Over my career, I have attended dozens of CPE seminars, trainings, and in-house capacity-building sessions. Although these events are often informative, they rarely translate into improved performance. Audit staff who could be classified as low or medium performers often show little change afterward—they retain the same habits that prevent them from advancing.

Much of today’s training focuses on the facts and information needed to pass certification exams. For example, I recently attended a seminar on the updated 2024 IIA Professional Standards with my team. While the content was useful, I observed no noticeable improvement in their day-to-day performance. When I speak with successful auditors and leaders, they almost always credit a mentor—not a course—for giving them the insights that shaped their careers. This made me realize that the “inside information” I share when mentoring junior and mid-level auditors may be more valuable than traditional training.

Many auditors who struggle to advance can trace their stagnation to four core issues—issues rarely addressed in formal training.

1. Soft Skills

Soft skills are often the biggest differentiator between average and high-performing auditors. This category includes:

• Professional communication and email etiquette
• Professional appearance and courtesy
• Conflict resolution
• Managing auditee relationships
• Navigating difficult personalities
• Anticipating challenging questions or situations

These skills determine how effectively an auditor can influence, persuade, and build trust—capabilities that no certification exam can teach.

2. Time Management

Time management failures are one of the most common performance gaps. I have seen auditors travel to the field unprepared, spend one or two weeks onsite, and return with only half the audit completed. In some cases, auditees have complained that staff left the field without conducting an exit meeting to discuss preliminary findings. These issues undermine credibility and delay the audit cycle.

3. Multi-Tasking and Problem Solving

A strong auditor should be able to manage two to three audits simultaneously. Many engagements involve downtime while waiting for information, approvals, or data. Effective auditors use this time wisely and leverage modern tools—including AI—to support:

• Audit planning
• Fieldwork and testing
• Document reviews
• Workpaper editing
• Draft report preparation

Even with proper planning, audits rarely go exactly as expected. Strong problem-solving skills are essential when an audit hits a snag.

4. Adaptability and Continuous Learning

In today’s environment, there is no excuse for auditors not knowing how to perform essential tasks. With AI, online tutorials, and platforms like YouTube, auditors can quickly learn how to:

• Use Excel pivot tables
• Apply data analytics tools
• Build dashboards
• Leverage AI for audit tasks

Richard Kocik, CPA, CFE, CIA, CISA

Mr. Kocik brings his substantial experience in combating fraud and corruption in international aid projects to the IACRC as its lead Advisory Board member. 

He has onsite and up-close experience leading and directing internal audit units with the United States Agency for International Development, Office of Inspector General, Catholic Relief Services and the Consultative Group on International Agriculture Research.  He holds certifications in public accounting, fraud examination, internal audit, risk management and information systems audits.  During his career, he has traveled to over fifty countries, lived and worked overseas, and has taken part in 180 audits and investigations. 

The post Real-World Skill Sets Internal Auditors Need to Learn appeared first on IACRC.

It is estimated that almost 100 trillion dollars will be needed for traditionally high-risk infrastructure projects by 2040 [i], including more than a trillion dollars in US infrastructure improvements[ii] and trillions of dollars a year to combat climate change.[iii]

The World Bank and other development organizations have expressed particular concern that the massive scale, urgency and importance of the Climate projects, many of which will involve critical infrastructure works, will create “unprecedented” risks” of loss and project failures, with potentially “existential” consequences.[iv]

Traditional controls, such as occasional, brief supervision missions, and ex post audits, will be wholly inadequate; greatly enhanced and innovative oversight procedures will be necessary, such as the digital Automated Fraud Detection and Prevention Programs described below.

THE ADVANTAGES OF AUTOMATED FRAUD DETECTION PROGRAMS

The Programs exploit the trend to digitized record keeping systems to offer major advantages over traditional “paper” control systems, including greatly enhanced transparency, efficiency and economy, and, most importantly, the unique ability to:

• • Detect and prevent potential wrongdoing ex ante, before fraudulent transactions are approved and losses incurred.[v]
  • Conduct continuous, real-time remote monitoring and supervision by independent oversight personnel, rather than having to rely on oversight by project officials who may themselves be involved in corruption.[vi]

EXAMPLE OF A DIGITAL AUTOMATED FRAUD DETECTION PROGRAM

All project participants – contractors, subcontractors, suppliers, inspectors, etc. – would submit relevant data on procurement, construction and payment transactions electronically from laptop or cell phone applications to a dedicated project website; this would permit the creation of a digital record of all relevant project transactions, even in “low IT” environments.

