Tag Archives: audits

Cracking Down on Corruption in Haitian Customs

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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 →

Guest Post: Corruption Among Development NGOs, Part 1–Getting the Facts

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Roger Henke, Chairman of the Board of the Southeast Asia Development Program (SADP), a development grantmaker based in Cambodia, contributes the following guest post (the first in a three-part series):

Compared with media attention to corruption among public officials and corporate interests, corruption in the non-profit sector is virtually ignored (though a recent GAB post on NGO corruption in India is a notable exception). This lack of interest is matched by the absence of sustained substantive debates about the sources of NGO sector corruption and the effectiveness of remedial interventions. My own experience with these issues derives from my involvement with the NGO sector in Cambodia. Corruption within our own house is a regular topic of informal conversation, and also makes it into our periodic sectoral assessments (though often through oblique references to concerns like “weak financial systems” and the “lack of checks and balances”). However, there are no efforts at all to go beyond these anecdotes and self-reported “weaknesses” to gather systematic, externally validated evidence about levels of corruption, let alone about issues like costs of corruption or the way it correlates with characteristics of the NGO sector that would offer entry points for positive change.

Given the comparative importance of development aid channeled through the NGO sector in countries like Cambodia, this lack of attention to NGO corruption is unfortunate. Admittedly, gathering information on local NGO (LNGO) corruption is challenging. Yet there are potentially useful sources of information that have not been exploited. For example, LNGOs are funded by grantmakers, and these grantmakers (often criticized by LNGOs for their cumbersome administrative requirements and time-consuming monitoring visits) are a possible source of data about LNGO fraud and its correlates. Additionally, the audit firms with an LNGO client base are another possible source of information.

In 2014, to test the willingness of grantmakers and audit firms to share information on their LNGO partners and NGO client base, we at SADP piloted a grantmaker and audit firm survey. The results were promising enough to repeat and expand the exercise in 2015. In this second grantmaker survey, 18 out of 26 grantmakers approached agreed to participate, and 13 of those 18 shared LNGO partner-level information (for a sample of 93 LNGOs). The grantmaker survey queried incidence and seriousness of (1) financial management problems, (2) governance problems, and (3) fraud. (In order to maximize participation, the survey prioritized brevity and simplicity over depth of information.) The audit firm survey (in which four of the five firms approached agreed to participate) asked only for some aggregate data (total number of LNGO audited, number of audits that identified fraud, number of audits that flagged serious financial system issues, etc.). Admittedly, neither the sample of grantmakers nor the sample of LNGOs is statistically representative of Cambodia’s NGO sector, but the surveys provide more valid information about corruption in development NGOs in Cambodia than has previously been available. And the quantitative picture emerging from the combination of these two data-sources about the organizational quality of Cambodian LNGOs is both revealing and disheartening. Interested readers should check out the full report; the most important findings are as follows: Continue reading →

In the Excitement of the New, Let’s Not Neglect the Tried and True

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In my two posts last week (here and here), I attempted to go through all of the 41 country statements submitted by the participants in the London Anticorruption Summit held earlier this month, to see what those statements had to say about four specific issue areas highlighted by the Summit’s joint Communique: (1) accessibility (and possibly transparency) of beneficial ownership information for companies and other legal entities, (2) public procurement transparency, (3) independence, effectiveness, and transparency of national audit institutions, and (4) whistleblower protection (and encouragement). I didn’t originally intend to say much more about this, other than putting the information out there for others to examine, but on writing up the summaries, I was struck by the following observation:

Of the four issue areas I picked out–all of which, again, were prominently featured in the Communique–I would characterize two (beneficial ownership and, to a somewhat lesser extent, procurement transparency) as relatively “new” topics that have generated a lot of excitement. (This is clearly the case for beneficial ownership; public procurement transparency has been on the agenda for much longer, though I put it in this category because a lot of the focus of discussion in this area has been on relatively new initiatives like e-procurement and the Open Contracting Data Standard.) The other two issues I chose to highlight–independent and competent audits of government programs, and adequate protection of (and, preferably, affirmative encouragement for) whistleblowers–have been part of the conversation for considerably longer, though that doesn’t mean we’ve yet seen anywhere near as much movement on either of those issues as we’d like. And, compared to the newness and (relative) sexiness of topics like beneficial ownership registries and e-procurement initiatives, whistleblower protection and audits seem a bit humdrum. (Audits especially. Even I get bored when I hear the word “audit,” and I happen to think they’re really important.)

