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When the Culture of Disbursement Meets the Culture of Corruption
October 23, 2009
By William Savedoff
A few month’s ago, Ruth Levine recommended that I read Steve Berkman’s book “The World Bank and the Gods of Lending” and yesterday I had the chance to listen over the phone while he gave an informal talk about it at the Center for Global Development. The talk was just as disturbing as the book – in fact, it is one of the most worrisome books about foreign aid that I have ever read. It provides a convincing look at specific project accounts and patterns of disbursement to show that embezzlement and theft of World Bank funds may be the rule rather than the exception in a wide range of programs and countries. Berkman challenges anyone to prove him wrong when he estimates that 30% to 40% of World Bank lending is stolen (not lost to inefficiency but actually stolen).
His concern is not that World Bank staff are corrupt but rather that the pressure to disburse funds makes it easy for corrupt people in borrowing countries to divert and steal from aid programs with impunity. Essentially, Berkman describes what happens when the culture of disbursement meets the culture of corruption.
I found the book to be disturbing in large part because Berkman holds up a troubling mirror to the community of specialists working on governance and corruption (like me). While Berkman commends the World Bank for putting the issue of corruption on the international agenda, he also points out how workshops, conferences and projects aimed at “reducing vulnerabilities” or “reforming governance” are so much more palatable to the organization’s managers than digging up evidence of wrongdoing and pressuring governments to prosecute and recover funds. Unless investigation and prosecution are part of the strategy, though, all our workshops and technical assistance may simply provide diversions that allow criminals to get away with their loot.
Some people find fault with the book, saying that it overstates its case and relies on a relatively small and biased number of cases. However, I find his argument convincing – in part because he includes examples from relatively well-governed countries like Ghana but also because his experiences echo those that I have seen in many places.
The key issue, though, about the scale of corruption is that no one really knows how large it is. Without credible estimates of how much is being diverted from its projects through corruption, the World Bank – and indeed most development banks and aid agencies – cannot defend themselves against a book like Berkman’s. They may be following accepted practices by creating channels for complaints and doing investigations, but this only reveals a small share of problems. (Berkman can even cite credible complaints that the World Bank’s investigative division never had the time to look into.)
A reliable estimate of the extent of corruption requires picking a random representative sample of projects; doing thorough performance audits; and extrapolating to the full population of projects. Until the World Bank starts doing such systematic estimates, it will be extremely difficult to counter the disbursement pressures that keep the money flowing, even when it is gushing down the drain.
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11 Responses to “When the Culture of Disbursement Meets the Culture of Corruption”
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October 27th, 2009 at 6:58 am
It may be true for some but one cannot generalise about staffs. Primarily, it is for the national goverment systems to ensure that corrupt practices are eliminated. But, yes, the funding arrangements can have specifice and identifiable internal controls and outputs measurement systems.
The problem has to be addressed academically too by following deductive logic not inductive. The issues raised are however, noteworthy.
October 27th, 2009 at 12:01 pm
His examples are really old.
Ghana was a different country in 1995, and the World Bank was a different organziation in 1995.
October 27th, 2009 at 1:06 pm
The examples may be old but until new systems are put in place–including the sort of independent, randomized audit that Bill suggests–we have no way of knowing whether this has changed or not. Anecdotal reports suggest that such practices continue to be widespread.
I have another suggestion, that would complement Bill’s randomized audit: radical transparency. Tax payers who support the World Bank’s operations–and this includes people in poor countries as well as rich countries, since some of the Bank’s funding comes from repayments of loans–should insist (via their legislatures) that the Bank open its project accounts and post all receipts and other documentation related to funds disbursed.
This could be done at quite low cost relative to the potential benefits, and would prevent all sorts of shenanigans.
October 27th, 2009 at 1:08 pm
I worked on a project where a Phony Bill for airfare was submitted to wbnak jakarta and other misdeeds after I left the project. The Bank told me after I showed evidence from the travel agency that they didnt write the ticket Washington DC to Jakarta and phonyed the other employee travel submission, I still have papers and email to prove it! they told me at bank associate for corruption forget it your little corruption is not big enough and we have bigger fish to fry. In addition the company AHT ahtjkt@centrin.net.id in Jakarta refused to pay my trip return to Washington DC which is violation of law. But who cares at W Bank who cares.
October 27th, 2009 at 1:34 pm
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October 27th, 2009 at 3:05 pm
The article brings to fore one of the most pressing issues concerning the developement institutions which is easily swept under the carpet .I study at one of the leading Development Research institutes in India and regularly see the financial malpractices done in the name of organizing conferences and hosting seminars. It is high time proper auditing of Development institutions is done and the money goes for proper channels.
October 27th, 2009 at 4:48 pm
I will get back to you on this.