The website would be equipped with cloud-based software that would apply sophisticated rule-based algorithms and AI programs to instantly analyze the data as it is received to:

• • Identify indicators or “red flags” of fraud, corruption, waste and abuse

• • Match the indicators to the related scheme or schemes, including:

Collusive bidding (Cartel activity)

Bid rigging

Kickbacks

Conflicts of interest

Shell companies

Phantom vendors

Failure to meet contract specs

Product substitution

False, inflated and duplicate invoices

• • Look for other indicators of the suspect scheme(s)
  • Extend the analysis as necessary to reduce the risk of “false positives”
  • Score the results to reflect the level and certainty of risk
  • Immediately report the results to oversight personnel for appropriate follow up.

Most of the fraud tests could be standard rule-based algorithms, many based on proven forensic accounting tests; other, more sophisticated tests could be developed and tailored to the specific locations and circumstances. Most of the tests could be run on readily available project data, avoiding the delays and disruption caused by the need to access multiple, disparate databases as in many other fraud detection programs.

More advanced AI programs could be run to detect previously unknown or well-hidden indicators or reduce the risk of false positives.  For example, the Swiss Competition Authority used AI to examine voluminous prior tender data to identify previously unknown indicators and patterns of collusive bidding.

The digital data and AI analysis would be far quicker, more comprehensive and accurate than traditional document analysis, and could cover data sets of virtually unlimited size, rather than being limited to smaller sample sets.

EXAMPLES OF THE ADVANTAGES OF AUTOMATED PROGRAMS

As noted above, the digital Programs offer significant advantages over traditional “paper” anti-fraud controls, including most importantly:

1. 1. 1. The ability to provide ex-ante fraud detection and prevention

In the PROCUREMENT stage, the Programs could identify indicators of potential bid rigging and collusive bidding schemes (cartel activity), such as unusual bid patterns, instantly as bids are received, before they are evaluated and contracts awarded.

In the CONSTRUCTION stage, the Programs could detect and block the attempted use of substandard construction materials by, among other means, instantly matching the relevant supplier’s sales and delivery records to the contract specifications.  The detection of such abuses in traditional control systems typically would occur, if at all, in ex post audits, months or even years after the frauds were completed and the damages sustained.

In the PAYMENT stage, the Programs could block false and inflated payment applications by automatically matching the claims in the applications to the relevant time and labor records, supplier records and inspection reports.  Again, the detection of such misconduct in traditional systems typically would occur only long after the transactions were completed.

1. 1. 2. The ability to conduct continuous, real-time remote monitoring by independent oversight personnel

The Programs could alert donor or other oversight personnel, perhaps thousands of miles away, to potential fraud indicators, as described above, instantly as they arise, permitting them to immediately block or suspend the suspect transactions pending further inquiry.  Such independent oversight is critical in high-risk environments where most corruption and fraud losses are caused by local officials in charge of project implementation and supervision.

The increased transparency and prospect of detection provided by digital systems also should help deter attempted misconduct in the first place.

1. 1. 3. Immediate access to voluminous project files in ex-post audits and investigations

The algorithms also could be applied ex post in audits or investigations involving digital record keeping systems.  This would permit virtually immediate access to 100% of voluminous project files, yet another exercise that could take months or longer in traditional paper systems.[vii]

SEE A LIST OF SAMPLE AUTOMATED FRAUD REPORTS FOR AN INFRASTRUCTURE PROJECT

Initially the oversight should be conducted by the donor or related government agency but ideally would be conducted by a new an entirely independent international facility, yet to be determined or established. [viii] This is important because donors and government agencies are often reluctant to acknowledge or address fraud and corruption in their operations because of institutional embarrassment and the fear of negative impact on funding.

OTHER POSSIBLE ANTI-FRAUD TECHNOLOGY THAT COULD BE EMPLOYED

Other automated and AI powered programs that could be applied include:

• • Comprehensive background checking programs to identify fictitious or unqualified suppliers and subcontractors or evidence of corrupt officials

• • Investigative steps and procedures, e.g., whistleblower reports could be automatically linked to relevant project data to quickly evaluate complaints and expedite follow up steps; AI could quickly and comprehensively identify and analyze relevant documents, etc.