The thing that struck me, when going through the country statements, was the dramatic lopsidedness of the attention lavished on beneficial ownership and procurement transparency (to say nothing of other topics I didn’t cover, like corruption in sports and improved asset recovery mechanisms), compared to the relative neglect of country commitments in the areas of improving national audit institutions and whistleblower protections. Continue reading →

London Anticorruption Summit–Country Commitment Scorecard, Part 2

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This post is the second half of my attempt to summarize the commitments (or lack thereof) in the country statements of the 41 countries that attended last week’s London Anticorruption Summit, in four areas highlighted by the Summit’s final Communique:

  1. Increasing access to information on the true beneficial owners of companies, and possibly other legal entities, perhaps through central registers;
  2. Increasing transparency in public procurement;
  3. Strengthening the independence and capacity of national audit institutions, and publicizing audit results (and, more generally, increasing fiscal transparency in other ways); and
  4. Encouraging whistleblowers, strengthening their protection from various forms or retaliation, and developing systems to ensure that law enforcement takes prompt action in response to whistleblower complaints.

These are not the only subjects covered by the Communique and discussed in the country statements. (Other topics include improving asset recovery mechanisms, facilitating more international cooperation and information sharing, joining new initiatives to fight corruption in sports, improving transparency in the extractive sector through initiatives like the Extractive Industries Transparency Initiative, additional measures to fight tax evasion, and several others.) I chose these four partly because they seemed to me of particular importance, and partly because the Communique’s discussion of these four areas seemed particularly focused on prompting substantive legal changes, rather than general improvements in existing mechanisms.

Plenty of others have already provided useful comprehensive assessments of what the country commitments did and did not achieve. My hope is that presenting the results of the rather tedious exercise of going through each country statement one by one for the language on these four issues, and presenting the results in summary form, will be helpful to others out there who want to try to get a sense of how the individual country commitments do or don’t match up against the recommendations in the Communique. My last post covered Afghanistan–Malta; today’s post covers the remaining country statements, Mexico–United States: Continue reading →

London Anticorruption Summit–Country Commitment Scorecard, Part 1

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Well, between the ICIJ release of the searchable Panama Papers/Offshore Leaks database, the impeachment of President Rousseff in Brazil, and the London Anticorruption Summit, last week was quite a busy week in the world of anticorruption. There’s far too much to write about, and I’ve barely had time to process it all, but let me try to start off by focusing a bit more on the London Summit. I know a lot of our readers have been following it closely (and many participated), but quickly: The Summit was an initiative by David Cameron’s government, which brought together leaders and senior government representatives from over 40 countries to discuss how to move forward in the fight against global corruption. Some had very high hopes for the Summit, others dismissed it as a feel-good political symbolism, and others were somewhere in between.

Prime Minister Cameron stirred things up a bit right before the Summit started by referring to two of the countries in attendance – Afghanistan and Nigeria – as “fantastically corrupt,” but the kerfuffle surrounding that alleged gaffe has already received more than its fair share of media attention, so I won’t say more about it here, except that it calls to mind the American political commentator Michael Kinsley’s old chestnut about how the definition of a “gaffe” is when a politician accidentally tells the truth.) I’m going to instead focus on the main documents coming out of the Summit: The joint Communique issued by the Summit participants, and the individual country statements. There’s already been a lot of early reaction to the Communique—some fairly upbeat, some quite critical (see, for example, here, here, here, and here). A lot of the Communique employs fairly general language, and a lot of it focuses on things like strengthening enforcement of existing laws, improving international cooperation and information exchange, supporting existing institutions and conventions, and exploring the creation of new mechanisms. All that is fine, and some of it might actually turn out to be consequential, but to my mind the most interesting parts of the Communique are those that explicitly announce that intention of the participating governments to take pro-transparency measures in four specific areas:

