Volcker's Folsom World Bank Blues

♠ Posted by Emmanuel in at 9/13/2007 03:22:00 PM
It seems that Paul Wolfowitz's appointee at the World Bank's Institutional Integrity Department (INT), Suzanne Rich Folsom, is set to outlast her former boss for quite some time. Paul Volcker has just submitted his report reviewing the work of the INT. While finding that the INT has some "serious operational issues," its work looks set to continue. What's more, Folsom looks like she will retain her position at the INT. There's even a chance that she will be promoted to the rank of vice-president as one of Volcker's recommendations (see below) is to elevate the INT head to vice-president status. From the Wall Street Journal:
Mr. Volcker said he gave Ms. Folsom "high marks on the professionalism of the operation." But he argued that her role should change.

Currently, she runs the department and is also counselor to the World Bank president. Her critics have charged that the two jobs -- running the antigraft unit and dispensing political advice -- are incompatible. Ms. Folsom has said the two jobs helped give her "the ear of the president."

The Volcker panel urged that the department be headed by a bank vice president, who should focus on running it. That would help eliminate concern that the department chief's role as an independent investigator "might be compromised."

Mr. Zoellick said he would retain Ms. Folsom as a department head who would report to him but he would likely end her dual role as counselor. He didn't commit to making her a vice president, a higher rank than she now holds. "Suzanne has done very, very good work in a very tough job," Mr. Zoellick said.

Meanwhile, Ms. Folsom said she intended to stay at her job and hopes the bank "embraces the findings" of the Volcker panel.
Current World Bank President Robert Zoellick was quick to endorse the recommendations made by Volcker:

World Bank Group President, Robert B. Zoellick, has expressed his appreciation for the report of the panel led by Paul Volcker, which reviewed the work of the Institutional Integrity Department (INT) in the context of the World Bank Group’s governance and anticorruption strategy.

“This is an excellent and most useful report,” Zoellick said. “The Volcker report makes clear the serious challenges ahead in overcoming the cancer of corruption in operations supported by the Bank, and it offers constructive recommendations. Now it will be up to all of us to move forward, as part of our on-going commitment to address this vital issue.”

The Bank President said improving governance and overcoming corruption are critical factors toensure development resources reach the poor who need
them. “Stealing from the poor is not acceptable,” he said.

INT has the difficult job of investigating fraud and corruption in Bank-supported operations. It also investigates allegations of staff misconduct and administers the Bank’s Voluntary Disclosure Program, which encourages companies to adopt healthy business practices. INT performs important work that should be recognized and strengthened.

“The World Bank Group needs a strong, professional Institutional Integrity Department, backed by management and supported by a Bank-wide commitment,” Zoellick said. “As the report has explained, INT has achieved notable success, but we can do better and need to integrate its work into our operations more effectively and consistently.”

The Volcker panel’s detailed recommendations will be carefully and promptly considered by the World Bank Group.

As a first step, an internal working group from across the institution will be established to consider the panel’s recommendations, in light of its ongoing internal work on a governance and anticorruption strategy.

The World Bank Group will also encourage public comment on the report, which will be considered by the working group. A top priority will be defining a policy for disclosing information about INT’s work to Bank staff and management, the Board of Executive Directors, governments, development partners and the public.

The World Bank Group also proposes to improve INT’s effectiveness in the following areas:

Developing a capacity within INT to disseminate operational advice, lessons learned and best practices resulting from its work;

Ensuring that INT findings and recommendations are followed-up in a systematic and comprehensive manner, across all units of the Bank;

Working with the Audit Committee of the Board to strengthen accountability of INT and consider other steps to assure INT’s independence and support;

Reviewing and revising, as needed, staff rights in the conduct of investigations of alleged misconduct;

Considering the reassignment of investigations of staff misconduct, not involving fraud or corruption, from INT to another office;

Developing a policy to ensure that staff members are better informed of the outcomes of investigations of alleged staff misconduct; and

Evaluating the Voluntary Disclosure Program after the first year to assess its effectiveness.

The Bank will seek external comment on these initial proposals by posting them on the Bank’s website, along with the Volcker panel’s report and recommendations.

In considering the public comment, management and the working group will consult with the Bank's Board as an integral part of its deliberations prior to making final recommendations, which will be incorporated into the Bank’s new Governance and Anticorruption Strategy.

