Budget process and corruption:

3. Where in the budget process does corruption tend to occur?

3.0 Assessing the risk of corruption at different stages

The risk of corruption varies between and within the different stages of the budget process. We break the budget process into its composite stages and sub-stages, and provide an assessment of the risk of corruption in each of these. The links and headlines are all colour-coded, indicating whether corruption is a major concern at a certain stage (red triangle), whether it can be a concern (yellow triangle), or whether it is less of a concern (green triangle).

CONTENT IN PART 3:

• 3.1 Planning/MTEFs and the annual budgets  
  
  
• 3.2 Budget formulation  
  
  
• 3.3 Adoption of budget by Parliament  
  
  
• 3.4 Budget execution   
  
  
• 3.5 Control: audits and oversight  
  
  

Though the stages are treated separately, two important points should be made:

1. Although corruption primarily manifests itself in certain sub-stages of the execution process, the various stages relate to each other and imperfections in one stage may create corrupt opportunities in another stage.
   
   
2. Corruption in the budget process does not always boil down to dysfunctional rules / controls and faulty auditing. Overall, factors external to the budget process - people's attitudes to honesty, cultural, and historical elements - may be the drivers of corruption. To capture key dimensions of corruption risks related to the budget process we will have to include not only political economy factors but also the question of systems, institutions, and budget outcomes.

3.1 Planning / MTEF and the annual budgets  

Most states have a public sector management system that includes multi-year planning of public activities. In developing countries the plan is often divided inti one overall plan and a public investment programme. In principle, the budget will have to build on the policies, aims, and strategies that are set out in the multi-year plan.
If …

• the planning process has included proper involvement by the legislative,
  
  
• it produces a plan which the executive and the civil service see as their task to implement, and
  
  
• the plan is technically sound, well disseminated, and clear,
  

…the annual budgets in a democratic society will go far towards reflecting the will and aspirations of the electorate. This is the ideal situation which the Medium Term Expenditure Framework (MTEF) is geared towards. It is the IFI's recommendation that developing countries apply MTEFs.

In reality, the planning process may be imperfect in several ways. Where multi-year plans do form the basis of annual budgets, it may still be the case that:

• Bureaucrats or politicians may bias the plan towards their own geographical areas or ethnic groups. When the strategy of the annual budget is drawn up they can argue more convincingly for allocations that benefits exactly those recipients. This is particularly the case with public investment programmes where multi-year investment decisions are likely to be taken at the plan stage and be automatically reflected in the annual budgets.
  
  
• The legislature may not be involved - leaving the preparation of the plan to the executive and often only to the technical staff at the civil service level. This decreases the accountability of the executive, and makes allocation biases of the above type more likely.

The link between the plan and annual budgets is in many cases very weak or non existent. In particular:

• Planning capacity may be weak - making the plan's document unclear and internally inconsistent, resulting in a poor basis for annual budgets.
  
  
• The plan may be kept as an internal document by the bureaucracy - and thus have no effect beyond government offices.
  
  
• Plans in Africa have widely been considered shopping lists - used to extract funding from donors but without any effect on other public expenditure whatsoever.

This implies that annual budgets are set year by year, often by the treasury, leaving budgetary allocations to the will of the bureaucracy, resulting in benefits to areas or population groups near to the bureaucrats in charge.

go to next page: 3.2 Budget formulation

[top]