Summary: The International Monetary Fund's (IMF) long-standing method for safeguarding its resources against misuse by borrowers has been to monitor borrowers' compliance with specific, agreed-upon loan conditions. However, an IMF study found that its resources may have been vulnerable to borrower misuse because IMF has not typically assessed internal control procedures exercised by borrowers. Without such an assessment, IMF had few assurances that borrowers' systems of internal controls, accounting, reporting, and auditing were adequate to ensure the integrity for their financial operations. IMF now assesses the control environment of borrowing countries' central banks to evaluate the integrity of their operations, and it withholds loan disbursements until borrowers have corrected any critical deficiencies. IMF has also begun to require all borrowers to publish financial statements for their central banks, audited by independent external auditors in accordance with internationally accepted standards. Although IMF has traditionally relied on trust, it now has established measures to help prevent, detect, and address borrower misreporting of key information. For example, it checks, to the extent possible, the validity of information reported and has guidelines for applying sanctions against borrowers that receive funds based on misreported information. A new policy publicizes the identities of countries that obtain IMF resources using inaccurate reporting. Because some IMF initiatives are in the early stages, their effectiveness is still unknown.
