Budget process and corruption:

4. What drives corruption in the budget process?

4.2 People and incentives

In section 3 we discussed where in the budget process corruption is a particular concern. To effectively design and target anti-corruption measures in the budget process, we also need to know what type of staff are commonly involved in corruption, and what their motivation is for corrupt acts. Below, we discuss theses two questions in turn.

CONTENT ON THIS PAGE:

• Categories of staff commonly involved in corruption in the budget process
  
  
• Motives for corruption in the budget process
  
  

Categories of staff commonly involved in corruption in the budget process

Among legal and judiciary experts, the higher levels of the executive ranked high when asked which institutions in their country were most affected by corruption. Figure 2 indicates that key officials in the budget process (legislative, presidency, cabinet, as well as key budget institutions) are behind about 58 % of corruption, according to expert opinions. The fact that the legislature and the courts together constitute some 13 % just goes to show the ease with which budgetary and other kinds of corruption will get 'off the hook' even if detected. The data was generated by asking participants in the First Legal and Judiciary Conference on Governance and Corruption Vulnerability of Rule of Law Institutions, June 2000 in Washington, D.C., the following question: 'What are the most vulnerable institutions to corruption in your country of expertise?'


Figure 2. Institutions most vulnerable to corruption - according to legal and judiciary experts:

Top politicians such as the prime minister or president, the minister of finance, and the line ministers, all have significant political power. In flawed systems these persons are subject to minimum controls, they are given considerable discretion, and handle substantial amounts of money. Some of the higher policy makers in the civil service - directors and permanent secretaries - and director may be in much the same situation.

Civil servants with substantial opportunities for corruption are:

• Lower level staff in the Ministry of Finance / Treasury: These persons have more opportunities for corruption than staff in line ministries, merely because of the larger amounts of money they handle and because they have opportunities to make deals with the downstream ministries. In particular, officers who deal with the sector ministries' capital projects and accounting for recurrent expenditure will have significant opportunities.
  
  
• Staff in line ministries dealing with major capital projects: E.g. at the Ministry of Works and Communications - in charge of major transfers, at the Ministry of Local Government, and also in ministries where travel activities are particularly frequent - e.g. Ministry of Foreign Affairs. All these environments are frequently characterised by limited scope for supervision and control of money flows.
  
  
• Staff working in procurement or government stores and officials in tender boards: In severely corruption ridden environments these officials will often have to 'buy' rights for employment in departments where corruption gains are plentiful and considered a part of the salary.
  
  
• Internal audit staff: They are easily pressed into corruption by 'partners' that are able to pay for covering up their own misdeeds.
  
  
• Staff in personnel departments: Such departments provide a well known opportunity for paying pensions and salaries to ghost employees, and for favouritism towards job seekers who can pay to be awarded certain positions.
  

The demand side of corruption should also be noted. In relation to budgetary corruption the private sector is a potential perpetrator - by teaming up with government officials on corruption schemes. Major corporations have been known to engage in 'state capture' through efforts by firms to shape and influence the underlying rules of the game - legislation, laws, rules, and decrees - through private payments to public officials.

Considerable corruption opportunities exist in cases where there are unclear borderlines between central government and the enterprise. Parastatals in for example public utilities often have their deficits covered by a budget allocation. This removes the control function that deficits constitute in the private sector, where they will spur owner reactions.

Motives for corruption in the budget process

Opportunities for corruption are unevenly spread among government personnel who are involved in the various parts of the budget process. Moreover, countries with very similar systems have different concentrations of corruption in similar departments. These differences can be attributed, at least in part, to different incentives facing staff in these systems. Standard predictors of the level of corruption are thought to be:

• Reward and risk: Staff who can gain a lot from corrupt acts, which are unlikely to be detected - and/or result in minimal punishment if detected - will be more inclined to commit such acts.
  
  
• Discretion: The greater leeway an official has in making a decision, the higher bribes can be extracted from those benefiting from the decision.
  
  
• Monopoly: Control over a decision or government goods, implies a greater bargaining power in extracting bribes.
  
  
• Accountability: Officials who do not answer to other officials and institutions, are less at risk of being held to accountable for the misuse of public funds.
  

Other motivations for corrupt acts may be:

Personal motivations:

• Personal financial problems - prevalent in developing countries due to strong family bonds and the commitment to share with less wealthy members of the extended family. Such problems may also be linked to indebtedness and gambling.
  
  
• 'Beating the system' - egoistic motivations associated with computer related fraud and corruption.
  
  
• Disgruntlement and malice - employees who feel wronged, e.g. by being kept from promotion, may try to get even through corruption.
  
  
• Ideological motives - political intent to hurt the organisation, or 'Robin Hood' motivations to redistribute wealth.
  

Group motivations:

• 'Everyone else is doing it'
  
  
• Peer pressure - may force otherwise honest members of organisations described above to engage in corruption or to abstain from whistleblowing.
  

The latter underscores the need for a look at informal institutions - covered in the next part.