Japan's Official Development Assistance White Paper 2006

Main Text > Part II ODA DISBURSEMENTS IN FISCAL YEAR 2005 > Chapter 2 Details about Japan's ODA > 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 and the implementing agencies are taking steps to enhance the transparency and simplicity of procurement procedures.

    Concerning yen loans, efforts in the project appraisal stage include the compilation and release of a list of candidate yen loan projects (long list). Long lists have been prepared and released for six countries, including Viet Nam and Indonesia. Each list cites candidate projects over a period of several years. Inclusion in the list does not in any way mean a yen loan will be provided; in principle, after the compilation of the list, formal requests for yen loans 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 enables the effective and efficient identification and formulation of yen loan projects and promotes collaboration with other donor countries and international organizations.

    Measures have also been taken to ensure transparency during the procurement stage of grant aid and yen loans. Bidding, in principle, is conducted by developing countries in accordance with the procurement guidelines of JICA and JBIC. Then, JICA and JBIC verify the results, and both the names and amounts of the winning tenders are made public. 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 of yen loans, a review by an external expert on the procedures for procurement, which was previously done in a limited number of countries, is now applied in an increased number of 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 of yen loans, 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, has 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 yen loans and technical cooperation are currently being set in place through the expansion of mechanisms for each corresponding department of the implementing agencies to follow up audit results.

    In FY2004, it became clear that a Japanese consultant consigned by JICA and JBIC had made improper accounting practices regarding re-consignment contracts with the local consultants. In response to this incident, JICA excluded this consultant from their bidding and contracts of their projects for a certain period and took preventive steps like reexamining the measures of contract confirming and introduction of sampling inspection by a third-party institution on January 2006. JBIC is also strengthening the checking process at settlement of contracts by introduction of sampling inspection on re-consignment contracts.

    Japan, for its part, will further strengthen efforts targeting fraud.