The World Bank's board of directors yesterday announced that Shaha Riza's promotion and pay rise were not reviewed by an ethics committee nor the board's chairman, before being authorised by Mr Wolfowitz, a former deputy defence secretary of the United States and a leading architect of the American invasion of Iraq.
Mr Wolfowitz directly intervened to arrange Miss Riza's move to the US state department in 2005, where her salary was increased from $132,660 to $193,590 (97,000), topping the $186,000 salary of Condoleezza Rice, the secretary of state.
Miss Riza, who has dated Mr Wolfowitz since 2002, when he separated from his wife of 30 years, was moved, as World Bank regulations prohibit spouses or partners from supervising one another.
Miss Riza was working in the bank's Middle East and North Africa (MENA) section when Mr Wolfowitz was nominated for the job by George Bush, the US president in 2005.
While the board of directors' ethics committee recommended that Miss Riza, who is of Saudi and Libyan descent but carries a British passport, be transferred, it is understood Mr Wolfowitz went further and helped to secure her new position and pay grade. Miss Riza's salary was disclosed by a bank employee, who took it to the Government Accountability Project, a group in the United States that protects whistle-blowers. Another issue of concern to bank staff was reports that Miss Riza, while working at the bank, received fees paid by a US defence contractor that was doing consulting work in Iraq.
Yesterday the bank's board of directors conducted a review on whether their president broke staff rules when he approved his girlfriend's promotion, before she was assigned to the state department.
In a statement, the board said it found that Mr Wolfowitz signed off on Miss Riza's promotion and salary increase without a review by an ethics committee or the board's chairman. The statement continued: "The executive directors will move expeditiously to reach a conclusion on possible actions to take. In their consideration of the matter the executive directors will focus on all relevant governance implications for the bank."
On Thursday, Mr Wolfowitz said he had taken full responsibility for Miss Riza's promotion and apologised, explaining that he had made a mistake in the way he handled the issue.
He said: "In hindsight, I wish I had trusted my original instincts and kept myself out of the negotiations. I made a mistake, for which I am sorry."
The apology was welcomed by Alison Cave, chairwoman of the staff association of the World Bank, though she insisted it must be followed up by Mr Wolfowitz's resignation. She said he had "broken the staff's trust on this and many other issues". She also said that if the board failed to ask for his resignation, the staff association would call a vote of no confidence in him.
The situation Mr Wolfowitz has found himself in is compounded by his own vocal attack on corruption among recipients of World Bank aid. When he took over as president he ignored a shortlist of candidates for a new head of institutional integrity, the bank's internal investigation unit, and instead appointed a Republican colleague and doubled the department's budget.
Mr Wolfowitz has been an unpopular appointment. When he arrived, a poll of staff revealed 90 per cent were hostile to their new president and since then he has been accused of pursuing a political agenda by expanding aid to countries when the US and its allies have intervened militarily such as Lebanon and Iraq. He has also withheld aid to nations which he views as corrupt.
Last night, the White House said Mr Wolfowitz "has our full confidence".
AIMING TO END POVERTY
THE World Bank, which is based in Washington, employs 13,000 people in more than 100 countries and lends 13 billion a year to poor and middle-income nations.
The bank's official goal is "a world without poverty". It was established in 1944 during a conference on postwar reconstruction in New Hampshire in the United States..
Representatives of 40 nations agreed to create two new institutions. The International Monetary Fund was made responsible for stabilising the global currency market and what would become the World Bank had the job of helping to rebuild shattered nations.
Its first loan was to France in 1945.
In 1948 it lent money to Chile and in 1950 to Ethiopia and soon it was financing infrastructure work in Africa, Asia and Latin America.
As the US government is the World Bank's largest shareholder, it has always asserted the right to appoint its president.
In 1967, the US president Lyndon Johnson nominated Robert McNamara, the chief strategist of the Vietnam War, who during the next 13 years expanded the bank's role from infrastructure to include poverty, education, health care and family planning.