Journal Issue
IMF Survey Vol.29, No.8 April 2000

Public Information Notice: IMF adopts two-stage approach to strengthen safeguards on use of its resources

International Monetary Fund. External Relations Dept.
Published Date:
January 2000
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On March 23, 2000, the IMF Executive Board concluded discussions on IMF policies, procedures, and remedies for addressing the misreporting of information to the IMF and proposals for strengthening safeguards on the use of its resources.

At the conclusion of the Board’s discussion, Stanley Fischer, Acting Managing Director, summarized the policy discussions. An edited version of Fischer’s remarks follows. The full text of Public Information Notice 00/28 can be found on the IMF website (

“Reliable information is essential to every aspect of the IMF’s work—surveillance, financing, and technical assistance—and is particularly important in ensuring that the IMF’s resources are used for their intended purposes. The IMF depends on its members to provide the information needed and to use the IMF’s resources for the purposes envisaged.

“While known incidents of misreporting and misuse of the IMF’s resources have been rare, many Directors noted recent instances involving allegations of misuse of IMF resources and cases of misreporting . . . and agreed that these events further underscore the need to strengthen the IMF’s existing safeguards on the use of its resources.

“Directors noted the importance of the safeguards already in place—in particular, program design; conditionality and monitoring; the availability of technical assistance; the transparency and governance initiatives, including the establishment and monitoring of codes and standards; and the recent use of special audits and the SDR-account mechanism. They stressed that these areas of IMF operations should continue to play a central role in promoting public sector integrity and accountability.

“Directors also welcomed the opportunity to consider an approach to assessing the adequacy of member countries’ framework of safeguards that could help to prevent the possible misuse of IMF resources and misreporting of information. The Board has decided on a number of steps to strengthen key aspects of the IMF’s framework.


“Directors generally concurred that a two-stage approach could strengthen existing safeguards by assessing a central bank’s compliance with a series of desirable practices, rules, and regulations for internal control procedures, financial reporting, and audit mechanisms. These assessments are intended to provide reasonable assurance to the IMF that the central bank’s control, accounting, reporting, and auditing systems in place to manage resources, including IMF disbursements, are adequate to ensure the integrity of operations.

“Directors generally endorsed the framework for the conduct of safeguards assessments and, in particular, the focus on member countries’ central banks. They agreed that the safeguards framework would include an assessment of the accountability and transparency of foreign reserves management operations assumed by agencies outside the central bank, which is sometimes the case when the fiscal agent for the IMF is not the central bank.

“Directors endorsed the proposal that central banks of member countries making use of IMF resources publish annual financial statements independently audited by auditors external to the central banks in accordance with internationally accepted audit standards.

“In the first stage of the assessment, the authorities of a member seeking a new IMF arrangement would be expected to furnish the IMF with certain documents (see box, page 135) as early as possible and permit IMF staff to hold discussions with their independent auditors. The staff would review this information to arrive at a preliminary judgment about the adequacy of the central bank’s internal control systems, reporting, and internal and external audit mechanisms.

“Directors supported the view that if, based on this information, the central bank’s control, reporting, and auditing mechanisms are considered to be adequate for safeguarding IMF resources, no further steps would be undertaken. In other cases, and as a second stage, an on-site review would be undertaken. For the second stage, Directors considered that multidisciplinary teams were needed, including experts from central banks and private accounting firms. They generally concurred that the teams should be led by [IMF] staff to ensure consistency of the approach and to help achieve a continuous improvement of the assessment methodology.

“Directors considered that the introduction of safeguards assessments requires a differentiation between new and current users of IMF resources. For IMF arrangements approved after June 30, 2000, two requirements would be applied: member countries’ central banks would be subject to the two-stage assessment approach, with the expectation that in many cases the first stage would suffice; and, as part of the safeguards, central banks would publish annual financial statements independently audited by auditors external to the central banks in accordance with internationally accepted audit standards.

“For arrangements in effect before June 30, the two-stage assessment approach would not be applied. However, the audit arrangements in place at central banks would be assessed to determine whether the central banks publish annual financial statements independently audited by auditors external to the central banks in accordance with internationally accepted audit standards. Members with possible disbursements subject to program reviews after September 30, 2000, would be required to furnish the IMF with the documents listed in the first three bullet points three months before the first program review after September 30, 2000. The staff would review this information to assess the adequacy of the external audit arrangements and report its findings to management. Where improvements were deemed necessary, these and the authorities’ response would be reported to the Board in the documentation for the first program review after September 30, 2000.

“Most Directors expressed the view that safeguards assessments should be carried out on an experimental basis and that a review of the IMF’s experience with this approach should be undertaken with the involvement of the outside panel of experts within 12–18 months.

Framework for addressing misreporting

“Directors noted that, while the provision of information to the IMF must continue to be based fundamentally on trust, it should also be governed by a clear set of rules. Many Directors stressed that intentional and unintentional misreporting can have different implications, while others noted that in practice it was often very difficult to make a clear determination between the two. Directors also noted that the application of the rules governing cases of misreporting must take into account the vast differences in capabilities among the IMF’s 182 members.

“It was generally agreed that the IMF should publicize cases of misreporting. Many Directors were of the view that this should be the normal expectation only in cases in which misreporting was determined to be intentional. However, as noted by many Directors, the question of intent is often not clear-cut.

Data handling in the IMF

“Directors noted that the IMF’s procedures for gathering and using information are generally among the institution’s strengths, as the process of assembling information to form an overall assessment of the economic situation provides the opportunity to cross-check, question, and refine the information initially received. They also noted, however, that there are some areas in which the IMF’s procedures could be made more effective, including by applying existing best practices more consistently throughout the institution. They therefore support the steps being taken by the staff in this regard. Directors noted, in particular, the staff’s ongoing work to strengthen procedures for setting performance criteria by highlighting the most effective and comprehensive definitions of performance criteria with a view to providing models for new arrangements and ensuring that lessons from one country can be transferred to others; and the proposal to attach a detailed technical memorandum of understanding to all programs, defining all performance criteria, the data source for their measurement, and reporting intervals. Directors also welcomed the consideration being given by the staff to promote best practices in reserve management. With respect to strengthening countries’ fiscal reporting capacity, Directors supported both a general effort to enhance the quality of fiscal data reporting and a more intensive effort in countries with evident weakness in the accuracy, coverage, or timeliness of fiscal data.

“Finally, the Executive Board made clear the importance it attaches to the staff’s efforts to ensure the accuracy of the information it uses; to pursue the matter when data problems or anomalies arise; and to bring these difficulties to the attention of the Board.

Information/documents to obtain from member country central banks

Copies of

• audited (or unaudited if no audit is performed) financial statements for the past three years, together with related audit reports;

• all management letters issued by the external auditors in connection with their audit of the financial statements for the past three years;

• all audit reports (including agreed-upon procedures engagements) issued by the external auditors during the past three years; and

• current legislation governing the central bank.

Description of

• central bank’s management structure, including organizational reporting structure; and

• organizational structure and reporting lines of the internal audit department, including details of the senior management staff in the department and a summary of staff resources (experience and qualifications).

Listing of

• all reports issued by the internal audit department in the past three years and summary description of findings. Potentially, copies of reports dealing with operational and financial controls during the same period;

• all accounts held by government agencies with the central bank;

• full legal names of any subsidiaries of the central bank and description of their business and nature of their relationship with the central bank; and

• all correspondent banks.

Summary of

• high-level internal controls in place for central bank’s banking, accounting, and foreign exchange departments.

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