  1. Gathering more information on the true beneficial owners of companies (and possibly other legal entities, like trusts), perhaps through a central public registry—which might be available only to law enforcement, or which might be made available to the general public (see Communique paragraph 4).
  2. Increasing transparency in public contracting, including making public procurement open by default, and providing usable and timely open data on public contracting activities (see Communique paragraph 9). (There’s actually a bit of an ambiguity here. When the Communique calls for public procurement to be “open by default,” it could be referring to greater transparency, or it could be calling for the use of open bidding processes to increase competition. Given the surrounding context, it appears that the former meaning was intended. The thrust of the recommendation seems to be increasing procurement transparency rather than increasing procurement competition.)
  3. Increasing budget transparency through the strengthening of genuinely independent supreme audit institutions, and the publication of these institutions’ findings (see Communique paragraph 10).
  4. Strengthening protections for whistleblowers and doing more to ensure that credible whistleblower reports prompt follow-up action from law enforcement (see Communique paragraph 13).

Again, that’s far from all that’s included in the Communique. But these four action areas struck me as (a) consequential, and (b) among the parts of the Communique that called for relatively concrete new substantive action at the domestic level. So, I thought it might be a useful (if somewhat tedious) exercise to go through each of the 41 country statements to see what each of the Summit participants had to say in each of these four areas. This is certainly not a complete “report card,” despite the title of this post, but perhaps it might be a helpful start for others out there who are interested in doing an assessment of the extent of actual country commitments on some of the main action items laid out in the Communique. So, here goes: a country-by-country, topic-by-topic, quick-and-dirty summary of what the Summit participants declared or promised with respect to each of these issues. (Because this is so long, I’m going to break the post into two parts. Today I’ll give the info for Afghanistan–Malta, and Thursday’s post will give the info for Mexico–United States). Continue reading →

Canada, Camembert, and Controversy: How to Save the Canadian Senate

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On Monday, October 19th, Canadians voted in the first new Prime Minister in over a decade. The Liberal party walloped the reigning Conservative party, capturing 55% of the seats in the House of Commons, while the Conservatives retained only 29% of the seats. But the Canadian public’s desire for change is not limited to the House of Commons. The Canadian Senate, the unelected chamber of “sober second thought,” has been rocked by an expenses scandal reminiscent of the 2009 MP expense scandal in the United Kingdom (see here), and the ongoing series of minor expense scandals in the United States (see here).

In late 2012 it was revealed that four Canadian Senators – Pamela Wallin, Patrick Brazeau, Mike Duffy, and Mac Harb – used their Senate expense accounts for personal and private business. As a product of these revelations, all four resigned or were removed from office, and all four have been indicted on criminal charges. In the response to the unfolding scandal, Auditor General Michael Ferguson launched an investigation into the finances of all Canadian Senators and found about 840,000 dollars in suspect claims. His investigation pointed to a systematic failure on the part of Senators to provide appropriate documentation for their expenses and to “prioritize consideration of the cost [of their expenses] to taxpayers.” (As with most proper scandals, there have been moments of levity in addition to frustration. Ferguson’s audit report suggested Canadian Senators should not claim per diem meals when other food had been made available, but Senator Nancy Ruth took umbrage at the suggestion that she was obligated to eat a free airplane breakfast consisting of, in her words, “ice-cold Camembert with broken crackers.”)

Partly as a result of this scandal, faith in the Canadian Senate is at an all-time low. Before his defeat, Conservative Prime Minister Stephen Harper had stopped nominating new Senators. In 2014, the Liberal party kicked all of its Senators out of the party’s ranks, thereby converting them to “independent” Senators. The NDP, Canada’s third largest party, has long called for abolishing the chamber entirely. What, then, should be done to reform Canada’s beleaguered Senate? Ferguson’s audit report offers several promising proposals for addressing the concerns about Senator integrity  But the problems with the Senate as an institution run deeper, and will likely call for more thorough reform (even if abolition of the Senate is politically and legally infeasible). Continue reading →

Community-Level Aid and Corruption in the Democratic Republic of the Congo

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As Rick has discussed in a previous post, one common strategy adopted by donors seeking to engage in development and humanitarian work in countries with corrupt governments is to try to bypass national institutions. Instead, they direct their efforts towards the local level, engaging with communities, local leaders, and smaller-scale NGOs. Theoretically, this approach means the money passes through fewer hands, and there are therefore fewer opportunities for some of it to be skimmed off. Furthermore, donors may believe that local institutions are less corrupt or more easily subjected to (or more responsive to) monitoring by donors or other overseers. Donors may also opt for a local-oriented approach for reasons not related to corruption, like supporting projects that are more responsive to people’s actual needs, furthering community empowerment, and building institutions.

