Hiding in Plain Sight: How the Federal Elections Commission Can Use Existing Disclosures To Detect Campaign Finance Fraud

Last August, U.S. Congressman Duncan Hunter was indicted for misuse of campaign funds for personal benefit. The Justice Department alleges that Hunter conspired with his wife, whom he appointed campaign manager, to steal from his campaign to support their lavish lifestyle: the campaign spent $15,000 on airline tickets and hotel rooms for Hunter’s children and relatives, a $14,000 Thanksgiving trip to Italy, and for other expenses like $700 for seven adult and five children’s tickets to see “How the Grinch Stole Christmas.”

Though Representative Hunter’s conduct is only now being investigated, the allegations of improper spending go back to 2009, and many of the expenses now under scrutiny were detailed in his campaign’s filings with the Federal Election Commission (FEC). FEC filings are public records, readily available and searchable (via simple keyword searches on the FEC’s webpage) to anyone interested in looking. For example, Representative Hunter is a “vaping” enthusiast (even smoking his e-cigarette in Congress). Using the FEC’s webpage and a simple search for the words “cigar,” “smoke,” and “tobacco,” I found that Representative Hunter’s  2015-16 campaign expenditures include hundreds of dollars of spending at a cigar lounge, smoke shop, and tobacco company in his home district. Similar search results through the FEC website show all sorts of eyebrow-raising transactions.

So why weren’t the problems detected earlier? The problem, in cases like this, is not that the FEC doesn’t have enough information to identify suspicious activity—it’s that it has too much information. The FEC has massive amounts of data, making the detection of fraud a needle-in-the-haystack problem. The FEC relies largely on complaints and referrals to guide its enforcement process, with the result that enforcement remains anemic.  In 2017, for example, the FEC levied administrative fines in 215 matters totaling under $2 million, despite having data on 23.4 million line-item disbursements and 34.5 million individual contributions, not even counting electioneering communication transactions and the massive data on political action committees (PACs).

Waiting for referrals, or screening data by hand, is not an effective way for the FEC’s roughly 300 employees to detect corruption or fraud in campaign finance. There are no silver-bullet solutions; fraud detection is a fundamentally difficult, especially when fraudsters take steps to cover their tracks. But there are some steps the FEC can take to better monitor fraudulent expenditures to identify suspicious cases early on:

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What Will It Take To Pass the Sri Lankan Audit Bill?

Regular, effective auditing of public programs by an independent body is widely recognized as a crucial anticorruption tool. Yet in Sri Lanka, the legal framework that would enable such effective auditing is still not in place. Although Sri Lanka’s Auditor General’s Department (AG) has been in operation for more than 200 years, it derives most of its functions from executive practice and regulations, rather than legislation. For this reason, the office is largely toothless: It cannot take any action to enforce its findings beyond submitting reports to two parliamentary committees, but these have little to no impact, as any follow-up actions are largely dependent on executive discretion. For years, experts and citizens alike have recognized the urgent need for a National Audit Law to govern and empower the Auditor General’s Department.

Yet despite repeated efforts and a constitutional mandate, the government has still not succeeded in enacting such a robust statutory framework to govern public audits. A National Audit Bill has been in the process of “being drafted” since the early 2000s, but an actual draft bill didn’t appear until 2013. No further action was taken on that bill. When President Sirisena took office in January 2015, he declared that the government would pass a National Audit Act by March 2015 as part of his 100-day programme. But although a new Audit Bill was proposed to Cabinet in April 2015, the proposal was deferred by the Cabinet a shocking 24 times, up until October 2017. Eventually, there were encouraging reports that the “impasse” had ended and that the Audit Bill had been approved by the Cabinet. But it was not to be: it turned out that what had been approved were amendments to the proposed bill, and not the bill itself. Subsequently, the government stated that it will not be submitting the Bill to Parliament – back to square one.

Why the seemingly interminable delay? It appears that the main reason for the impasse, at least since 2015, is a contentious section which vests the AG with the power to impose a surcharge—that is, to disallow public expenditure and require monies found to have been used improperly to be refunded by the guilty parties. This has met with resistance, mainly because it would take decisions concerning enforcement out of the hands of politicians. (Opponents of the bill also claim that it would hinder the carrying out of public duties by politicians, such as when urgent funds are required to respond to natural calamities.) Yet many reformers insist that giving the AG the surcharge power is necessary and non-negotiable.

If progress on the Audit Bill is to move forward, something has got to give. In my view, despite all the policy arguments for granting the AG the surcharge power, it’s better to move ahead and enact an Audit Act that lacks this provision, rather than allowing this sticking point to further hold up its passage. This is one of those situations where we can’t let the perfect become the enemy of the good. Continue reading

Guest Post: We Need To Talk About Donors

GAB is delighted to welcome back Mark Pyman, Senior Fellow at the London Institute for Statecraft, who also served as Commissioner of the Afghanistan Joint Independent Anti-Corruption Monitoring and Evaluation Committee until November 27, 2017.

