In the light of rapid economic growth and increasing investments, the Inspectorate Department of Vietnam’s Ministry of Planning and Investment (MPII) faced challenges arising from an increased workload as well as integrity issues including fraud and corruption. Vietnam requested support from the World Bank in strengthening their procurement auditing and inspection systems by learning good practices from other countries. In response to this request, a knowledge exchange with China was organized consisting of a study tour.

Through the study tour, the Vietnamese delegation gained new knowledge and improved consensus thereby helping them to propose reforms to the central government with more confidence. The delegation learned that auditing and inspection must be understood as a strategic function to achieve value for money. Witnessing living evidence from China strengthened their understanding that clear demarcation of responsibilities among inspection bodies is critical to prevent inefficiencies and that early engagement allows for more proactive and preventive inspections. Furthermore, they learned how efficiency can be increased significantly through the appropriate use of an IT system. They also observed how China successfully uses its national system for the Procurement Post Review (PPR) of World Bank-funded projects after establishing a dedicated agency and allocating a budget line for the purpose. Based on these lessons, the Vietnamese delegation has laid out specific plans that will lead to new and improved actions, some of which are already underway.

The Vietnamese economy is rapidly expanding, and so is the demand for investment. On the other hand, the Government of Vietnam (GoV) is facing a tight fiscal space with stagnant revenue collections and growing concerns about increasing public debt. As such, GoV must ensure that their scarce resources are used as efficiently as possible to achieve value for money.

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In Vietnam, the Inspectorate Department of the Ministry of Planning and Investment (MPII) has the sole mandate by law to inspect and report on the compliance and performance of public investment planning and implementation as well as to audit the procurement and contract implementation processes. Despite their best efforts, numerous complaints have arisen regarding the lack of fairness and transparency in transactions undertaken by implementing agencies, and media coverage of integrity issues including fraud and corruption is increasing. Moreover, it is likely that weak oversight on public investment projects is a major cause for the high costs and poor quality of service delivery.

In recognition of these challenges and deficiencies, MPII was planning to propose reforms that would strengthen oversight activities for public investment. However, MPII was not sure how to approach this reform process because of limited knowledge on good practices. MPII requested World Bank support to help them frame and construct good recommendations for the Central Government and ultimately to strengthen procurement audit and inspection of public investment projects in Vietnam.

The World Bank team together with MPII decided to organize a knowledge exchange to learn good practices. In their search for potential knowledge providers, China and Poland were listed as candidates that have undergone reforms in recent years to establish strong Procurement Post Review (PPR) systems for World Bank-funded projects. After further research, they found that China’s oversight system has almost the exact same structure as Vietnam’s system, and furthermore, the two countries have similar political and historical backgrounds. Accordingly, China was identified as the knowledge provider for the knowledge exchange, with study tour selected as the most appropriate instrument.

From November 26 to December 2, 2017, a World Bank team led a delegation of ten Vietnamese government officials to Beijing and Hebei, China for a study tour. The Vietnamese government officials came from three national agencies: MPII, State Audit of Vietnam (SAV), and Government Inspectorate (GI). During the study tour, the delegation visited China’s National Development Reform Commission (NDRC) and the China National Audit Office (CNAO). For CNAO, the delegation visited both the Beijing Headquarters and the Hebei Regional Office. The knowledge exchange activities took the form of two-way presentations, Q&As, discussions, and site visits.

China’s National Development Reform Commission (NDRC)

NDRC, equivalent to the Ministry of Planning and Investment (MPII) in Vietnam, is responsible for macroeconomic management and the formulation of policies for China’s economic and social development. Within NDRC, the Office of Key Project Inspectors (OKPI) is responsible for the inspection and monitoring of large and complex projects funded by the central government.

By visiting NDRC, the Vietnamese delegation learned how clear demarcation of roles and responsibilities between various inspection agencies prevents any overlaps. In Vietnam, it is not uncommon for inspectorates from multiple ministries to inspect the same project, thus resulting in conflicting recommendations and extra burdens for the implementing agency (IA). On the other hand, in China, areas of responsibility are defined by funding source; OKPI handles only centrally-funded national projects, and all other projects at the provincial/ministerial level are inspected by the respective provincial/ministerial inspectorates.

Furthermore, in China the Government Inspectorate Agency, a separate government institution responsible for investigating prohibited practices and handling fraud and corruption issues, has been merged with the Party’s anti-corruption machinery. In contrast, in Vietnam these two institutions continue to act in parallel with several overlaps in function. Since Vietnam has recently been advocating

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to do the same but lacking confidence in the approach, the delegation was happy to see China’s success in a similar course of action.