• • Fraud prevention and anti-corruption programs, such as compliance with ISO 37001
  • Satellite-based analysis of construction defects in road projects in otherwise inaccessible areas

• • Hyperspectral analysis tools to verify that construction materials meet required quality standards
  • Drones and geospatial monitoring programs

ENDNOTES

[i] E.g., “Global infrastructure investment needs to reach USD97 trillion by 2040;” GitHub (World Bank); https://www.gihub.org/media/global-infrastructure-investment-need-to-reach-usd97-trillion-by 2040/#:~:text=The%20report%2C%20Global%20Infrastructure%20Outlook,Goals%20(SDGs)%20for%20universal%20household.

[ii]  $1.2 trillion US Infrastructure Investment and Jobs Act (IIJA); https://www.congress.gov/bill/117th-congress/house-bill/3684; https://www.brookings.edu/articles/fighting-fraud-waste-and-abuse-the-infrastructure-bill-and-lessons-for-the-future

[iii] “[C}limate finance needs for developing countries and emerging markets are put at 1 trillion dollars per year and rising;”https://baselgovernance.org/blog/strengthen-alliances-counter-environmental-corruption-new-practitioners-forum-transparency;  Developed countries at COP 29 committed “$300 billion a year until 2035 to fight climate change, less than a quarter of the acknowledged $1.3 trillion needed annually to reduce emissions and build resilience in vulnerable countries;” https://www.voanews.com/a/nations-at-un-climate-talks-agree-on-300b-a-year-for-poor-countries-in-a-compromise-deal/7874947.html

[iv]  “The risk of corruption in climate change financing is significant because massive investments need to be deployed on public infrastructure, an economic activity that—as discussed below—has traditionally been plagued by large-scale bribery and theft” https://www.piie.com/publications/policy-briefs/corruption-risks-loom-large-over-financing-green-infrastructure.

“The largest recipients of climate-related overseas development assistance are notorious for having significant systemic corruption, i.e. India, Bangladesh and Indonesia; The top recipients of climate finance rank high in corruption and are scheduled to receive almost 42% of all climate related overseas development assistance” https://www.u4.no/publications/corruption-and-climate-finance.pdf

Largest “upscale” of infrastructure financing into “low governance” countries in history, equal to four times annual GDP; “extremely high risk” of fraud and corruption with potentially “existential” consequences.  https://www.worldbank.org/en/events/2023/06/27/deep-dive-sessions-the-green-transition-and-anticorruption.

“The $1.2 trillion US IIJA is not immune from fraud concerns.  Despite the widely acknowledge fraud risks…IGs say inadequate attention paid to fraud: ‘the word fraud appeared only seven times in the 2000-page bill;’” https://www.brookings.edu/articles/fighting-fraud-waste-and-abuse-the-infrastructure-bill-and-lessons-for-the-future

[v] In addition to it’s obvious advantages, the World Bank has warned that ex ante fraud detection and prevention will be critical in climate projects because of the need for immediate remedial action, which does not permit the delays inherent in traditional ex post responses to fraud. https://www.worldbank.org/en/events/2023/06/27/deep-dive-sessions-the-green-transition-and-anticorruption

[vi] Many international development agencies delegate almost all project supervision and reporting to local project officials and oversight agencies, often the same officials and agencies involved in corrupt practices.  Local inspectors and oversight officials also may be corrupt or pressured to ignore fraudulent and corrupt practices; even international civil engineering firms, serving as supervision consultants, may be removed if they fail to approve fraudulent works.

[vii] Section 5113 of the US Infrastructure Investment and Jobs Act (IIJA) provides for $100 million in grants to expedite the digitization of construction records to obtain its “business benefits.”

[viii] See, for example, the Pandemic Response Accountability Committee (PRAC),  an independent group of U.S Inspectors General created to oversee and prevent fraud in COVID-19 spending.

The post Using automated fraud detection systems to combat fraud and corruption in infrastructure and climate projects appeared first on IACRC.

The Global Infrastructure Anti-Corruption Centre (GIACC) has published a suite of eleven online anti-corruption training Modules.

They are available in 45 languages, and are free of charge to take. 

Each Module requires between 15 to 30 minutes to complete.  A certificate of completion can be downloaded or printed at the end of each Module.   Each Module covers a specific topic, so users can choose whether to take one, some, or all Modules.