When it comes to fighting corruption and promoting accountable government, donors provide funds, expertise, and support, often over many years. They face many difficult challenges, and we all sympathize with the hard issues they have to contend with. Yet at the same time we have to forthrightly acknowledge that, for all their good intentions, when it comes to corruption, international donors easily become part of the problem. Donors, researchers, politicians and grantees have all been too silent on this.

Let me illustrate this with problems at one large, well-intentioned donor program in Afghanistan, the Comprehensive Agriculture and Rural Development Facility (CARD-F) Program. This Program, funded by the UK’s Department for International Development (DFID) and Denmark’s aid agency DANIDA to the tune of $120 million over two phases, was established to increase rural employment, incomes, and business opportunities through the design and implementation of projects, such as infrastructure work (such as building irrigation canals), provision of grants to producers and processors, establishment of greenhouses and poultry farms, and training for farmers.

Between March and October 2017, the Afghanistan Independent Anti-Corruption Monitoring and Evaluation Committee (MEC) made an inquiry into corruption concerns at CARD-F, based on allegations from five whistleblowers. MEC is the premier anti-corruption entity in Afghanistan, set up by Presidential decree in 2010, led by a Committee of six (three eminent Afghans and three international experts), and with an Afghan Secretariat of some 25 professional staff. It is funded by international donors. MEC found plenty of malpractice, including nepotism and cronyism in the Management Unit; multiple irregularities in the awarding of grants and procurement contracts; poor monitoring provided by expensive UK companies (that, to be blunt, were not doing their job); and international (UK) contractors with a built-in incentive to use up more of the available budget for their own “technical assistance.” MEC found that only 33% of CARD-F funds in the first phase reached the intended end users, instead of the planned 60% (the other 40% planned to going on technical assistance and administration; eventually 67%). Moreover, not one of the five separate whistleblowers whose concerns were passed to MEC felt protected enough to complain through the CARD-F program, nor through DFID or DANIDA. At least two of these whistleblowers were fired, and others felt they had to leave.

At the same time the donors vigorously opposed MEC’s plan to do the inquiry, suggesting that MEC surely had other more important priority topics to examine, and that MEC shouldn’t be concerned because the donors had already done an audit (which was not shared with MEC) in response to a previous whistleblower. Not-so-subtle pressure was applied: MEC’s own core funding, which comes partly from DFID and DANIDA, would need to be “reviewed” if MEC persisted. Ultimately, MEC had to request the President of Afghanistan to intercede, before DFID Afghanistan offered its support to MEC’s inquiry.

Any organization doing or sponsoring work in a tough environment like Afghanistan can expect to have corruption issues. But trying to hide the problem, and then to bully it away? As an anticorruption professional who has seen DFID do good work elsewhere in the world, and indeed in Afghanistan, I was really shaken. Less naïve than me, the Afghans are well aware that such internationally sanctioned malpractice is taking place, and they too see this as evidence of dishonesty and hypocrisy.

The huge disconnect between donors’ generally good intentions on the one hand and the, frankly, perverse bureaucratic politics that drives donor agencies is a known problem. Most donors know what is going on in their programs, but feel driven to cover themselves with expensive and often ineffective technical veils – fiduciary risk assessments; supply chain mapping, due diligence, layers of oversight – to protect themselves from charges of lax supervision.

An honest conversation about this is surely overdue. Here are ideas on four of the key topics to start the discussion: Continue reading

Stealing a City: Lessons from Bell, California

In 2010, a corruption scandal rocked the city of Bell, California, as eight top city officials were arrested for what the Los Angeles Country District Attorney called “corruption on steroids.” The officials were charged with misappropriating funds from city government to the tune of $5.5 million, and garnering salaries as high $800,000, more than quadruple the California governor’s salary. In a series of trials that stretched on for more than three years, the mayor ultimately pled no contest to 69 felonies, and the trials of the various city officials have been riddled with allegations of voter fraud, extortion of local businesses, taking of illegal loans from the city, and manipulation of the pension system. Bell officials even used (and likely tampered with) a referendum to change the city’s legal structure to a chartered city which allowed them to raise their own salaries.

The United States generally experiences very low levels of corruption convictions, around 1,000 per year across the nation. One might expect that some level of state, federal, or citizen oversight would have prevented the Bell incident. Yet this massive scandal was only uncovered due to quality investigative journalism by the Los Angeles Times, and only after five full years of consistent wrongdoing by city officials. How did this happen, and how can similar misconduct be prevented in the future?

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Reforming the ANDSF Payroll Management System: The Limits of a Technological Solution

In my last post, I discussed the how the problem of “ghost soldiers”—soldiers who are inaccurately listed as on active duty, for purposes of generating salary payments that are then stolen—adversely affects the capacity and readiness of the Afghan National Defense and Security Forces (ANDSF). To make things worse, not only is the government making salary payments to soldiers who don’t exist, but some ANDSF personnel who do exist are not receiving the full salaries they are due. Approximately 20% of Afghan National Police (ANP) and 5% of Afghan National Army (ANA) personnel are paid in cash through so-called “trusted agents,” who are supposed to facilitate salary payments to ANDSF personnel when electronic funds transfers (EFTs) are not possible, but according to reports, corruption in the system could take as much as half of an employee’s salary. And while most ANDSF personnel receive their salaries via EFT to their personal bank accounts, this only reduces the threat of pilfering in the final distribution stage; it does nothing to correct for errors, either intentional or inadvertent, generated earlier in the process.

