Japan's Official Development Assistance White Paper 2005

Main Text > Part II ODA DISBURSEMENTS IN FISCAL YEAR 2004 > Chapter 2 Details and New Policies about Japan's ODA: Striving for Further ODA Reforms > Section 5. Formulation and Implementation of ODA Policy > 3. Matters Essential to Effective Implementation > (3) Prevention of Fraud and Corruption

(3) Prevention of Fraud and Corruption

Japan's ODA has the goal of contributing to the socio-economic development and the welfare of the recipient countries and, given that taxpayers' money supports ODA projects, fraudulent use of the funds provided for assistance must be avoided. Accordingly, the Government of Japan and the implementing agencies are taking steps to enhance the transparency and simplicity of procurement procedures.

Concerning yen loan, efforts in the project appraisal stage include the drawing and release of a list of ODA loan candidate projects (long list). Yen loan candidate project lists have been drawn and released for six countries (Viet Nam, Tunisia, Morocco, China, India, and Indonesia). Each list cites candidate projects over a period of several years. Inclusion on the list does not automatically mean a yen loan will be provided; in principle, after the compilation of the list, formal loan requests are to be made each fiscal year for projects on the list, and loans will be extended to selected projects. From a medium- to long-term perspective, the compilation and release of such lists will enable the effective and efficient identification and formulation of yen loan projects and promote collaboration with other donor countries and international organizations.

Measures have also been taken to ensure transparency during the procurement stage of grant aid and loan aid. Bidding, in principle, is conducted by developing countries in accordance with procurement guidelines of JICA and JBIC. Then, JICA and JBIC verify the results, and both the names and amounts of the winning tenders are announced. For technical cooperation, JICA procures equipment, services, and so forth for implementing projects in accordance with provisions pertaining to procurement. In case improprieties are discovered relating to grant aid, loan aid, or technical cooperation, a mechanism has been set in place whereby firms that commit improprieties are disqualified from bidding or receiving contracts for ODA projects for a certain period.

Efforts are also underway to increase the efficacy of auditing. External audits are being expanded and spot audits have been introduced, with the recommendations obtained from these audits being used to further measures aimed at improving the use of assistance.

With regard to improving external audits in connection with yen loan, a review by an external expert on the procedures for procurement, which was previously done only in a limited number of countries, is now applied in increasingly more countries. For grant aid, external audits for Grassroots Human Security Grant Aid worth ¥3 million or more (formerly ¥20 million or more) are obligatory in principle and are steadily implemented. JICA is also using external audits for technical cooperation to serve as accounting audits.

With respect to the implementation of spot audits in connection with yen loan, audits have been conducted on a sampling basis for projects agreed upon by the governments after FY2002 in principle. For grant aid, "spot check without prior notice" was introduced from FY2004 to determine whether or not contract verification, which is the process of checking that all the contacts related to the projects are in line with the agreements between the governments concerned, have been carried out pursuant to a set of standards. Meanwhile, for technical cooperation, a part of the internal audits conducted through sampling are performed through spot audits.

Systems for establishing improvement measures regarding the use of loan aid and technical cooperation are currently being set in place through an expansion of mechanisms for each corresponding department of the implementing agencies to follow up on audit results.

Regrettably, a case of impropriety committed by a Japanese consulting firm was discovered in FY2004. The firm in question performed a contract with JICA that was at variance with actual conditions and made fraudulent claims to JICA. In response, JICA suspended the designation of that company and then adopted equivalent measures relating to grant aid projects and loan aid projects.

Japan will further strengthen measures to protect against future improprieties and will take steps to prevent such recurrences.