Another eye-opener for the Vietnamese delegation was that NDRC was working to become more involved in the early stages of complex projects (i.e. by reviewing the planning, design, costing and approval of the bidding process) before IAs would be allowed to start. Although this would require technical staff, this would allow NDRC to quickly identify issues and provide proactive guidance to IAs instead of fishing out issues after they have occurred – a style NDRC refers to as "policemen".

China National Audit Office (CNAO)

CNAO is the Supreme Audit Institution (SAI) in China and is a statutory body of the State Council under the direct leadership of the Premier. It independently exercises its power of supervision in accordance with the law and without interference by any other administrative organ or any public organization or individual. CNAO audits and reports to the Premier on national budget planning and implementation of activities by central and government agencies. Local audit institutions perform similar functions at corresponding decentralized levels to provide audit coverage for the entire country.

Unlike in Vietnam where PPR for World Bank-funded projects are conducted by a ministerial inspectorate (i.e. MPII), the national inspection system (i.e. CNAO) is responsible for the PPRs of World Bank-funded projects in China as well as for providing a full range of fiduciary assurances covering compliance, financial, procurement, technical, and performance audits for all public funds. This is desirable because it puts the borrowing country in the driver’s seat to ensure that the borrowed funds are used by IAs for the appropriate purposes and provides a fuller picture to assure delivery of value for money. What the Vietnamese delegation learned is that CNAO has established a department solely responsible for the procurement and financial audits of World Bank (WB)-funded projects as well as the provision of a full range of fiduciary assurances in a coordinated manner. Budget for this function is made available every year, and no additional financing is required from WB project sources. Another reason behind China’s success is CNAO’s highly experienced technical staff. This allows CNAO to better identify key factors to achieve value for money in public investment projects.

IT Database System at NDRC

Due to increased investment activity by the Chinese government in recent years, NDRC’s workload has increased tremendously. On average, the cumulative value of projects inspected by NDRC is no less than US$ 80 billion per year. To handle the rapidly increasing workload, NDRC has recently developed an IT database system which records all projects funded by the central government through NDRC. The system is also capable of raising red flags occurring in specific projects, which can be referred to by OKPI to prioritize high-risk projects to follow up on. In the past, NDRC was able to inspect 2,000 projects per year, but with the new system, they are likely to double or possibly triple this number. Vietnam is also facing rapid increase in public investments and thus workload for inspectorates, and the delegation concluded that a similar IT system is most probably a good match for their situation as well.

The Vietnamese delegation returned to their country with the following lessons:

• Procurement auditing and inspection of public expenditures must be seen as a strategic function of the government to ensure value for money is achieved for its limited financial resources.

• Clear demarcation of roles and responsibilities among various inspection bodies is critical to avoid overlaps and other inefficiencies. Clarity in mandates enhances accountability and allows for efficient use of public budgets. In China, areas of responsibilities are defined based on funding source (i.e. centrally funded national projects or provincial/ministerial level projects), and thus the mandates of various inspection bodies are mutually exclusive and collectively exhaustive.

• Inspection bodies do not have to be "policemen" chasing issues only after they have occurred. Instead, by being involved in the early stages of complex projects (i.e. planning, design, costing and approval of the bidding process), they can quickly identify issues and provide guidance to IAs before any financial

losses. This approach requires not only financial but also technical staff, but MPII already has some in-house technical staff. If MPII successfully adopts this approach, they may be able to achieve significantly higher value for money.

• Establishing a dedicated agency and securing a fixed budget may be effective approaches to use national systems for the PPR of WB-funded projects. Once achieved, this will allow for truly independent inspections and improved guidance and recommendations.

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• Manual search for preliminary information to identify high-risk projects is a severe bottleneck for the productivity of inspection tasks. The development and deployment of an appropriate IT system is a proven solution against this challenge. By appropriately adopting ICT, inspectors can get a bigger picture of the portfolio and its risks, quickly gather vital information, and continuously track and monitor the implementation of key projects.

• As a specific takeaway, the Vietnamese delegation was happy to observe in China that merging the government inspectorate, which is what they have been planning to do, is likely to be a positive course of action.