The Modules are of particular benefit for persons working in the infrastructure sector, who need to understand how corruption takes place, and how to avoid, deal with, prevent or investigate it.  They are applicable to persons working for small or large organisations, in both the public and private sectors, anywhere in the world. 

For further information, and to view and take the Modules, go to:  https://giaccentre.org/training-online-modules/

Anti-corruption Training for University Students

The Global Infrastructure Anti-Corruption Centre (GIACC) has published two resources which Universities can adapt and use to provide persons who are studying subjects relevant to the infrastructure sector with an overview of the different types of corruption, liability for corruption, the damage it causes, what can be done to prevent it, and what they should do to avoid it in their working life.

1.       GIACC’s University Seminar, “The Silent Killer: Corruption on Infrastructure Projects” requires approximately three hours of a student’s time (one hour in a teaching environment and two hours of reading).   For further information, see: https://giaccentre.org/university-seminar/

2.       GIACC’s University Course, “Preventing Corruption on Infrastructure Projects” is a more in-depth course than the seminar, and requires approximately 36 hours of a student’s time (12 hours in a teaching environment and 24 hours of reading).  For further information, see:  https://giaccentre.org/university-course/

The seminar and course materials are available free of charge to universities and colleges.

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Effective whistleblower systems are particularly important today; it is estimated that almost a 100 trillion dollars will be needed for traditionally high-risk infrastructure projects by 2040, trillions of dollars a year more to combat climate change, which the World Bank claims present “unprecedented” risks of fraud with potentially “existential consequences,” and still more trillions for critical aid programs in the developing world. Well managed whistleblower systems will be essential to successfully address these risks.

THE BASICS OF AN EFFECTIVE WHISTLEBLOWER SYSTEM

The system should be professionally managed internally or outsourced to a reputable provider. If internal, the system should be staffed by experienced personnel, ideally skilled in interviewing and knowledge of fraud, and supported by adequate resources – not just a telephone number in the HR department, answered from 9-5. These requirements are intended not just to successfully handle complaints when received but to encourage whistleblowers to file them in the first place – many whistleblowers will assess the professionalism and reliability of the systems in deciding whether or not to complain.

The “hotlines”- email, phone or in person access – should be widely publicized and promoted through notices on contractor’s and agency websites, clauses in bidding and contract documents, and “fraud awareness” presentations to contractors and agency staff. These presentations, which typically last about 2 hours, emphasize the organization’s commitment to integrity, describe some of the major fraud risks it faces, preventative measures, and explain how to report suspected wrongdoing through hotlines or other means.

The systems should permit anonymous complaints; otherwise, many honest people will not report, and important complaints will be lost. If the legitimacy of a report is questioned, it can be evaluated by linking it to red flags or other evidence of the alleged offense.  For example, if a whistleblower alleges that it lost a contract because a competitor paid a bribe, the investigator can test the allegations by looking for other indicators of corruption in the award, rather than just speculating on the accuracy of the report or motivation of the complainant.  This process can be automated in digital fraud detection systems.

In fact, in practice, red flags often are much more useful to evaluate complaints than they are as direct indicators or evidence of potential fraud or corruption.

THE IMPORTANCE OF “PROFESSIONALISM” IN HANDLING A WHISTLEBLOWER COMPLAINT

It is well known that many if not most persons with knowledge of misconduct in an organization are reluctant to report for many reasons, most importantly the fear of retaliation and the expectation of futility, i.e., that no useful action will be taken or result achieved despite the risks taken by the whistleblower. 

Many of those who do report often retain the above concerns and may withdraw or limit their cooperation if they do not trust the system or the investigator assigned to follow up. Experience has shown that their trust depends primarily on their assessment of the investigator’s “professionalism” – defined as his or her competence, dedication and integrity.  The investigator might inadvertently lose this trust by an unreasonable delay in responding to the complaint, by a lack of preparation or even by unintentional signals of disinterest in the case or a lack of belief in the whistleblower’s claim.

This failure to “project professionalism” can have most unfortunate consequences, as illustrated by the following actual case example:

The Investigation Unit for a major development agency received a confidential report that an aide to the Chief Technology Officer (CTO) was alleging that the CTO was accepting bribes in exchange for IT contracts.

The unit’s manager sent two junior investigators with accounting backgrounds to interview the aide. Neither were experienced interviewers and neither took any steps to prepare for the interview. They promptly returned and announced that the report was false, that the aide had no knowledge of corruption by the CTO.