However, recent evidence from the Democratic Republic of the Congo (DRC) indicates that a local-oriented approach has its corruption-related drawbacks. Resources channeled through national political figures may have the potential to be stolen or misdirected for personal gain, but community-driven development programs are also vulnerable to elite capture. In fact, broader research has indicated that members of community development organizations—the very people with whom donors are partnering in hopes of side-stepping corruption—are more likely to pay bribes than non-members.  Furthermore, even when donor programs succeed in creating infrastructure, they tend to fail to improve local governance, accountability, or capacity.

Still, given the pervasive corruption in national governments (in the DRC and elsewhere), and the way those in power benefit from avoiding any meaningful action against corruption, the impulse towards local-side aid is understandable. What, then, are donors to do? Though it’s impossible to guarantee positive results, there are some steps that foreign governments and NGOs can take to mitigate the risk of the money targeted locally from being illicitly diverted:

Continue reading →

Guest Post: Development Aid–A Blind Spot for EU Anticorruption Efforts

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GAB is pleased to welcome back Jesper Johnsøn, Senior Advisor at the U4 Anti-Corruption Resource Centre, who, along with his colleagues Nils Taxell and Thor Olav Iversen, contributes the following guest post:

A new study from the European Parliament entitled Cost of Corruption in Developing Countries – How Effectively is Aid Being Spent? shows that, despite an impressive track record of ambitious anticorruption reforms in countries working toward European Union membership, the EU’s overall anticorruption strategy marginalizes efforts to address corruption through development aid. The EU could spend aid more effectively, the report concludes, if it prioritized corruption control in developing countries. The analysis in the report suggests several measures that the EU should adopt to reduce corruption in its development aid programs:

Continue reading →

Guest Post: Monitoring as a Democratic Imperative

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Professor Paul Lagunes of the Columbia University School of International and Public Affairs contributes the following guest post:

The fact the bureaucrats who populate the ranks of the public administration do not run for office poses a significant challenge to electoral democracy—a challenge that is accentuated by citizens’ inability to properly monitor their own government. Citizens, after all, dedicate a majority of their time to private affairs and are often confused, if not repelled, by the complexities of public administration. Given this principal-agent problem, what can be done to improve monitoring, fight corruption, and hold governments accountable?

I recently had the opportunity to evaluate the efficacy of anticorruption monitoring in Mexico. This research indicates that independent audits over sensitive governmental processes can boost the levels of discipline, stringency, and honesty among civil servants. Indeed, even when communities find it difficult to overhaul their governing institutions and renew and professionalize their bureaucracies, they can rely on independent experts to raise bureaucrats’ level of accountability. But the improved monitoring associated with independent audits is only when accompanied by robust oversight and accountability. Continue reading →

Mexico’s Corrupt Mayors: Who Gets Punished at the Ballot Box, and Why

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In a democracy, when and why are some politicians electorally punished for corrupt acts, while others get off scot-free? Some answers are commonsense: major scandals generally draw more ire than minor malfeasance; media coverage (and hence voter knowledge) matters; and citizens consider a variety of performance indicators—not just corruption or lack thereof—in selecting politicians. But the details are hazy. Some studies suggest politicians who get caught are more likely face electoral loss, but others find little to no such correlation. Likewise, we know anticorruption candidates often flounder for political reasons, but sometimes they succeed against the odds. So what drives, or contributes to, voter backlash against corrupt politicians?

A recent paper by Harvard scholars Horacio Larreguy, John Marshall, and James Snyder addresses this question in the context of mayoral elections in Mexico. Its conclusions should give pause to anticorruption activists looking for broad-brush solutions. In brief, the paper finds that the devil is in the details: local media coverage can reduce a corrupt incumbent’s vote share, but regional or national media doesn’t seem to matter much; voters do punish corrupt politicians on average, but certain political parties are punished much more than others for the same misconduct; and guaranteeing an audit of public programs reduces malfeasance, but merely threatening a possible audit has little if any effect.

These nuanced findings provide insight into voters’ habits, but they also reinforce the notion that corruption is deeply political—and therefore anticorruption interventions must be context-specific. To unpack this all a bit more, consider the study’s main findings: Continue reading →