SAR Action Plan Technical Board Briefing March 4, 2008

Action Plan Overview Eight related sets of Actions Investigations and Legal Action: GOI and WB Review of Actions Already Taken India Joint Health Action Plan India Systemic Action Plan SAR Governance Action Plan Other Countries and Sectors in SAR OPCS and Bank-wide Implications Internal Accountability

Projects and DIR Time Line

Actions Already Taken (India) Prior to DIR release Phase out PSAs – UNOPS, set up EPW GAAPs for all new health operations Disclosed Tech Specs for equipment Mandate for enhanced accountability of GOI programs Created integrated Financial Management Group and improved Audit TORs Tighter financial controls in NACO Tighter selection and oversight of NGOs Mandatory Pre-award validation of WHO GMP

Actions Already Taken (World Bank) Prior to DIR release Stronger Overall Approach to Governance – ACGA in Delhi, Guidance notes, Industry structure analytic work, state level interventions Fraud and Corruption in new Operations – GAAPs for high risk operations Strengthened Supervision Processes – Increased post procurement reviews and improved complaints management – Better integration of sector and fiduciary teams Staffing and Training – Governance Advisers, procurement staffing, Anti-corruption training

Investigations GoI has reviewed DIR in depth. Summary reflected in their comments (already distributed) Referrals to CBI, and other legal and administrative actions will follow INT support will provide support to GoI INT’s own investigations

Joint Health Action Plan Focused on key actions for future Working groups formed in MoH SAR worked together with GoI, under their leadership Started with review of actions already taken Plans reviewed and approved at Secretary and Ministerial level Detailed plans and action behind each summary

Thematic Actions Improving Monitoring Strengthening Centralized Procurement Improving Oversight Of NGOs Strengthening Decentralized Procurement

Improving Monitoring … and Financial Control GoI already mandated increased accountability – Community monitoring, 3rd party reviews, facility assessments Implement & apply GoI mechanisms – Central sponsored and state schemes Complaints redressal mechanism Enhanced Financial Management Group and Audit Capacity Important for institutional accountability All build on GoI systems

Improving NGO Oversight NACO has already strengthened NGO selection processes and tightened oversight – Operational Manuals; Financial Controls – Reviews: About 25% terminated Disclose NGO selection, performance etc Mainstream annual reviews Establish Ombudsman Expand and apply best practice to other programs

Strengthening Centralized Procurement PSAs already phased out Continue UNOPS for WB funded central procurement Strengthen Empowered Procurement Wing Deploy F&C detection software (already designed) Train staff in detecting and responding to F&C Appoint Procurement Audit Agent for all WB funded Require pre and post shipment inspection Generic equipment specifications updated Move to E-procurement (phased, after pilot) Annual review of drug quality

Strengthening Decentralized Procurement Build state capacity (w/DFID, WB support) – Certified agent, separate unit Certify TNMSC (Tamil Nadu) as first case Full joint review and clarification of WB procurement methods – Greater use of framework & rate contracts – Contract terms and post qualification criteria Limit WB funds for district to operating costs and contractual staff

(Additional) Corrective Actions Five DIR Projects Specific Actions agreed for three key projects Food and Drug: close June 08, no new proc., make labs operational, equip/CW surveys Orissa: Investigations already underway. 3 of 4 hospitals opened, hospital and equipment surveys and rehabilitation underway, audit follow-up, wider governance support NACP: Reviewed test kits: no health risk; strengthened kit procurement & test strategy

Risk Mitigation Nine Ongoing Operations Newer projects had “GAAPs” Apply thematic measures for each project Systemic civil works and equipment audits Joint performance reviews Complaints redressal Limit who can do WB procurement Review of WB procurement methods Rigorous follow through on post procurement audits

Future Health Interventions Health needs in India continue to be great DIR projects had significant positive health impacts (even if could have been better) F&C and Implementation risks can be mitigated, but they cannot be eliminated, specially in “lagging states” Any new operations would have Operations Committee review and require specific plan to mitigate DIR risk before it comes to Board Complete review of WB engagement strategy in Health Sector as input to next CAS

India Systemic Action Plan At the project/program level (Risk) Clear assessment to identify and mitigate fraud and corruption risks and clarify accountabilities at the preparation phase (PCN, QER, and decision meeting). Invest in smart project design (e.g., repeaters, output-based disbursement) Use fraud detection software and build staff skills to implement new approaches to supervision and detect fraud and corruption.

India Systemic Action Plan Strengthened supervision Increase budget by 30% to target high risk projects Regular supervision structured around the project supply chain and vulnerable points Use of multiple sources of information Strengthen demand-side accountability mechanisms such as project affected communities, third party mechanisms, complaint handling mechanisms Use of dedicated on-the-ground consultants, random visits in addition to government audits and our own financial and procurement audits.

India Systemic Action Plan For FY08 business plan, and beyond Reduced number of projects to create space for better follow up on projects under implementation All projects going to the Board will be explicitly screened for mitigation of risks identified in the DIR (using an integrated risk assessment framework combining safeguards, procurement and financial management in one exercise), and will have a detailed supervision plan.

India Systemic Action Plan At the strategic level Next CAS (FY09) under preparation will address – Riskiness of the future programs – Strength of the institutions we will be working with – Exposure to and the riskiness of the sector – Geographical spread and our ability to design and supervise Strengthen our operations by promoting transparency and anti corruption, building on Right To Information Act and GoI emphasis in 11th plan on improving governance. AGAC will play an explicit role in providing advice to the teams on building in anti corruption measures, and to management in better assessing riskiness and mitigation

Wider Context … Important but not focus of this briefing All SAR CDs and SDs have already reviewed and started to develop action plans Response will only be successful in the context of a wider engagement on Governance and Anti-corruption (GAC) Agenda

OPCS Action Plan Technical Board Briefing March 4, 2008

SYSTEM-WIDE ISSUES TO BE ADDRESSED BY OPCS AND HDN Bank wide dissemination of results of this and earlier DIRs and implications Supervision issues: preparation of new guidance on “smart" supervision and corruption issues Risk management: assessing and mitigating corruption risks better Procurement issues, including addressing decentralized procurement more effectively Shortfalls in quality and scope of financial statement audits Development of training modules for staff Accountability issues