The unit’s manager then sent two more experienced interviewers to reinterview the aide. They first did some research on IT contract awards which tended to support the allegations of corruption involving the CTO

The aide then confirmed, confidentially, that the CTO was taking bribes and provided evidence that led to his eventual dismissal.

The aide said that he did not disclose this to the first team of investigators because they appeared to be unprepared, inexperienced and disinterested, that he did not trust that they would protect his anonymity, or accomplish anything if he disclosed the evidence, at great risk to himself and his career.

In summary, it is most important for the investigator to remember that, just as he or she is evaluating the credibility of the whistleblower, the whistleblower is evaluating the trustworthiness of the investigator, and act accordingly.

See How to Respond to a Complaint in the Guide to Combating Corruption and Fraud for more information on how to handle a whistleblower, including useful questions to ask.

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Such offenses are widely considered to be very difficult, if not impossible, to prove, by NGOs and other private sector organizations that lack law enforcement powers.  This is not true; with adequate experience and careful planning such cases can be, and many have been, proven with reasonable effort.

A short summary of a typical approach to a kickback investigation, without the benefit of subpoenas or other powers to compel evidence, is set out below.

The first four steps listed below can be conducted in-house and are intended to identify potential payments and guilty parties.  The last three steps are designed to prove the actual payments through documents collected from the vendor and interviews of the suspect payer and  recipient.  The most critical factor for success is to gain access to the financial records of the suspect vendors, as described below.

Much more detail is available at the Guide to Combating Corruption and Fraud in Development Projects:  https://guide.iacrc.org and https://guide.iacrc.org/potential-scheme-corruption/.

Obtain legal advice and consult the relevant HR rules and regulations as necessary.

1.  Thoroughly debrief a whistleblower 

Don’t rely simply on the information in the original message; whistleblowers almost always have more information than they initially disclose.  See https://guide.iacrc.org/how-to-respond-to-a-complaint/

2.  Collect the following documents and information from the procuring entity (the organization that employs the person suspected of receiving the kickback); adjust the list depending on the allegation or suspicion and circumstances:

a.  Procurement documents, such as purchase orders, requests for bids, bids, change orders, etc. depending on the specific allegations or suspicions.  Look for unusual  favorable treatment of a particular supplier and other indicators, such as the SPQQD indicators:

       S    Improper selection procedures that favor a certain company

       P    Unreasonably high priced purchases

       Q    Unreasonably high quantity of purchases from a certain supplier

        Q    Low quality purchases

        D    Delivery of items that do not meet specifications, etc.

b.  Contract and payment records; note the bank account information of the suspect vendor (s).

c.   Invoices from the suspect vendor; match to the purchase order or contract and note discrepancies (a corrupt employee may accept kickbacks to accept over-priced or lesser quality goods.)

d.  Computer hard drive of the suspected recipient; use special software, such as EnCase or FTK, to recover deleted content.

e.  Emails (very important), text messages and telephone calls between the vendor and procuring entity, as permitted. The subject may attempt to delete incriminating messages, so also look for and recover deleted content.

3.  Interview procurement personnel who are not suspected of involvement in the wrongdoing to understand the transactions and confirm the possible indicators or evidence of wrongdoing

4.  Do background checks on the suspect vendor and employee, e.g.,

a.  Is the vendor a real company?  Is it qualified to do the work?

b.  Does the suspect employee or a relative own or have an interest in an undisclosed business?

c.  Does the employee display recent wealth or live beyond his or her means, e.g., own expensive real estate?

See https://guide.iacrc.org/due-diligence-background-checks-on-firms-and-individuals/ for more information.

5.   Evaluate – is there adequate predication to continue the investigation?

Is there a sufficient factual foundation to believe that kickbacks might be present?  If so, continue the investigation.

6.  Obtain the following documents and information from the suspect vendor:

Obtain the following records by request or the exercise of contract audit rights.  The investigating entity also can file a civil suit or make a criminal referral to get access to subpoenas and court orders for documents and information from the suspect vendor, banks and other third parties:

a.  Payment records: look for suspect payments, e.g. unusual round number amounts, payments without supporting documents, payments to companies that cannot be identified or to companies linked to the suspect recipient, etc.

b.  Invoices from the suspect vendor: look for false and inflated invoices: compare the vendor’s delivery records to its invoices and note discrepancies.

c.  Records of cash payments: see “How to prove illicit payments in cash:” https://guide.iacrc.org/how-to-prove-illicit-payments-in-cash

7.  Interview the suspect payer

Request an explanation and documentation for the suspect payments.

