Corruption in the education sector

Formula funding in education finance

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Formula Funding as decentralisation of financial management

Since the early 1990s the financial management of schools has been decentralised in a number of countries through what is known as a formula funding system. This has replaced a centralised system where school resources were provided directly by the education authority. Within the centralised model schools are not given autonomy to decide over staff allocation versus books, equipment and school infrastructure. The PETS framework has shown that the centralised system opens up many opportunities for grand corruption. There is now clear evidence that in many countries only a fraction of the allocations given through the national budget (often mostly donor money) reaches the end users.

In some countries there has been resistance to a decentralised system, as regulators and politicians are seen to lose the ability to control the implementation of reforms and targets for higher standards. It is, however, equally true that almost all efforts to decentralise funds or authority are resisted in most highly corrupt countries.

Formula Funding - a means of preventing corruption

Formula Funding can sometimes be an effective means of reducing opportunities for corruption and fraud in the education sector. A funding formula is an agreed rule for allocating resources to schools. It specifies the quantum of finance that each school can spend. Depending on the level of centralisation, only a part of the resources (e.g. non-staff items) may be allocated via the formula, or alternatively almost all resources used by schools can be included (e.g. teaching and non-teaching staff salaries, learning resources, premises etc).

Formula funding enhances transparency in education finance, as it provides for an objective calculation of the amount schools receive. School-level financing can therefore remove incentives for inflating the number of classes and teaching hours. It also increases incentives for principals to ensure that teachers are present and teach to the best of their ability. However, unless preventive measures are taken, formula funding may create its own incentives for corruption, as school leaders may be tempted to inflate figures such as the number of pupils, level of poverty in the area, and the number of children with special needs. Additionally, we find that unlike a centralised system which encourages large-scale corruption, a decentralised formula funding system may lead to officials at lower levels misusing smaller amounts of funds.

Ensuring the effectiveness of formula funding

Formula funding should be complemented by the publication of allocations to each school - on websites and in hard copy - in order to make budgets accessible for public scrutiny. However, to make formula funding effective, certain measures must be taken:

• Stakeholders (e.g. school councils and parent-student associations) must understand the basis on which money is allocated to their individual school. This entails a great need for training at all levels in the education system, including financial and budgeting skills training for school leaders. The public must also understand financial procedures in order to assert a watchdog role.
  
  
• The data on which the formula is built must be accurate in order to remove all temptations to inflate data used to trigger formula funding.
  
  
• Financial management at school level must also be accompanied by comprehensive and enforceable financial regulations and external auditing of school accounts.
  
  
• Care must be taken at school level to ensure that enough people have access to the schools' bank accounts for the system to be flexible, while at the same time ensuring that the opportunities for corruption are not multiplied beyond what is possible to control. Special care should be taken in systems where schools are given permission to collect money directly from parents.
  
  
• Finally, the simpler a formula is, the easier it will be to monitor.

Further reading - methodology

Formula funding of schools, decentralization and corruption: a comparative analysis
Ethics and corruption in Education

by Rosalind Levacic and Peter Downes - International Institute for Education Planning, IIEP

This book looks at the relationships between the decentralisation of school funding and the prevalence of corruption, a crucial concern for education policymakers today. The monograph is based on the assumption that formula funding acts to reduce the likelihood of fraud, as one of its essential elements is public accessibility to information. Transparency puts pressure on those in positions of responsibility to conform to regulations, since the chance of detection is much higher and the consequences of misappropriation are greater.

The authors examine four countries at different stages of decentralisation of school finance and management. Based on the range of evidence provided, they produce a number of recommendations for policymakers, including: training of principals and administrative staff, a greater understanding of the mode of operation of the formula, preparation of manuals for financial procedures, empowerment of stakeholders, local monitoring, standardisation of account formats, external checks, ensuring the independence of auditors, and the implementation of remedial action when deficiencies are detected.

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