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    Results of a 2005 Worldwide Survey

    Resisting CorruptionIn the Public Sector

    ICGFMThe International Consortium onGovernmental Financial Management

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    On behalf of the International Consortiumof Governmental Financial Managers, GrantThorntons Global Public Sector group

    carried out a worldwide survey of government execu-tives on their opinions concerning public sectorcorruption. In addition, interviewees recommendedways for government institutions to reduce and resistcorruption in government operations. Personnel fromGrant Thornton Internationals member firms inter-viewed 50 officials in ten countries for the survey.

    Cultures of Corruption

    Survey respondents distinguished between retailand high level corruption. Retail corruption is thesmall-scale, everyday graft, extortion, and briberyinvolving low-level public sector employees. High-level corruption, which is more harmful to a country,includes payoffs in public works contracts; question-able election laws; fixed election results; influencepeddling; and nepotism. In some countries, retailand high level corruption combine to create culturesin which citizens and civil servants alike are indif-ferent to or accepting of dishonesty in governmentand politics. One of the chief causes of corruption,according to interviewees, is collusion among polit-ical groups, government executives, and the courts,aimed at protecting their members from criminalinvestigation and prosecution.

    Reducing CorruptionEffective anti-corruption initiatives need to be

    multi-faceted, addressing cultural, political, andsocial causes of corruption. Interviewees recommendthe following actions for governments to take toreduce corruption.

    Attack retail corruption by reducing opportuni-ties for bribes, extortion and graft, such as bypromoting the use of electronic payments andcredit/debit cards for taxes, fees, or fines.

    Curtail corruption in revenue collection bycentralizing collection, periodic staff rotation,taxing gross rather than net revenue, and usingpayroll withholding taxes.

    Cure corruption-prone procurement by central-izing purchases, broadly advertising bidsolicitations, and using clear, well-understoodprocurement procedures.

    Protect people who report corruption, especiallypublic servants. Ways to do this include passingwhistleblower laws and introducing telephonehotlines for reporting corruption.

    Reform civil service laws to reduce nepotismor hiring of cronies. Pay civil servants reason-able wages so that they are not tempted toengage in corrupt activities in order to payfor the necessities of life.

    Institute independent anti-corruption boardsor commissions and support them withadequate funds and a solid frameworkof anti-corruption laws.

    Introduce public education campaignsto help build citizen and civil servantsresistance to corruption and support foranti-corruption activities.

    Strengthen internal controls and audit proceduresto detect and help prevent fraud and abuse.

    Finally, anti-corruption activities need to betransparent and their results publicized in the media.This helps build confidence among citizens thatcorruption is no longer a way of life in their country.

    Executive Summary

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    Table of Contents

    Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 1

    About the Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

    Defining Fraud and Corruption . . . . . . . . . . . . . . . . . 4

    Procurement that Resists Corruption . . . . . . . . . . . . . . 5

    Causes of Corruption . . . . . . . . . . . . . . . . . . . . . . . . . 6

    Little Things Mean a Lot . . . . . . . . . . . . . . . . . . . . . . 7

    Recommendations for Combating Corruption . . . . . 8

    Cultural and Social Solutions. . . . . . . . . . . . . . . . . 8Showing the Consequences of Corruption . . . . . . . . . . . 8

    Political Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . 8

    Anti-Corruption Boards or Commissions. . . . . . . . . . . . 9

    Institutional Solutions. . . . . . . . . . . . . . . . . . . . . . 10

    Revenue Collection that Works. . . . . . . . . . . . . . . . . . 11

    Additional Information and Survey Contributors . . . 12

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    AnonymityOur survey does not attribute thoughts and

    quotations to any of the people we interviewed,nor do we name them, their institu-tions, or their specific countries.

    These measures were essentialto gain the confidence and fullcooperation of the officials whoparticipated in the survey.

    ScopeOrganizations such as

    Transparency International do asuperior job in documenting theextent of corruption in differentcountries. International donororganizations including the U.S.

