(more likely) that these particular red flags turn up many ‘false positives.’ Conversely, it may be that some red flags do not emerge in a number of projects that are in fact corrupt – they display ‘false negatives.’ Clearly, this would also be a worry if red flags are meant to be the primary trigger for an investigation of corruption.

**This paper examines project documentation from a small sample of past World Bank water and sanitation projects, to further analyze the efficacy of a red flag approach.** The purpose is to identify the presence or absence of a number of commonly accepted red flags.  It will compare the results with red flag reviews of documentation from a smaller sample of infrastructure projects where public (press) reports suggest that the Bank’s corruption watchdog, the Department of Institutional Integrity (INT), has been alerted to potential issues with the award process involving a/some contract(s) under the project.

**The aim of the paper is to evaluate the frequency, correlation and clustering of different red flag indicators, and the evidence that particular red flag indicators appear more frequently in projects subsequently labeled as victims of governance failure.** The hypotheses to be tested are that (i) red flags as a whole are comparatively rare in occurrence (and so signal a significant, unusual contract status); (ii) red flags are concentrated in particular projects (as would be expected if they signaled the same problem); and (iii) concentration of contractors (one contractor winning multiple contracts in the same project) may be a comparatively effective indicator of potential problems.

# **Three caveats and clarifications should be made up front:**

- _The scale and method of the case study approach adopted by this paper will not allow for the generation of robust or statistically significant results._ In particular, a desk review of a small sample of projects based on documentation available in Bank project files carried out by analysts who were not part of the project or country teams will produce conclusions that should be taken as highly preliminary.  The modest hope of the paper is that it may signal strengths and potential issues with the red flag approach as it is being rolled out in the Bank, and signal any need for greater analysis and research prior to such a rollout.

- _This research is not an attempt to second-guess a system of red flags._ Significant INT experience suggests the utility of the red flag approach.  And a number of more egregious flags, even if not easily uncovered during standard supervision, are nonetheless clear indicators of corruption.  But it is hoped that the research might point towards potential refinements that would make the approach more practical and useful for Bank task teams.  INT has largely developed red flags on the grounds that _when there is already suspicion of corruption_ in a contract, looking at red flags related to particular forms of corruption can provide further assistance in determining ‘true’ problem contracts.  This may be the better way for task teams to utilize many of the suggested red flags, as well.  It is preferable to developing lists of red flags the emergence of which are immediate grounds for further probing with regard to the risk of corruption –an approach that has emerged in a number of ‘GAC Annexes’ to World Bank Project Appraisal Documents.

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