Memorandum Submitted by David Elliot
INTRODUCTION
1. David Elliot is an independent Development
Consultant with experience working on private sector development
and poverty reduction for the World Bank, UNDP, USAID and the
Asian Development Bank, (ADB). In 2005 while working for ADB in
Afghanistan he reported fraud and corruption related to four Technical
Assistance projects managed by the ADB and funded by DFID, the
UN Global Environmental Facility (GEF), and the Danish Government,
(Danida). The only action taken by the ADB in response was to
terminate the Consultant's contract and blacklist the consultant
from obtaining further work with the ADB. Evidence of fraud and
abuse of DFID resources was first reported to DFID's Department
of Internal Audit in January 2007, however no corrective actions
were taken. The Projects were subsequently the subject of a critical
report by the Financial Times in July 2007. An audit conducted
by Price Waterhouse on behalf of ADB, in October 2007 showed grave
shortcomings in program management. Even though the auditors confirmed
that ADB had falsified progress reports and improperly used DFID
financed resources, neither DFID or ADB interviewed the witness
or examined the evidence of more serious corruption and retaliation.
SUMMARY
2. Given the political and strategic importance
of DFID's Afghanistan program and the credible evidence submitted
to DFID regarding abuse of UK Government resources, DFID's organizational
response was inadequate. The following recommendations, based
on the Consultant's subsequent experience with DFID should be
considered both in the Afghan context as well as in any review
of DFID contributions to ADB and other multilateral banks.
RECOMMENDATIONS
1. DFID's stated policy regarding fraud
is one of "zero tolerance", and "anyone" is
encouraged to report fraud to DFID's Department of Internal Audit.
However, the rights of a whistleblower submitting evidence of
fraud are not clear. For example, it is ambiguous if the Fraud
Policy applies to non-employees of DFID that report corruption,
or what obligations DFID has to report back to a non-employee
whistleblower or Civil Society Organization about any corrective
actions taken.
2. In a case where a whistleblower alleges
retaliation for having taken the appropriate steps to report corruption
to DFID, it is inadequate to simply write back and thank the informant
for the evidence submitted.
3. In a case were loss of life in affected
communities is a direct consequence of DFID funded project failure,
a financial audit 9 months after such evidence of failure and
its consequences is reported, also constitutes an inadequate response.
4. There is no effective process for requiring
ADB to investigate and respond to allegations of fraud and waste
of DFID funds. In this particular case no effective action was
taken until the matter was reported by the Financial Times. A
process for initiating an independent investigation of allegations
of fraud and waste should be included in future agreements with
ADB and other multilateral organizations. If evidence of wrong
doing is credible and specific then DFID should have the right
to audit multilateral spending of DFID funds.
5. There is apparently no process governing
how DFID would require ADB to return or replenish DFID funds that
have been wasted or used for corrupt purposes. Such a process
should be defined and included in future funding agreements.
6. There is no mechanism for DFID to offer
protection or legal support to a non-employee whistleblower that
suffers retaliation as a result of reporting fraud against DFID
by a multilateral partner. As a result, DFID might recover its
funds, but the whistleblower remains exposed to retaliation.
7. DFID funding granted to a multilateral
and then allocated to specific country projects should be reported
to the relevant DFID country program management. In this particular
case, DFID Afghanistan staff had no knowledge or awareness of
the ways ADB was using (or misusing) DFID resources in the country.
8. A clear framework should also govern
decisions regarding ADB's or other multilaterals' allocation of
DFID funds to particular projects. For example, in the case of
Afghanistan, there was no coordination or integration of the ADB
projects with the larger DFID country program, and DFID would
have been more effective had it implemented and overseen these
TA projects directly.
9. To prevent scandal, Internal Audit should
have a clear standard regarding what actions can and should be
taken in response to credible allegations of fraud and waste of
DFID resources, and such information should be reported and made
public. This Consultant's experience highlights the need for improved
measures to strengthen Accountability and Transparency, such as
those proposed to the Select Committee by the UK Aid Network (UKAN).
10. While ADB has reasonably clear guidelines
regarding investigating fraud and corruption by employees or subcontractors
against ADB, it has NO guidelines regarding fraud and corruption
by ADB itself or ADB staff with respect to donors, and it is incapable
of investigating such wrong-doing. Indeed ADB failed to even recognize
that repeatedly submitting fraudulent progress reports in order
to obtain additional funding from DFID, constitutes a corrupt
practice. Equally, DFID's Internal Audit Department was incapable
of recognizing and addressing a case of fraud by a multilateral
partner.
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