    Agency for InternationalDevelopment, the InternationalMonetary Fund, and the WorldBank have written many excellentreports, program manuals, andspecial studies on how to combatgovernment corruption and fraud.Our surveys scope is somewhatdifferent: to learn what governmentofficials in countries where corrup-tion is an issue think about thecauses and consequences of theproblem. More important, wewanted their recommendations onhow to reduce or eliminate corruptions effect on thepublic sector and, by extension, on their societies,economies, and culture.

    MethodologyWith the guidance of ICGFM members, Grant

    Thornton developed a survey instrument with bothclosed and open-ended questionscovering corruption, fraud, and

    related issues, and then asked expertsin these topics to review the ques-tionnaire. After orientation fromGrant Thorntons Global PublicSector, Grant Thornton Internationalmember firms based in Africa, Asia,Eastern Europe, Latin America, theMiddle East, and the United Statesinterviewed in person governmentofficials and other executives of tencountries who had agreed to takepart. Between December and April

    2005, 50 interviews were conducted.Most survey participants weresenior officials in ministries of theircountries. The mission areas of theinterviewees offices include publichealth, education, finance, taxation,economic development, customs,international diplomacy, audit, andinternal affairs. A few respondentsfrom outside government includedofficials in a countrys institute ofchartered accountants and execu-tives from nongovernmentalorganizations involved in local

    development programs.Grant Thornton member firms sent their survey

    notes to the Global Public Sector office in Alexandria,Virginia, U.S.A. for analysis by subject matter expertsand survey specialists.

    About the SurveyIn spring 2004, ICGFM asked Grant Thorntons Global Public Sector group toundertake an international survey of government executives on their opinionsconcerning public sector corruption. The survey explored the executivesperceptions of the severity, causes, and consequences of public sector corrup-tion. In addition, interviewees recommended ways for government institutionsto resist corruption in government operations.

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    In most governments the cost of procuring goods andservices is second only to that of human resources(salaries and benefits for public employees). Surveyparticipants recognized that procurement is an areaprone to corruption, which may range from headline-making scandals to smaller, less visible petty graft by

    frontline public employees. Many of the intervieweessaid that migrating manual procurement processes toelectronic processes has become an important activityin creating a corruption-resistant public sector.Electronic (or e-) procurement takes unneeded discre-tion out of the process by removing opportunities forface-to-face interaction. In addition, e-procurementcreates an excellent audit trail of each transaction.

    Officials interviewed for this report suggested thefollowing ingredients of a smooth-functioning, corrup-tion-resistant procurement operation:

    To the extent practicable, centralize procure-ment to facilitate bulk pricing, gain the benefitsof specialized procurement employees, andreduce the opportunitiesfor kickbacks and other corruption.

    Develop results-oriented specifications insteadof spelling out the process of producing anddelivering products and services.

    Broadly publish bid solicitations and awards,including on the Internet, to make theprocurement process more transparentand trustworthy to vendors.

    Ensure that all vendors have full access to theinformation they need to prepare bids, includingspecial conditions and requirements, the procure-ment process to be used, and the governmentsestimated budget range for each procurement.

    For frequently purchased items, use preapproved

    vendors with negotiated catalog rates. Prepare and use clear, well-understoodsignoff procedures for bid evaluations andpurchase transactions.

    For complex acquisitions, engage objectiveexperts to determine specifications andexpected pricing, and also to participate inapproving deliverables. Use this information todraft pre-proposal specifications and invitecomments from potential bidders.

    Provide for prompt and objective bid protests,perhaps by a government-wide procurementboard, especially when losing bidders allegearbitrary decisions.

    Have a person or organization not directlyassociated with a specific purchase monitorits delivery for meeting timeliness, quality,and quantity requirements.

    Routinely evaluate vendors performanceand establish and update a database of theirperformance grades.

