U4 Helpdesk Query

U4 helpdesk reply

This answer draws extensively on recent discussion papers produced within TI-S by the Policy and Research, Global Programmes, and the Asia Pacific teams. Also note that the U4 Resource Centre is currently developing a Focus Area on Corruption in Conflict and Emergency Situations. A series of resource pages should be available by mid-2006.

Content

Part 1 - Corruption risks in humanitarian (disaster/emergency) relief
Part 2 - Anti-Corruption and Transparency Recommendations
Part 3 - Useful links

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Part 1 - Corruption risks in humanitarian (disaster/emergency) relief

Most type of aid and development assistance is vulnerable to corruption and misuse of funds and there now exists a significant body of research and analysis to this extent. Disaster relief and humanitarian assistance is no different. In fact, in addition to some of the more commonly addressed aid related corruption issues, specific risks and opportunities for corruption may arise anew or become more acute in relief situations. Such risks are present throughout the aid cycle - from immediate relief efforts to longer term reconstruction.

Risks in the relief aid stage (immediate term)

• Procurement of goods and services for relief operations is performed through emergency contracting processes that enable for faster contracting mechanisms (direct contracting). There is often no record keeping of these contracts that allow for ex-post transparency, accountability or monitoring.
  
• Distribution of goods and services is prone to fall prey to corruption networks and bureaucratic obstacles limiting access to those in need, volume actually distributed and the quality delivered.
  
• It is difficult to track the inflow of funds and therefore to asses whether they reached their desired destination. Moreover, while public and international funds are more easily identifiable, private funds are difficult to track and therefore to monitor their expenditure.
  
• However, the overriding need to safe lives does make the timeliness and efficacy of the response a priority. Measures that introduce bureaucratic requirements and unnecessary delays should be avoided. Corruption prevention efforts should be focused on the reconstruction stage.

Risks in the reconstruction stage (mid to long term)

Reconstruction efforts focus on building back (or anew) housing facilities and infrastructure. This is therefore a phase where many contracting processes are undertaken to pursue those activities. Obscure and closed contracting processes create waste, affect quality and create an unfair distribution of wealth among those individuals and companies who profit from the disaster and can perversely, perpetuate the problem in the long term.

Described below are the risks that can be present in each stage of a contracting process. Special attention is brought to those risks that are heightened during emergency situations.

Stage 1: Contracting process decision and process design

During this stage, the government decides to purchase or sell goods or services, or to outsource the management of a unit. Determines what it needs to buy or sell or privatize (technical requirements, special characteristics etc.) and how it will go about it (contracting method, agency responsible etc.)

Associated risk in any situation

• Contracts are tagged, this is, they are designed in a way that favour a specific provider
  
• Contracts are unnecessary: does not attend the public interest (the citizens or victims' needs)
  
• Contracts are over/under designed
  
• The choice of method is abused

Emergency-related enhanced risk

• Emergency contracting procedures can be abused, using them when they are no longer justifiable as a way to avoid open bidding.
  
• No records or information from emergency contracting are kept, therefore aftermath scrutiny is not possible.
  
• Goods and services funded through aid where the donor establishes restrictions as to what service or good provider can be contracted (known as Tied Aid) create apparently legitimate ways to avoid open tendering.
  
• Donors (public or private) funds that are not budgeted remain out of the tracking systems and are difficult to monitor. They also fall out of the normal accountability lines. Without monitoring, these funds could nourish corrupt networks despite any effort to prevent corruption in the use of the monitored funds.
  
• In many occasions the needs are established at the funding source (donors or private contributors) and disregard the actual needs of the victims.
  
• Funding sources impose their own contracting procedures creating operational difficulties on site for officials who have to deal with different standards. Moreover, these procedures may have different transparency and accountability standards. Corrupt networks nourish from these loopholes.
  
• During and after emergencies, access to information is usually limited.
  
• If stakeholder ( victims, donors, etc) participation is restricted or minimal, the likelihood of corruption increases. Participation encourages accountability, facilitates project targeting and creates natural channels for whistle-blowing.

In sum, during this first stage corruption is most common because it is difficult to see. It hides underneath the way the materials to be bought are described, or underneath the time given for bidders or contractors to present offers or to fulfil the contract. It takes an expert to realize this. In emergency situations, this is specially difficult because there is no time too look at the specifications as most procurement is performed by direct contracting.

Stage 2: Contracting process

This stage starts when the Contracting process opens. The process should take place according to what the applicable law determines for the contracting method chosen. It either starts with an invitation to present proposals (in the case of open bids, closed/limited bids, short lists) or to evaluate contractors (in the case of single source, emergency contracting, direct contracting).

Associated risk in any situation

• Opacity: information on the relevant stages of the (i.e. invitation to tender) process is not accessible, is incomplete or the timing of its publication does not allow bidders to respond.
  
• Privileged information. Abuse of confidentiality or lack of publicity creates unequal grounds between different bidders.
  
• Manipulation of prequalification or evaluation. For example, when short listing systems are used, and companies bribe their way in them, or access is manipulated in any way.
  