In appropriate circumstances, solicit the cooperation of the suspect bribe payer by suggesting that the kickbacks may have been  demanded or extorted by the procurement officials and offer to settle claims against the vendor on a favorable basis in exchange for its full truthful cooperation, including information on any corrupt payments.

It also may be effective to use evidence of fraud (for example, the submission of inflated or fictitious invoices used to generate the funds for the kickback payments) to negotiate for the cooperation of the vendor; again, suggest that the investigation may be settled on a favorable basis in exchange for full cooperation.  Evidence of fraud is usually easier to collect than evidence of improper payments and can be properly used to sanction the offender, which, of course, many companies are anxious to avoid.

Both of these approaches have been used successfully in many investigations in international development cases.

8.  Interview the employee suspected of receiving the kickbacks

Request relevant business and personal financial documents; note that employees have a fiduciary duty to cooperate in a good faith investigation.

An in-depth description of the steps required to prove complex corruption cases can be found at https://guide.iacrc.org/10-steps-of-complex-fraud-and-corruption-investigation/.

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More specifically, the Integrity Filters can :

• Instantly review 100 percent of all transactions, rather than limited samples as in standard audits
• Block non-compliant or improper procurement transactions, such as bids from companies on ineligible lists, bids received after the bid deadline or other improper transactions
• Provide instant alerts of possible fraud, prioritized by importance and level of risk
• Permit detailed, real-time remote monitoring by oversight agencies, which is not currently feasible in paper procurement transactions
• Create detailed audit trails and digital evidence for auditors and investigators

The Filters can identify the red flags of a number of procurement fraud and abuse schemes, including:

• Collusive bidding
• Bid rigging
• Kickbacks
• Conflicts of interest
• False, inflated and duplicate invoices
• Shell companies
• Phantom vendors
• Purchases for personal use or resale

See more info on the red flags and detection methods of the above schemes at Integrity Filters.

In addition to detecting potential fraud, the Filters can generate other reports, such as:

• Significant procurement statistics
  • e.g., the number of contracts awarded to certain contractors by certain approving officials
• Economy and efficiency indicators
  • e.g., the selection of the best product for best price, or the failure to do so
• Compliance reports
  • e.g., contracts in violation of procurement rules, such as too short notice to submit bids, bids from a debarred company, sole source contracts above the sole source limit, etc.
• “SPQQD” reports
  • Selection, Price, Quantity, Quality and Delivery indicators that can point to fraud or abuse

To effectively utilize the Filters, eProcurement systems should:

• In tender transactions, collect all winning and losing bids and related data in a structured, electronic format readable by the fraud detection algorithms. This could be accomplished by requiring the bidders to download and populate standard bidding templates with predefined fields.  The bid forms should include line item detail and prices when called for.
• In purchasing frauds, collect the full array of purchasing records – purchase orders, receiving, invoicing and payment information – rather than just purchase orders or receiving documents, as many current eProcurement systems do. Invoice and payment information is necessary to detect and prevent most purchasing frauds.
• An alternative would be to link e-Procurement to an ERP system (such as SAP) or other expense management and payment apps.  This would allow the easy integration of the necessary invoicing and payment records with procurement documents.

See more information on the advantages of eProcurement and Integrity Filters at pages 29-42 and ANNEX A in GovTech and Fraud Detection in Public Administration.  The full paper discusses the most promising application of digital anti-fraud measures in procurement, financial  management systems and HR systems.

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Adding to the unpleasantness funders are cracking down on their anti-fraud and reporting requirements, with significant penalties for non-compliance, which sometimes are more worrisome than the consequences of the underlying frauds.

Two papers address these issues.  The first is “Enhanced Anti-Fraud Measures in High Risk Environments” which describes additional measures, beyond the essential basic suite of ethics policies and compliance programs, that organizations can employ in difficult times and places.

The second is a white-paper by the Washington, DC based law firm, Nichols Liu “How to be a Good Partner to USAID.” The paper describes the importance of having robust ethics and compliance programs to mitigate the risks of disallowances, investigations and debarments, and reduce the anxiety of reporting possible fraud losses.

