Jameson Berkow
Probe International
April 23, 2009

A report on the internal controls of the World Bank’s US$40 billion International Development Association (IDA) has found the current procedures for identifying and preventing fraudulent or corrupt use of aid money to be woefully inadequate. The report is the first of its kind to be done by any international development finance institution.

Completed last fall by the bank’s Independent Evaluation Group (IEG), one of the authors of the nearly 700-page report told the Wall Street Journal [PDF] that, “The bank’s traditional control systems weren’t designed to address fraud and corruption.”

“Evidence emerged during the review that suggested that there are significant risks of fraud and corruption (F&C) impinging on IDAs lending operations, not fully matched by appropriate controls,” the report said. IEG gave the IDA the lowest possible rating for fraud-detection procedures.

The International Development Association, which is the World Bank’s soft loan window [PDF] and gives grants and interest-free loans to the world’s 78 poorest countries, had for decades assumed that a certain level of corruption was to be expected. To them, and indeed to the entire World Bank, it was simply part of doing business with poorer countries. As a result, the Bank has only recently sought to take steps towards dealing with these issues, largely as a result of mounting public concerns over the misuse of Bank funds.

Considering the World Bank’s recently announced plan to greatly expand its lending capacities in the third world [PDF] , combined with preliminary evidence that suggests at least one third of the World Bank’s loans have been used corruptly [PDF] , the importance of having a comprehensive system in place to deal with issues of corruption is more vital now than it has ever been before.

• Read the original article by Bob Davis in the April 17th edition of the Wall Street Journal [PDFver here]
• Read the full report by the World Bank’s Independent Evaluation Group [PDFver here]
• Read more about the corrupt use of World Bank funds in a recent article by Probe International Executive Director Patricia Adams