Corruption in Public Financial Management and Procurement:

The budget process and corruption

Written for U4 by Jan Isaksen - CMI (October 2005)

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Introduction

In the interest of making aid effective, donors are increasingly stressing the importance of a good public financial management (PFM) system in partner countries. The budget process is a part of the PFM system which is both very crucial to good development outcomes, and a process vulnerable to corruption.

These issue pages collect evidence and knowledge in the area of corruption in the budget process which is operationally relevant for staff in international development agencies. What is budgetary corruption, how may it be detected and what should the policy responses be?

The focus of these pages is on corruption key risk areas in various stages in the budget process. These pages throw light on how patronage works, and how it affects public financial management systems. To this end, we collate studies on politics of the budget and informal systems, and consider what they can tell us about corruption in budget processes. Emphasis is put on niches where knowledge is often lacking or not well documented.

Since some agencies have been more involved in PFM matters than others, and they are involved in different sub-areas, there is a considerable potential for agencies to learn from each other

What you will not find on these pages

This paper concentrates on the expenditure side of public budgets, and does not cover corruption related to taxation and tax systems, or the particular problems arising from budget support from donors, which are topics covered in separate U4 issue pages.

We define budget systems broadly. We do include, but put less emphasis on, budgetary matters that are often seen as parts of PFM in general but not closely related to the budget process itself. Examples of such areas are corruption matters related to regulations, licences, sale of public assets, and privatisation.

This paper primarily addresses the issues from an empirical rather than a theoretical perspective. Reference is made primarily to central government issues and systems. Local government corruption or private sector corruption is covered, although these are clearly linked to the corruption that takes place in central government.

Judicial corruption makes it easier for perpetrators of all kinds of corrupt acts - including budgetary corruption - to "get away with it", and may be part of the reason for rapid development of state corruption. We do not, however, consider corruption in the judiciary in depth here.

PFM systems come in several forms although most of them have considerable similarities. For developing countries these systems often reflect that of a past colonial power. This paper is mainly based on what one may call an 'Anglophone' system which is widely adopted by Anglophone Africa and elsewhere. Differences between systems have been studied by Ian Lienert, (2005, - see the reference list) and others. The U4 website also contains a comparison between Commonwealth and French systems (see Expert Answer). Conclusions on overall differences between the systems in regard to opportunities for corruption seem to be weak although there may be differences in detail.

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