• In single source or direct contracting processes, lack of publicity or transparency leads to unjustifiable decisions.

Bidders or contractors collude to influence prices or to share the market by artificially losing bids, or not presenting offers.

Emergency-related enhanced risk

• Risks associated with low monitoring, minimal stakeholder participation and limited access to information as described above also apply.
  
• Processes with poor rules or poor application of them and poor information disclosure are more subject to external influence and prone to manipulation.
  
• Funders of projects often do not recognize their accountability towards recipient communities. This impacts the type of monitoring they do on their use of funds: more focused on financial aspects and less on delivery, more on process than on outcome, more on corruption control than on prevention. This can explain why some times donor operations can be seen as bureaucratic. Moreover, this facilitates the work of corrupt networks who can easily "mask" their activities under apparently correct and legal processes without proper oversight.

In sum, during this stage most risks are associated with limited access to information. This allows to fulfill corrupt arrangements with or between contractors and to avoid public scrutiny.

Stage 3: Contract Award

The contract process ends and a decision is taken in order to select the winning bidder ( in open bids) or the contractor ( in single source or direct contracting processes).

Associated risk in any situation

• Evaluation criteria were not clearly stated in tender documents, no grounds to justify the decision.
  
• Evaluation of bids are subjective or leave room for manipulation and biased assessments.
  
• Contract awards are not publicized ( nor the grounds for the decision)

Emergency-related enhanced risk

• Tied funds that inhibit the application of objective criteria.
  
• In some cases privileging local contractors may be more efficient (and can also have mid term socio- economic benefits). This should be a transparent and open decision that should be set out clearly from the start of the process and known to all potential bidders.

In sum, most risks during this stage are associated with possibilities for manipulation. Although it is common to think that most corruption actually occurs during this stage, it is often the case that corruption here was prepared much before, or very likely that corruption at this moment won't go noticed until contract implementation, precisely because it has been the most common way.

Stage 4: Contract implementation

The contract is signed with the selected bidder or contractor who now should deliver the goods or services contracted under the terms agreed.

Associated risk in any situation

• Contract changes and renegotiations after the award are of such a nature that change the substance of the contract itself.
  
• Supervising agencies/individuals are unduly influenced to alter the contents of their reports so changes in quality, performance, equipment and characteristics go unnoticed.
  
• Contractor's claims are false or inaccurate and are protected by those in charge of revising them.

Emergency-related enhanced risk

• Contract implementation is not monitored or contractors are not accountable. The attention decreases with time as relief and reconstruction structures start to be dismounted. This applies to any implementation scheme, be it through government contracts, government direct implementation or NGO project implementation.
  
• Some reconstruction efforts are contracted out in big contracts that include a wide range of activities. While these may be awarded through open bids or auction systems that are meant to increase transparency, there is no transparency required on the subcontracts necessarily performed through them. Moreover, subcontracts are also not monitored.

In sum, during this stage the greatest risk is associated with lack of monitoring or follow up. Most controls are active during the contracting process stage and then fade away. It is a common practice to avoid controls by an apparently transparent and perhaps correct contracting process, "counting" on the possibility of getting additional profits during contract implementation.

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Part 2 - Anti-Corruption and Transparency Recommendations

Series of measures and strategies would need to be enrolled to control the risks and limit the opportunities for corruption that may arise in disaster relief and reconstruction efforts. These should include measures aimed at increasing accountability through transparency, access to information, public participation in decision-making, public disclosure and reporting. While, as with developing and implementing any anti-corruption strategy, a one-size-fit-all approach will not work, a set of general guidelines and recommendations is presented below. Such strategies will require a truly joint and united effort on behalf of the respective government, donors, civil society and the private sector. Above all, as with general country anti-corruption strategies, political will and leadership are essential for the success and sustainability of the efforts.

Measures to be considered by aid recipient governments include:

• Proactively publish information detailing the aid they have received and how it is being used.
  
• Ensure sound financial management of the funds donated to them, irrespective of the form of aid.
  
• Seriously consider establishment of a special trust fund through which all funds received for disaster relief are to be channelled.
  
• Strive to create broad political support for aid and reconstruction strategies by engaging with parliament.
  
• Involve local communities and national stakeholders (including NGOs and companies) in decisions about how aid is spent. Citizens should be involved at every stage of the relief and reconstruction process, from planning, through implementation to evaluation.
  
• Ensure that aid and reconstruction efforts help build capacity among public officials.
  
• Implement appropriate mechanisms to protect whistleblowers and establish channels to facilitate the inflow of information relating to corruption (i.e. a telephone hotline or website).
  
• Denounce corrupt behaviour publicly and to the appropriate authorities, irrespective of the nationality of the initiator.

Measures to be considered by donors include:

• Ensure sound financial management of aid given, including the establishment of mechanisms to track aid flows from source to destination and, where appropriate, the financing of external audits.
  
• Proactively publish information detailing aid given and its final destination, irrespective of the form of aid.
  
• Prioritise forms of aid that promote local skills and capacities (e.g. when implementing reconstruction projects). Minimise aid that is tied to the procurement of goods and services from the donor country only.
  