The post Combating Fraud in Difficult Times and Places appeared first on IACRC.

“…Many international NGOs still struggle to acknowledge the [fraud] problem and invest in coherent, holistic frameworks to reduce it. That means developing deterrence, prevention, detection and response workstreams and a programme of internal cultural development, underpinned by counter-fraud training. We understand the need for structure and method in programming, so why don’t we take the same approach to reducing fraud and corruption?

It’s not hard to answer. Counter-fraud work carries the odour of “administration costs”, while successfully detecting fraud upsets the public, provokes institutional donors and can give ammunition to our critics. Preventative work is not much more attractive; badly-designed procedures and systems can create bureaucracy that slows delivery. Myths and misconceptions underpin much of this, and when we do dust off the fraud portfolio, our efforts are often underfunded…

…If executed properly, however, with real backing from an organisation’s leaders and proper investment, there are good reasons why a holistic counter-fraud and corruption framework is a great investment for an international NGO.”

See more in the full article and in Oliver May’s book, Fighting Fraud and Corruption in the Humanitarian and Global Development Sector,   His very helpful website is secondmarshmallow.org.

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Now that world leaders have signed the climate change agreement they announced in Paris last December, it is time to recognize an 800 pound gorilla that has been lurking around the edges of the agreement without drawing much attention: the threat that corruption will make it impossible to achieve carbon reduction goals.

The agreement has been heralded as a historical turning point in the global effort to restrict carbon emissions. Its ambitious objectives cannot be met, however, unless developing countries curb their use of fossil fuels – the same fuels that have enabled rapid industrialization in China, India and elsewhere. Demand for energy in these countries will continue to increase. Despite gains in recent decades, more than a billion people still do not have reliable access to electricity. Currently, the only practical way to allow most of these people to share the electricity-based infrastructure which prosperous societies take for granted is to use coal and other fossil fuels. Are political leaders in places like India prepared to tell energy-starved constituents that, rather than use available coal supplies, they will have to wait another generation or more for adequate electricity? Will they force those who currently have access to fossil fuel-generated electricity to cut back in order to meet carbon reduction goals?

It would be unrealistic to expect these countries to curtail economic growth and their political leaders have made it clear that they have no intention of doing so. Instead, representatives of developing countries contended in Paris that their ability to comply with the agreement’s carbon reduction goals was dependent on receiving massive aid to help implement alternative energy systems. How much aid? The agreement’s stated goal is to provide $100 billion per year beginning in 2020, an amount that is expected to rise in later years. The environment minister for India dismissed even that amount as inadequate, claiming that industrialized countries would have to provide trillions, not billions of dollars to ensure that the less developed world meets the agreement’s goals.

Whatever it costs, unless developing countries satisfy their large and growing demand for energy through alternative sources the agreement’s overall carbon reduction goals will not be met. Even if North America, Europe, Japan and other developed areas of the world meet all their emission reduction goals – an outcome that will be difficult enough to achieve – global emissions will far exceed the agreement’s targets unless China, India, Brazil and other countries that have relied heavily on fossil fuels for growth and modernization no longer do so. Thus, the United States and other more industrialized nations will be asked to fund the transformation of energy production in the developing world.

Raising the necessary funds, however, and using them to build efficient alternative energy systems will be impossible if resources intended for the design and construction of such systems are diverted to enrich corrupt officials. Thus, in a very direct way the success of the climate change agreement depends upon there being effective anti-corruption measures in the planning, procurement and implementation stages of each project. This will not be easy. The presumed beneficiaries of the $100 billion per year that is supposed to start flowing in 2020 include countries with very poor scores on international corruption indices.

On the positive side, the four years between now and 2020 can be used to develop the anti-corruption measures that will be needed to give the climate change agreement a chance to succeed. Among the steps to be considered are the following:

Enforceable Anti-Corruption Agreements

Agreements to fund the implementation of green technologies in developing countries should anticipate allegations of fraud and corruption and provide strong, enforceable standards, together with mechanisms for investigating and sanctioning violations of them, to ensure that resources are applied to the intended purpose.

Anti-Fraud Filters in Procurement Systems

Because most fraud and corruption occurs at the procurement stage of development projects, procurement standards, systems and procedures need to be designed with fraud detection in mind. Technological aids, such as fraud and corruption filters built into e-procurement systems, can make it much easier to detect irregularities at early stages of a project.

