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we WORLD BANK 24539 May 2002 Public Disclosure Authorized tggllgillC$ Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized A WORLD BANK COUNTRY STUDY Bangladesh FinancialAccountabilityforGood Governance The World Bank Washington, D.C. ( 2002 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 All rights reserved. 1 234040302 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published in this series with the least possible delay for the use of governments and the academic, business and financial, and development communities. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed here do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, col- ors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or inclusion in any information storage and retrieval system, without the prior written permission of the World Bank. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint, please send a request with complete information to the Copy- right Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bankts and licenses should be addressed to the World Bank at the address above, or fax no. 202-522-2422. ISBN: 0-8213-5137-0 ISSN: 0253-2123 Cover photos: World Bank Photo Library. Library of Congress Cataloging-in-Publication Data has been applied for. *Cbontents Abstract v Preface vi Acknowledgment vii Abbreviations viii Executive Summary 1 1. Introduction 9 Context 11 Purpose and Scope 12 Structure of the Report 13 2. The Architecture of Public Accountability 15 3. Central Government Ministries and Divisions 21 The Control Environment 23 Planning and Budgeting 25 The budget as a basis for legitimacy 26 Managerial efficiency 26 Results orientation 27 Transparency and participation 28 Procurement and Assets Management 28 Accounting 30 Cash and Debt Management 33 Internal Reporting and Monitoring 35 Internal Audit 36 External reporting 37 Reforms in public sector budgeting, accounting, and internal control 39 4. Local Government 41 General 43 Local Government Budgeting 44 Local Government Accounting 44 Local Government Internal Control 45 Local Government Reporting 46 Local Government Internal and External Audit 46 5. Public Enterprises 49 Nonfinancial Public Enterprises 51 Public Enterprise Planning and Budgeting 52 Public Enterprise Accounting 53 Public Enterprise Procurement 53 Public Enterprise Internal Control and Internal Audit 53 iii Public Enterprise External Reporting 53 Public Enterprise External Audit 54 Nationalized Commercial Banks 54 Departmental Enterprises 56 6. Oversight of Use of Public Funds 57 External Audit 59 Structural and Constitutional Issues 59 Audit Methodology 61 Audit Management 63 Training and Professional Development 63 Audit Reports 64 Parliamentary Oversight 67 Role of Parliamentary Committees 67 Composition of Committees 67 Powers and Resources of Committees 68 Transparency 68 Oversight by Donor Agencies 69 Role of the Press 73 7. Public Sector Accountants and Auditors 75 Backwardness of Public Accounting and Auditing 77 Training 78 8. Private Sector Accountability 81 Companies 83 Registrar of Joint Stock Companies 84 Securities and Exchange Commission 84 Dhaka and Chittagong Stock Exchanges 84 The Institute of Chartered Accountants of Bangladesh 85 Commercial banks and insurance companies 86 Commercial Banks 86 Insurance Companies 87 Nongovernmental Organizations 88 9. Private Sector Accountants and Auditors 91 The Structure of the Profession 93 Training and Professional Development 93 Compliance with Standards and Professional Discipline 95 10. Next Steps 97 References 101 iv This document assesses the quality of financial accountability and transparency in Bangladesh and makes recommendations for improvement. With respect to public funds, it compares the financial management standards and practices of agencies using such funds against an international or 'best practice' standard, and also the standards and practices of the external 'oversight' agencies - nine Audit Directorates of the Comptroller and Auditor General's Office, parliamentary committees concerned with public expenditure, donor agencies, and the media. It assesses what it would take to qualify the country for programmatic or sector lending in replacement of all individual project lending. With respect to ptivate funds in the hands of companies, commercial banks, insurance companies and non-government organizations, it examines the regulatory activities of the Registrar of Joint Stock Companies, the Securities and Exchange Commission, the two Stock Exchanges, Bangladesh Bank, NGO Affairs Bureau and the accounting and auditing profession that serves both public and private sectors. v ; L?'reface This Country Financial Accountability Assessment was conducted by the World Bank's South Asia Region and the UNDP Program for Accountability and Transparency, with participation from officers in the Ministry of Finance, Comptroller & Auditor General's Office, Ministry of Local Government, Institute of Chartered Accountants of Bangladesh, Parliamentary Financial and Ministerial Oversight Committees and other national stakeholders. The process started with preparation of papers by local consultants in selected areas: * Parliamentary control of public expenditures. * Accountancy profession and education. * Public sector auditing. * Budgeting, accounting, reporting and internal control. * Local government financial management. National authorities discussed leading issues in workshops for each of the first four areas and responded to the structured questionnaires of the CFAA (World Bank, 19 9 9c - the revised CFAA Part I procedure) and UNDP 2000 (the revised CONTACT). The questionnaires are not sub- divided by level of government and were answered mainly in terms of the central government ministries/divisions. This information was supplemented from local consultants' studies, interviews with officers in representative units, and other sources. An International Conference on Improving Oversight Functions: Challenges in the New Millennium was held in Dhaka, September 10-12, 2000 with top-level political and civil service participants and inputs from 18 countries. The Conference covered parliamentary control of finance, public audit and the private accounting and auditing profession. Recommendations of the Conference have been included in this CFAA. vi Acknowledgments This assessment has been prepared by a task team led by M. Mozammal Hoque and P.K. Subramanian from the World Bank and Fred Schenkelaars and Zahurul Alam from UNDP. Kapil Kapoor was the overall Team Leader for the task. Anthony Bennett worked as the pnncipal consultant. The other members of the team were Shamsuddin Ahmad, Suraiya Zannath, Zafrul Islam, Mohammed Sayeed and Osman Ghani who made useful contributions. The assessment is based on five sectoral studies carried out on Parliamentary Control of Public Expenditure, Public Sector Auditing, Accountancy Profession and Education, Public Sector Budgeting, Accounting and Internal Control, and Financial Accountability in Local Government Institutions. These were carried out by five local consultants and an international consultant. The review benefited from a number of workshops and also an international conference on "Improving Oversight Functions", organized by the C&AG under the project Strengthening of C&cAG Office (STAG). The conference and workshops had participation from Parliamentarians from home and abroad, Controllers and Auditors General from various countries, senior government officials, public and private sector accountants and auditors, leaders of business, NGO representatives and members of civil society. We sincerely acknowledge the contributions made by Syed Yusuf Hossain and Sajedul Karim in organizing the conference. John Hegarty, Peter Dean, David Shand and Piyush Desai acted as peer reviewers for the study. In addition, useful comments were received from John Fitzslmon, Joe Pernia, Vinod Sahgal, Marc Heitner, Rajesh Dayal and Magdy Soliman. Funds for the assessment was provided by the World Bank and UNDP. Sincere words of thanks go to the Gerrnan Government and Government of the Netherlands who made this CFAA possible

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