What can be done about these problems? The U.S.-led multinational military organization working with the Afghan government to reform and strengthen the ANDSF, known as the Combined Security Transition Command-Afghanistan (CSTC-A), is applying a technological band-aid that focuses on implementing a set of computerized systems that track personnel and pay. While these measures are helpful, they do not fundamentally change the incentive structures that drive corruption, and so are unlikely to represent a long-term solution, particularly after direct U.S. involvement winds down.

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Addressing the Risk of Corruption in the Humanitarian and Global Development Sector: The Case of the Buhari Plan

North East Nigeria is on the brink of a major humanitarian crisis. The region has historically been marked by poverty and underdevelopment, and more recently has been ravaged by Boko Haram. In an attempt to address both the current crisis and the longstanding poverty of North East Nigeria, on October 26, 2016, President Muhammadu Buhari inaugurated the Presidential Committee on the North East Initiative (PCNI) to “serve as the primary national strategy, coordination and advisory body for all humanitarian interventions, transformational and developmental efforts in the North East region of Nigeria.” PCNI is chiefly responsible for overseeing and ensuring the execution of the Buhari Plan, a four-volume, roughly 800 page, five-year blueprint for the comprehensive humanitarian relief and socioeconomic stabilization of the North East. Projects include unconditional cash transfers and the deployment of mobile health units and will be linked with the current UNOCHA Humanitarian Response Plan. The total budgetary requirement is 2.13 trillion Naira (approximately US$6.7 billion), of which the Nigerian Federal Government commits an estimated 634 billion Naira and the remaining 1.49 trillion Naira is anticipated to come from “many DFI’s, International Aid Agencies, NGO’s and the Private Sector Stakeholders.” (PCNI also replaced previous initiatives launched under former President Goodluck Jonathan: the Safe Schools Initiative (SSI), which focused on making schools safer for children, and the Presidential Initiative for the North East (PINE), whose aim was to kick start the economies in North East Nigeria and reposition the region for long-term prosperity.)

On the surface, the Buhari Plan sounds like a step in the right direction. But given the controversies over fraud and corruption surrounding PINE, PCNI’s predecessor, there are reasons to worry. Even putting those past issues aside, there is inevitably a high risk of corruption in a large government plans like the PCNI—especially in an environment as notoriously corrupt as Nigeria—and the current mechanisms for mitigating the risk of fraud and corruption are insufficient.

In order to reduce the corruption risks associated with a project like PCNI, the Nigerian government—and the international donors and other stakeholders providing financial support for the project—should focus on reducing the opportunities for corruption in three principal ways: (1) embedding a fraud prevention strategy; (2) employing external, independent auditors; and (3) maintaining transparency of activities and funding flows. To its credit, the Buhari Plan has already integrated aspects of these approaches. Nevertheless, there is still room for improvement: Continue reading

Cracking Down on Corruption in Haitian Customs

Billions of dollars in international aid to Haiti has been lost due to corruption, and this corruption epidemic has hindered many of the good-faith efforts to provide assistance in the wake of disasters. Of the many layers of bribery, fraud, and deceit that plague aid delivery, the one that interests me the most concerns the front-line Haitian Customs officers.

My interest stems in part from personal experience: In August 2016, I was part of a small project to engineer and build a clean water system in Haiti, which required importing equipment and supplies. As a matter of law, the items we were attempting to bring into Haiti were exempt from tax on account of their use in a non-commercial setting and our association with an NGO. Yet despite the fact that this was clearly stated on the Customs form, the Customs officials insisted that we had to pay tax on the goods, told us further that we had to pay in cash directly to the Customs officer, and reduced the tax payment we engaged in bargaining. It seemed like a bribery racket, especially with the insistence on cash payment without giving us an option to make a payment to a government agency officially. Our experience was, alas, typical: Over the past few years, there have been multiple reports of individuals being extorted for cash at Haitian Customs, with officials often unwilling to follow their own guidelines, a situation that seriously hinders the timely provision of non-profit aid.

The Haitian government is aware of the problem, and in 2013 launched a general crackdown. Yet despite a handful of successes—such as the arrest of a prominent Haitian businessman who was involved with multiple Customs officers in a corruption ring that involved contraband and trafficking—the crackdown doesn’t seem to have led to a meaningful reduction of inconsistent and corrupt Customs practices. While additional reforms to the anticorruption laws and improved internal auditing would help, there are a few other steps that the Haitian government could take that would help to combat the sort of corruption that many importers, including my own team, have encountered in Haitian Customs: Continue reading