The Vietnamese delegation comprised government officials from three state agencies: MPII, SAV, and GI. The following is the list of participants from Vietnam:

The following is the list of participants (i.e. knowledge providers) from China:

A World Bank task team facilitated the knowledge exchange, which was funded by a grant of US$ 25,000 from the South-South Facility. The World Bank team was led by Adu-Gyamfi Abunyewa (Sr. Procurement Specialist, Vietnam) and Thang Toan Le (Procurement Specialist, Vietnam). The WB team in Hanoi, Vietnam also worked with their Chinese office counterparts to identify the knowledge institutions, discuss the knowledge sharing approach and seek entry permit for the Vietnamese delegation. Nga Thi Thuy Nguyen (Senior Program Assistant, Vietnam) provided excellent support for logistic arrangements while Jingrong He (Procurement Specialist, China) joined all the meetings to ensure that the shared information is not distorted and that interpretations are accurate.

This knowledge exchange (P164993) was closely linked to the WB Programmatic ASA activity "P156649 – Support to Strengthening of Public Procurement System in Vietnam" aiming to increase integrity and competitiveness in Vietnam’s public procurement system. Several related activities were conducted under this program in FY16 and FY17 with Bank funds of nearly US$ 700,000.

• A follow up plan was prepared by MPII as next steps. This includes the following actions:

• MPII will draft a proposal to the central government recommending reforms to the inspection system in Vietnam. This proposal will incorporate vital lessons learned through the knowledge exchange.

• MPII will, with MPI Minister’s consent, organize a workshop where the content of the proposal will be disseminated to a wider audience. The feedback from various stakeholders will then be reflected in the finalized proposal.

• MPII will solicit support from the central government to implement the proposed reforms. Particularly, the emphasis will be on the development and deployment of an IT system to optimize daily tasks as well as facilitate coordination among different inspectorates, especially between provincial inspectorates and MPII.

• MPII will intensify the use of national systems for PPRs of WB-funded projects. Specifically, MPII will discuss with its Minister to fix a dedicated budget for PPRs.

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Several concrete actions are already underway as well. For example, Vietnam has recently launched a joint initiative with the World Bank to train inspectors based on good practices in procurement audit. A consultant has been hired to develop a guidance manual as well as to provide training workshops.

New knowledge

The knowledge exchange exposed the Vietnamese delegation to a living good practice of an oversight system achieving high efficiency in day-to-day tasks as well as value for money. The exchange also increased awareness among participants that auditing and inspection of public expenditures must be looked at as a strategic function for the government to achieve its development objectives.

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Improved consensus

Members of the Vietnamese delegation from MPII, SAV, and GI strengthened their agreement and shared understanding on many aspects. In particular, they agreed that clear demarcation of roles and responsibilities among various inspection bodies is critical to prevent inefficiencies and that the use of national systems for the PPR of WB-funded projects is desirable because it will put the borrowing country in the driver’s seat to ensure integrity. Furthermore, they agreed on the need for large-scale dissemination of what they have learned to gain wider consensus in Vietnam towards a national reform initiative.

Enhanced connectivity

In addition to connecting with the Chinese partners, the Vietnamese delegation gained enhanced connectivity among themselves (i.e. between MPII, SAV, and GI). This was an important achievement because these agencies do not necessary work hand in hand back in Vietnam.

Enhanced skills

By visiting ongoing projects and observing how China’s inspection bodies work, the Vietnamese delegation gained enhanced skills to efficiently handle large amounts of workload. Also, they were introduced to key features of NDRC’s IT system that led to the optimization of their work. This experience enhanced the Vietnamese delegation’s skills to design a more useful IT system, should they develop one upon return.

New and improved actions

Based on what they have learned, the Vietnamese delegation is better equipped and has greater confidence to draft a reform proposal to the central government. They have started working to submit the proposal by December 2018. To make this reform a reality, they also have recognized the need to disseminate their learnings to a wider audience, and thus a workshop in Vietnam is being organized. This knowledge exchange led to concrete actions by the Vietnamese delegation to formalize and institutionalize good practices into their audit and inspection system.

Vietnam: MPII provided US$ 5,030 to support the study tour, paying for the within-city transport, translation, and insurance costs.

China: NDRC and CNAO (Beijing Headquarters and Hebei Regional Office) provided office space and refreshments at their costs. They also shared useful printed reference materials for meetings with the Vietnamese delegation.

- P164993 – Knowledge Exchange for Conducting Procurement Post Review of World Bank Funded Projects and Inspection of Public Investment Projects

- P156649 – Support to Strengthening of Public Procurement System in Vietnam

- Vietnam MPI: http://www.mpi.gov.vn/en/Pages/default.aspx

- Vietnam SAV: https://www.sav.gov.vn/en/Pages/home.aspx

- Vietnam GI: http://thanhtra.gov.vn/en/Pages/Home.aspx

- China NDRC: http://en.ndrc.gov.cn/

- China CNAO: http://www.audit.gov.cn/en/