“The World Bank Group operates as a public trust,” Zoellick said. “It must be committed more than ever to improving its work on governance and anticorruption at all levels, as fighting corruption is critical to achieving its mission of overcoming poverty and encouraging sustained growth. As the Volcker report notes, there should be no illusions about the difficulty of the effort, yet the World Bank Group must continue to do better.”

The Independent Review Panel was constituted to review the work of the Department of Institutional Integrity (INT) and to place that work in the context of the World Bank Group’s Governance and Anticorruption (GAC) strategy.

Lastly, here is the executive summary of the report:

The Panel recognizes and emphasizes the critically important contribution that a coherent and forceful attack on corruption can and should make to the Bank-wide goal of facilitating economic development and reducing poverty. INT must play a central part in that effort. It cannot do so effectively in isolation. What is necessary is a fully coordinated approach across the entire World Bank Group, ending past ambivalence about the importance of combating corruption.

That will require strong Bank leadership, not simply by the President and the Executive Directors but by those directly responsible for operations and for supporting staff. The GAC strategy calls for a wide-ranging two-pronged program. Building capacity among member states for combating corruption must be accompanied by measures to protect and enhance the integrity of the Bank’s own operations. Those goals should be, and can be, mutually reinforcing.

Within that context, INT has the clear and critical responsibility to investigate fraud and corruption in Bank programs. Its mandate extends to education and training to identify risks and risk prevention measures. Closer and more trusting relationships with Operations staff can encourage detection of corruption in projects. INT findings in particular cases should provide "lessons learned," with implications for building anticorruption protection in Bank projects.

INT has achieved some notable success in its relatively brief life. It is staffed by dedicated and competent personnel. It uses innovative strategies to aid investigations in often demanding working environments. Nonetheless, serious operational issues and severe strains in relations with some Operations units have arisen, at times contributing to counterproductive relations between the Bank and borrowers and funding partners.

It is these matters that the Panel has addressed in its specific recommendations as summarized below (and listed in Appendix B):

INT’s Organizational Relationships. The head of INT should have the rank of Vice President, and the line of direct responsibility to the President should be maintained. The current role as Counselor to the President should be dropped in the interest of clarifying the purpose and independence of the INT function. The Audit Committee of the Board of Executive Directors, as part of its responsibility for overseeing INT, should help assure that INT’s potential contribution to the implementation of the GAC strategy is realized. A small external Advisory Oversight Board should be established to protect the independence and strengthen the accountability of INT. Properly constituted with widely respected individuals with strong professional credentials drawn from outside the Bank, this Advisory Oversight Board would provide a fresh perspective free of institutional conflicts when troublesome issues arise.

INT’s Preventive Role. INT should develop an internal consulting unit, drawing on staff with operational as well as investigative experience. The purpose would be to work collaboratively with Operations units in developing protections against corruption, assisting with education and training, and advising about appropriate responses to allegations of corruption that INT does not investigate. The lead responsibility for the critical task of preventing corruption in the Bank’s operations should be created elsewhere in the Bank’s organization.

Remedial Action. To ensure that the Bank responds promptly and effectively to INT’s findings of corruption in Bank projects, the relevant Managing Director should be made accountable for ensuring that a comprehensive action plan is developed and implemented. The full range of appropriate responses—disclosures, required remedial responses, and "lessons learned"—should be addressed for the President’s approval.

Disclosure Policies. While recognizing the need for confidentiality of certain matters—most importantly witness protection—the Bank and INT should modify disclosure practices to assure that funding partners as well as relevant Operations staff are informed of the initiation and status of an investigation if immediate action to protect funds is needed, to permit Operations staff to review draft investigation reports for factual accuracy, and more generally to give effect to the presumption of transparency through disclosure of investigative procedures and final INT reports.

INT’s Investigation of Bank Staff. The Bank should reassign outside INT the investigation of staff misconduct not involving allegations of significant fraud or corruption. The Bank should clarify and strengthen the rights of Bank staff in connection with all internal investigations, while taking steps to monitor and reduce the time taken to complete staff misconduct investigations.

INT’s Staffing, Management, and Evaluation. INT should ensure more diversity in its staff, consistent with the need to recruit investigators of the highest technical competence. INT should be subject to regular internal audit and further measures to evaluate its performance.

Finally, the World Bank Group, and INT within it, should work with other multilateral institutions in developing, defining, and following "best practices" in protecting institutional integrity and investigating corruption. The Bank should be at the frontier of best international practice in tackling corruption. These recommendations are designed to ensure that the Bank as a whole, and INT in particular, can play that part with conviction and effectiveness.