• Seek to reduce the burden of foreign debt owed by recipient countries where this is an appropriate way to support emergency relief and reconstruction efforts. The cancellation or suspension of foreign debt should be accompanied by appropriate governance reforms to ensure transparent management of released resources.
  
• Coordinate with other donors as well as with aid recipients at international, national and local level to ensure the efficacy of aid and reconstruction efforts. In particular, donors should seek to harmonise procurement standards to increase the efficacy of project implementation.
  
• Conduct appropriate risk assessments of implementing partners, including the partners' record, control and implementation arrangements, the amount of aid devoted to each activity, level of staff experience and degree of management support for financial controls.
  
• Encourage companies and other organisations at home and abroad to behave with high ethical standards, particularly with regard to contracting opportunities resulting from the disaster.
  
• Actively support local and international civil society efforts to introduce transparency and prevent corruption in countries receiving aid.

Measures to be considered by civil society and media include:

• Mobilise public support for transparency in aid and reconstruction efforts both in donor and recipient countries.
  
• Encourage and facilitate the involvement of local communities in decisions about how aid is spent.
  
• Advocate sound financial management, transparent procurement, detailed aid tracking and the publishing of aid allocations vis-à-vis both donors and recipient countries.
  
• Undertake selective monitoring activities in relation to aid flows, processes to establish reconstruction priorities, contracting procedures and the delivery of goods and services.
  
• Where practical, provide training to and exchange information with other stakeholders, empowering them to play a role in enhancing transparency in aid and reconstruction efforts.
  
• If executing aid and reconstruction projects, remain accountable to donors and to the public in both donor and recipient countries. Publish information on the resources allocated and how they are used.
  
• Behave with the same high ethical standards expected of others and refuse to participate in activities that require bribery or embezzlement.
  
• Report to the relevant authorities and to the public instances of fraud and corruption during the aid and reconstruction effort, regardless of the initiator.
  
• The media should facilitate the flow of information to the public in both donor and recipient countries with regard to aid and reconstruction efforts and goals; report on instances of fraud and corruption during the aid and reconstruction effort and assist official investigations into corrupt practice.

Measures to be considered by businesses operating in the disaster area include:

• Behave with high ethical standards, particularly with regard to contracting opportunities resulting from the disaster. Business should refuse to participate in deals that require bribery or embezzlement.
  
• Report to the relevant authorities and to the public instances of fraud and corruption during the reconstruction effort, regardless of the initiator.

Annex: Relevant Resources and Links

1. Transparency and Accountability in Humanitarian Aid:

Global Corruption Report 2005 Transparency International (the GCR 2005 will be released in March 2005; it features pieces on 'Corruption in post-conflict reconstruction' and 'Disaster relief')

Lessons from Natural Disasters and Emergency Reconstruction, Operations Evaluation Department, World Bank, 2005

On the Problem of Misuse in Emergency Aid, Georg Cremer in The Journal of Humanitarian Assistance, 2000

Transparency and Accountability in Humanitarian Aid Study, Tara Polzer 2001 (TI-S), working paper available on request from TI-S

Tsunami Emergency: Lessons from Previous Natural Disasters, Rachel Houghton, observer member of ALNAP, 2005

2. Tsunami 2004 and lessons learnt from previous disasters (eg Hurricane Mitch):

Briefing on Global Private Sector Response to Tsunami Disaster, Global Compact Office, 7 Jan 2005

INDONESIA: Preliminary Damage and Loss Assessment, The Consultative Group on Indonesia, January 2005

INDONESIA: Notes on Reconstruction, The Consultative Group on Indonesia, January 2005
* chapters 14 and 15, 'restoring local and provincial governments' and 'managing reconstruction transparently' are of particular relevance.

Good Government and Transparency in Honduras After Hurricane Mitch: A Study of Citizen Views, Mitchell Seligson, University of Pittsburgh: Report prepared by Casals and Associates for USAID, 2001

How USAID Safeguards Against Corruption Can be Used by the Millennium Challenge Account, USAID Issue Brief Number 3, 2003

Mitch and After: Swedish Contributions to Reconstruction and Transformation in Central America, Swedish SIDA 2001
This report is not available electronically. A hard copy is available from APD.

NGO Responses to Hurricane Mitch: Evaluations for Accountability and Learning, Francois Grunewald, Veronique de Geoffroy and Sarah Lister, a Humanitarian Practice Network paper, 2000

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Part 3 - Useful Links

UNOCHA
Coordination role:

RELIEFWEB

Home
About Reliefweb
Tsunami home page
Tsunami financial tracking

ALNAP, NGO network
contains web page on lessons learned for tsunami response

AusAID
Australian aid response to tsunami:
http://www.ausaid.gov.au/hottopics/tsunami/fact.cfm
http://www.ausaid.gov.au/hottopics/topic.cfm?Id=9562_2054_7529_7688_4864

USAID
Tsunami response fact sheet

ADB
Asia Regional Information Center

WORLD BANK
Tsunami portal (with a range of resources and papers)