.

Of the PPRAs (Table 5) performed with local consultants, four were performed jointly with the respective SAIs of DMCs. OAGI will continue to seek opportunities to cooperate and collaborate with in order to combat fraud and corruption in DMCs. Appendix 4 [ PDF: 76kb | 2 pages ] highlights the PPRA scope and key findings.

Twenty-eight of the investigations opened in 2007 were by-products of PPRAs conducted in 2006.⁵ PPRAs have been a useful tool in identifying instances of fraudulent and corrupt practices. It is hoped that SAI participation in will result in tangible examples and experiences in the area of fraud and corruption, which are successfully disseminated among SAIs and within DMCs in a way that frustrates potential perpetrators.

OAGI plans to conduct six PPRAs in 2008 in collaboration with SAIs. It also plans to conduct a workshop for the participating SAI upon completion of each PPRA. The workshops aim to share knowledge on fraud prevention and detection techniques, and best practices from audit experiences. OAGI also plans to share the PPRA audit approach, audit checklists, and lessons learned from other results. Feedback from SAIs about their unique challenges will be sought in order to enhance future approaches. reports issued from January 2008 onwards shall be made publicly available.

Inappropriate and Disorganized Storage of Procured Items

The rising costs of professional fees, untested expertise and access of local consultants, and security constraints continue to be some of the main challenges in successfully conducting PPRAs.

Special Performance and Financial Audit

On an exceptional basis, and at the request of the Central and West Asia Department (CWRD) and the Office of the President, OAGI provided independent oversight of a performance and financial audit of four TA projects in Country A. ADB's country strategy for Country A focuses on building and rehabilitating roads, power transmission lines, irrigation infrastructure, and on governance and capacity building. Four environment and natural resources TAs were provided as pilot studies and/or demonstration projects. ADB was alleged to have wasted money, time, and credibility on account of these TAs. It was further alleged that some components were poorly managed and, thus, did not deliver results and that reports on the inappropriateness of the TAs had not been taken seriously. ADB commissioned a full and independent performance and financial audit on these TAs, which OAGI coordinated and supervised.

The audit assessed whether the

• Procurement process for awarding contracts followed ADB's Guidelines, Guidelines on the Use of Consultants, and governing TA documents;
• TAs were implemented in accordance with governing TA documents;
• Outputs were timely delivered/implemented in accordance with governing documents;
• funds were used for their intended purposes; and
• Management and supervision of the TAs was efficient and effective.

OAGI also fielded a mission to Country A's capital to

• Oversee the progress of the audit;
• Review the findings of the external independent auditor;
• Join site visits for an on-the-ground perspective of the projects and the allegations made; and
• Meet with staff, consultants, and beneficiaries to better understand the projects and how they were managed.

Overall, the objectives and tasks defined for all four were relevant to Country A's development priorities, and a number of activities under the were performed satisfactorily. However, the audit identified deviations from the original budget allocations to specific line items due to changes in scope, even though the total budget had not been exceeded, but was unable to find records of approvals of such variations.

The audit also found shortcomings in a number of operational areas, particularly where there was inadequate management and oversight by the TA supervising unit. There was poor maintenance and filing of project documents, such as those related to the recruitment of consultants, contract variations, changes in scope, or documents related to training and seminars. In several cases, procurement records and supporting documents, and documents to substantiate expenditures on training and workshops under some of the projects were not available. Compliance with ADB's established rules and procedures, including procurement guidelines and project administration instructions, was insufficient, while internal controls in the supervising unit at the resident mission were weak.

The audit concluded that, of the four TA projects, two achieved their objectives, while the other two only partially achieved them. However, some critical targets were not met. Conceptually, the TAs were broadly in line with ADB-wide priorities on areas, such as the environment, clean energy, general capacity building, and poverty reduction. Nonetheless, with the benefit of hindsight, some of the components were probably unnecessary, unwarranted, or untimely. In order to ensure sustainability and continuity, the experience gleaned from pilot projects and strategic work performed should be replicable. With these TAs, specific implementation arrangements for some components, the chosen pilot testing sites, as well as the measures suggested, may have been unrealistic or inappropriate.

This special performance and financial audit consumed a sizeable part of OAGI’s staff resources and was expensive to carry out. CWRD subsequently prepared an action plan to ensure that the facilities purchased under the TA projects are put to good use, and that actions to increase their sustainability are implemented. Upon receipt of comments to the audit findings, OAGI initiated a follow-up review to seek further information on potential red flags. It is anticipated that this may lead to further work in 2008.

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⁵ The number of investigations opened as a result of PPRAs conducted in 2007 has yet to be finalized.