I spent 24 years in the Bank, ending in the internal audit at the request of Mr Wolfenhon to conduct audits of projects in Africa, prompted by the reluctance of the US Congress to “replenish” IDA because of doubts about the Bank control of the fiduciary risk of its projects, of which the AGETIP. None of those projects (about 2 billions USD at the time) were clean, rift with conflict of interest, of which the fact that Bank project managers had coinciding interest in doling out the money while local project managers had a vested interest in doing the bidding of the Bank project managers, just to keep there jobs going, at vastly better financial conditions than the “local” civil service conditions, all this pushed by the higher ups in the Bank who got their browny points from “succesfull” projects, i.e. projects disbursing according to schedule. Bank projects were supposed to be audited every year; they were, however the audits, whichhad to be reviewed by project managers were routinely ignored. For most of them these reviews were several years behind.
My audits, duly commended by the internal audit unit, led eventually to the creation of the Internal Integrity Unit which does not seem to have any teeth.
Steve Berkman, besides being a colleague and involved in the same boat at the time, is a friend, although we lost sight of each other.. and afellow pilot.
Gerard Boulch
October 27th, 2009 at 4:49 pm
well, if the taxpayers (and their reps on the Bank board) really wanted to reduce tolerance of corruption, due to a culture of disbursement, one very easy action to take is to stop funding the Bank based on disbursement. Right now the Bank funds itself (and internal departments’ budgets reflect this) by raising money in the credit markets and on-lending, with a mark-up (this is IBRD I’m talking about, not the IDA- low income countries). So, the more you lend, the more income you generate for the institution and the more income you generate for your group.
Of course, this is a way of funding development that costs donors (and, ahem, taxpayers) no money. Which is why they don’t change it. So, in a sense, the Bank is doing exactly what it is being incentivized to do. Easy to fix. Known for ages. Won’t be fixed. and it’s much easier than the stuff outlined above (which I mostly agree with by the way).
October 27th, 2009 at 9:07 pm
Steve’s examples may be old but my own recent experiences reviewing audit reports in Africa suggest that fraud is being perpetrated today in exactly the same way it was done 10 or 20 years ago. I have found that the reactions of “recognition” from Wasserman and Boulch are much more common than those who think things have changed. In fact, given the pressures to disburse and “streamline” procedures, there may be less oversight today than ever before.
In addition to my proposal about getting a real estimate of the scale of the problem, I think Lawrence’s “radical transparency” and April’s focus on reducing disbursement pressures are also excellent ways forward. On Radical Transparency, in particular, I would note that the Global Fund for Aids TB and Malaria allows people to download spreadsheets from their website that detail every single disbursement – Well done! This in contrast to my efforts to get straightforward disbursement data from PEPFAR, GAVI or the World Bank – ranging from almost impossible to difficult.
November 2nd, 2009 at 8:12 pm
Re. Lawrence’s “radical transparency” idea we need to push hard on the “radical” part of it. In my work on the HIV/AIDS Monitor, the process of getting disbursement data from the World Bank has been frustrating, but not unique to the Bank; PEPFAR keeps a lot of its unbelievable data base to itself (see http://www.cgdev.org/content/publications/detail/15799 ) but it is sharing more information about funding than ever before. And the Global Fund shares its disbursement data but it does not share any expenditure data. In fact nobody does. (see http://www.cgdev.org/content/publications/detail/14569 ). This is the RADICAL shift in transparency. What is the money spent on once it is disbursed? Will we get there? Even with the GF that is relatively more transparent than others there are nuggets of information tucked well in to the archives of the GF and not shared publicly. For example, the sheet that the GF Portfolio Manager and other colleagues use to assess the “performance” of a grant for its next disbursement is not shared publicly, so the funding decision is NOT a transparent step either. Do we know if money is continuing to being disbursed without any sense of how previous disbursements were spent to achieve (or not) the reported targets? I’m sure one can argue that it doesn’t matter as long as results are achieved (the COD aid idea), but I’m not sure we are there yet either.
On a separate point,we don’t really know how much corruption is being driven by the World Bank alone, relative to all of its fellow players who want to push money out the door in their zeal to finance global health. Given this, isn’t this an issue of collective action for donors? Otherwise, as a country I might be happy to dump the results-based financing and go with the let’s-get-the-money-out-the-door donor and do what I want with it!
November 4th, 2009 at 11:25 pm
RE: Nandini’s comment on collective action – you are right of course that this is a coordination issue. But who better to lead change and set the standards than the World Bank? What’s it’s supposed convening power good for if not for tackling tough problems such as this? And if Steve Berkman is even close to correct about the amount of fraud going on, wouldn’t it be better for the bank to disburse half as much but know that it actually got used? So it seems to me there is a two-step solution and that Congress can demand both
1) An independent, annual randomized audit of the type that Bill proposes, with an independent annual answer to the question: About how much of what the Bank disbursed was not properly accounted for? and 2)
2) Project documents and the related paper work for ALL disbursements, including receipts like the one posted in Bill’s blog above, should be posted within a week of the disbursement.