Preventing Fraud and Corruption at the Implementation Stage

The implementation stages of projects are also vulnerable to fraud and corruption schemes. In addition, irregularities that surface during implementation – such as substandard materials delivered to a construction site – may be evidence of a corrupt procurement scheme. Anti-corruption and fraud filters, as well as oversight personnel with the expertise to use them properly, should be part of the controls planned for these stages.

Anti-Corruption Training

Strong, enforceable agreements, appropriate standards and fraud filters will be ineffective unless project managers, procurement officers, oversight personnel and auditors/investigators are trained in what to look for and how to gather and present useable evidence.

Monitoring and Other Sanctions

Effective anti-corruption measures must include credible sanctions for noncompliance. These may include civil, administrative and criminal charges directed against culpable individuals as well as financial penalties and debarment of businesses found to have engaged in corrupt practices. Debarments, however, can be problematical if they result in the delay or cancellation of projects – an especially serious concern if the project is critical to meeting a carbon reduction schedule. An alternative and relatively underused sanction for businesses that violate anti-corruption standards is to require that they accept an outside monitor designated by the donor or sponsor of the project. This sanction allows essential work to go forward without ignoring or tolerating fraud and corruption.

Meeting the climate change agreement’s strict standards for carbon reduction will be an enormous challenge even if every dollar allocated toward the development of alternative energy systems is spent for that purpose without fraud, waste or abuse. With little margin for error, the kind of corruption that often plagues international development projects simply cannot be tolerated. Both donors and recipients of climate change aid have a strong interest in using the next few years to build strong anti-corruption measures into their alternative energy projects.

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One such study analyzed the probable effect of corruption on the death tolls from earthquakes, particularly those resulting from the collapse of buildings. Noting that poor building practices can turn even moderate earthquakes into major disasters, the authors concluded that 83 percent of all deaths from building collapses in earthquakes over the past 30 years occurred in countries perceived to have abnormally high levels of corruption. Such deaths have been increasing despite advances in the ability to construct earthquake-resistant buildings. As an example of the difference properly constructed buildings can make, the authors contrasted the 2010 earthquake in Haiti, which killed many thousands, with a quake of similar intensity in New Zealand which did not result in fatalities. Another recent study attempted to quantify the link between corruption and deaths of children due to poor health care.

These studies lend statistical support to the already substantial and accumulating anecdotal evidence linking corruption to death and injury. As the authors recognize, not all casualties from building collapses and substandard healthcare systems can be attributed to corruption. Some countries and localities, for example, cannot afford to construct state-of-the-art buildings and sanitation systems. To alleviate this problem, however, massive amounts of aid have been poured into underdeveloped regions by governments, development banks, and NGOs, all too much of which has been siphoned off before reaching its intended beneficiaries. In these cases, the problem is not poverty – a project budget may be adequate to fund, for example, earthquake-resistant school buildings – but the looting of project funds to finance corruption schemes.

There is an inexorable logic linking most such schemes, whatever their superficial differences may be. To generate the funds needed to bribe inspectors, auditors, and/or other government officials, and/or to pay themselves inflated profits, participants in the schemes must divert resources from elsewhere, such as from the amounts budgeted for materials in construction projects. By using substandard materials and/or by omitting key materials entirely — such as those needed to hold up a school building under the stress of an earthquake — the conspirators can appear to complete a project while secretly diverting vital funds to themselves and the corrupt officials whose acquiescence makes the scheme possible. In such a scheme, the participants are not just stealing money, but are enriching themselves at the risk that innocent persons, including schoolchildren, will be crushed or buried alive when the building collapses in an earthquake.

IACRC’s courses and educational materials describe the many ways corrupt schemes operate in particular industries, sectors and regions, both during the procurement and implementation stages of projects. They are designed to equip law enforcement, audit, regulatory, and oversight personnel with the knowledge and skills needed to deter corruption and to detect it in its early stages, before its full tragic consequences are realized. Because those consequences can include large scale deaths and injuries to unsuspecting members of the public, children as well as adults, it is urgent that the most effective anti-corruption countermeasures be implemented where they are most needed.

It is not enough that there be strong anti-corruption policies at the highest levels of governments, NGOs, and international aid institutions; those in the front lines of the fight against corruption must be able and willing to implement the policies. In the end, a well-trained and incorruptible construction inspector may be the one who saves a town’s schoolchildren from being killed in an earthquake.

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