Corruption warning signs: is your project at risk?

What factors conspire to cause a development project to fail? Poor project design and management of course. Also lack of client ownership. And capacity constraints. And corruption. 
 
Corruption puts assistance projects at risk at every step of the project’s life, and even before that projects exist on paper.  "Corruption warning signs: is your project at risk?" is a toolkit recently developed by the Latin America and Caribbean unit of the World Bank that lists these pitfalls phase by phase throughout the project's life.  The toolkit is addressed to Bank project managers and teams.  Here's a quick synthesis of these warning signs. 
 
At the identification phase, one possible scenario considers government counterparts suggesting projects in sectors that are either “high rent” or are particularly affected by corruption.  In order to get kickbacks, counterparts might also seek to favor privileged companies either by insisting on concentrating project activities in a specific region of the country, or by entrusting project administration to entities with low capacity or lack of expertise.
 
The next phase, project preparation, is about government counterparts conducting studies in a variety of topics relevant for the projects to succeed.  In this phase, counterparts might inflate needs and estimated costs.  The underlying risk here is that studies and research could be manipulated to produce unsupported conclusions leading to diversion of funds.  Weak supervision mechanisms and the expansion and abuse of discretionary powers could allow counterparts to facilitate the solicitation of kickbacks.

The appraisal phase, for which the World Bank is responsible, may highlight that government counterparts present misleading information that conflicts with information provided to the Bank and obtained from other sources. This could lead to an incomplete Project Implementation Plan, delaying the allocation of funds upfront.

The next stage, project implementation, is where counterparts execute the project, with World Bank providing supervision.  This is typically the stage most prone to corruption, as it encompasses the award and execution of contracts.  Warning signs include: poor monitoring and oversight, abuse of discretionary powers, supervisors’ lack of capacity and failure to report use of substandard material, or to distribute goods in a timely manner.
 
Significant corruption risk is also associated with project financial management, for instance: excessive influence over the formulation of the project budget through non-transparent systems of decision making; weak budget estimates; significant deviations from planned expenditure target; inflated prices and resource allocation benefiting decision-maker.  In addition, other signs and deliberate attempts to conceal corruption activities, among many others, might be poor accounting and reporting, and weaknesses in the overall internal control as well as in the internal and external audit.

The procurement stage gets us in the eye of the corruption storm.  Warning signs here include the urgency to justify departures from agreed procurement plans or rules, through either a lack of consideration of less costly solution, or overestimation, and modifications increasing the budget.  Another pitfall is the lack of an appropriate tender design.  This can lead to favoring a preferred company, and/or influencing the award of the contract.

There’s more: misleading public advertising, which can be used to preclude all potential bidders from participating in the process; limiting the time to submit proposals that can be done to favor one bidder over others, or restricting information and site visits, which undermine the competitiveness of the procurement process and can lead to favoring a preferred company; narrowing the subset of pre-selected companies and setting strict criteria to eliminate disfavored firms; irregular bid openings and disclosing confidential information to benefit favored company, etc, etc...

Of course, good governance starts at home.  However, it is not impossible that project corruption may also originate from the other side, just as is happens between governments all around the world and its constituencies.  Neither the Bank nor any other development institution is immune to it.  Accountability is a two way street.