Corruption in the health sector

Budget transparency

Development assistance and transparency

CONTENT ON THIS PAGE:

•  Aid modalities
•  Proliferation of funding mechanisms for health
•  SWAps and budget support
•  Tied aid
•  Funding through NGOs

Aid Modalities

Donors and the different modalities of aid affect the recipient's spending patterns and budgetary process in many ways. The last chapter of the World Bank, World Development Report (WDR) 2004, "Donors and Service Reform", provides an interesting discussion on the subject. The main recommendation is that in country environments where there are genuine reforms, donors should integrate their support in the recipient's development strategy, budget, and service delivery. According to WDR, this is not the case today. Most donors keep a close eye on their contributions, afraid that misuse of funds and open corruption may de-legitimise the domestic political support for development assistance.

Proliferation of funding mechanisms for health

There has recently been a development of public-private partnerships channelling financial assistance to health. These funds could pose huge opportunity for corruption because of the conscious structuring to circumvent national bureaucracies and speed the process of disbursement. The Global Alliance for Vaccines and Immunisation (GAVI) has disbursed over US$ 1 billion during the period 2001 - 2005 and the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM), also started in 2001, has awarded $3.1 billion to 128 countries in the first two years of operation. The latter organization uses accounting agencies as Local Funds Agents rather than channelling funds through national governments or international organisations. To assure accountability, both GAVI and GFATM use performance-based grant mechanisms. The health sector seems to raise particular challenges in applying performance-based mechanisms [1]. One reason is that too much focus is placed on easy-to-quantify indicators to the exclusion of important health activities harder to measure and a risk that low-cost verification system can not be made corruption-resistant.

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SWAps and Budget Support

In countries where donors have agreed to pool their resources for a specific sector this process is often guided by a so-called Sector-Wide Approach (SWAp). SWAps are expected to address problems of "project" modality, increase aid effectiveness, and establish greater coherence between policies, programs and budgets. SWAp is first and foremost a policy co-ordinating mechanism and not a financial mechanism. SWAp thus, in principle, applies to budget as well as project funding arrangements even if they many times are seen as primarily a management tool for disbursement and accounting of funds. SWAp covers public funding for the sector including project type aid, technical assistance, earmarked funds and pooled funds.

According to studies by WHO, SWAPs provide an improved diagnosis of barriers to service utilisation and improvement, including better understanding of corruption and incentives problems. SWAPs also help to create common procedures for planning, disbursement, accounting, audit and review which can help reduce the costs of dealing with donors, and increase coherence of programmes.

Also studies by UNFPA indicate that SWAps place government squarely in charge, increase predictability of funding and increase transparency of resource use, improve accountability, and achieve more value for money.

See also "Experience of Sector Wide Approaches in Health - A Simple Guide for the Confused", European Community Paper No 25, 2000.

The usual concern with SWAps is that they increase the chance of corruption. When donor funds go through a SWAp, the idea is that government assume responsibility for resource allocation decisions in pursuit of agreed objectives. This reduces the scope for donor external control and audit of government’s use of funds. If it leads to improved control by the public sector of its own spending, then it is all the good. But if it allows public officials to divert donor funds the same way they may be diverting taxpayer money, then it is not much of an advance at all . Great care thus must be placed on arrangements for financial management, external and independent audits, and other checks and balances such as Basket funding committees, etc.

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Tied aid

Some bilateral aid is tied. It must be used for procurement of goods and /or services from the donor country. Studies used by the World Bank show that tied aid reduces the value of that assistance by about 25 percent. It is not clear whether tied aid is more or less prone to corruption; however, there is evidence that tied aid projects may pay higher prices for supplies due to price discrimination. For example, Mozambique is reported to have been charged up to 50 percent more for drugs procured from multinational companies using tied aid, compared to a state purchaser using public budget financing who purchased drugs from the same multinationals.

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Funding through NGOs

A substantial share of external funding today is channelled through international and/or local non-governmental organisations. In these cases donors need to apply accountability and transparency rules similar to those that have been recommended for countering corruption in the budget process. Before taking a decision to grant funds to a particular organisation it is advisable to look at the competence and capacity of the organisation. The following checklist is from a capacity study of the charity organisation Save the Children (UK) that was commissioned by the Swedish International Development Co-operation Agency (Sida) in 2001.

•  Organisational structure (clearly documented sub-unit structures with defined terms of reference and operating protocols for each sub-unit)
  
  
•   Management of activities (publicly available mandate and operating procedures of governing board, decision making and order of delegation, defined mission, vision, goals, activity plans and policies, indicators for performance)
  
  
•  Administrative systems and routines (transparency, fairness, and documentation)
  
  
•  Personnel administration (transparency, fairness, and documentation)
  
  
•  Financial control (promotion of good administration, transparency in the financing picture and handling of means, and anti-corruption measures).

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References