    Procurement That Resists Corruption

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    Cultural and Social CausesIn my country, corruption is in all levels of poli-

    tics, economics, and institutions. It is a cultural fact,said one interviewee. Others reported an ingrainedacceptance of public sector corruption in a society.Frequently, respondents said that a major cause ofcorruption was indifference or acceptance bypublic sector officials and employees, politicians, and

    the general public. Reasons for this indifference, saidrespondents, included that people know the justicesystem will not punish people who do corruptthings. Citizens become resigned to corruptionbecause they see no way to stop it.

    Social causes of corruption, according to the inter-viewees, include wide disparities in wealth, in thecentralization of wealth and influence among a fewfamilies or groups, and in inadequate investigation orcoverage of corruption scandals by the news media.In addition, in some countries there appears to be asocietal acceptance that graft and demanding bribes

    is a right of government employees.Political Causes

    Political causes of corruption relate both to theelectoral process and the behavior of elected officialsonce in office. Said one respondent, Politicians andsenior government officials say that they are againstcorruption, but in reality are either indifferent oraccept it when the time comes to take action.Another said, The majority of political leaders livewith corruption because they run the risk of losingpower if they speak out against it. Unfortunately,said an interviewee, in his country, Complete politi-cization of authorities implementing anti-corruptionmeasures, such as the public prosecutor and anti-corruption commission officials, have renderedthese organizations ineffective. The impact of bothpolitical and institutional causes is made worse bycollusion among the executive, legislative, and

    judicial branches of government aimed at engaging

    in corrupt activities or protecting their membersfrom prosecution for such crimes.

    Illegal campaign contributions and election fraudhelp bring corrupt parties into power, according tosome interviewees, as do election laws that favor therich and influential. A turnover in parties likely willlead to the replacement of many levels of publicservants with party loyalists who have little or no

    experience but who are willing to join a network ofaccomplices to fraud and corruption. This inexperi-ence contributes to the mediocrity of public service.Finally, several respondents said that politiciansmake weak laws concerning corruption, and maykeep the consequences of being caught very low.

    Institutional CausesInstitutional causes include the structure and

    operations of the public service. Most intervieweesreported at least minor problems with corruptionamong lower-level public service employees. One

    respondent summed up the thoughts of many whensaying, Sometimes, the pay of civil servants is belowthe poverty level, which leads some of them tobecome corrupt in order to survive. A few respon-dents noted that if low salary is a major cause of civilservant corruption, the problem should lessen as onegoes up the career ladderbut then pointed out thatthis is not the case.

    Many interviewees mentioned lax enforcementof anti-corruption laws as an institutional cause.They attributed such negligence to the entire justicesystem, including law enforcement, prosecutors,and judges. Another problem is lack of integrationamong groups in the justice system, which makesit more difficult to investigate and prosecute crimesof corruption.

    Weak or nonexistent administrative laws, rules,and practices are major culprits in the inability todetect and prevent corruption problems. Oneexample reported was that inadequate policies and

    Causes of CorruptionDuring the survey, we asked interviewees about the causes of corruption in theircountries. Our review of the responses made it clear that any successful initiative toreduce or prevent corruption has to be multifaceted, addressing multiple problems

    at different levels of society and government. To facilitate analysis of the causes, wedivided them into three categories: cultural/social, political, and institutional.

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    Little Things Mean a Lot

    procedures cause poor control over public procure-ment and capital contracts. Several others said thatweaknesses in public sector audits and internalcontrols, especially in revenue collection, mean theloss of key tools for preventing fraud and abuse.

    Institutions established to combat corruption havehad varying success, said interviewees. For example,

    a countrys anti-corruption board or commissionmay educate the public about the problem, but belax in investigating corruption and providing infor-mation to prosecutors. This may be because ofineffective laws or simple apathy in enforcing them.

    Daily encounters between the general public andpublic employees are the most frequent opportunitiesfor corruptionand for reducing a countrys cultureof corruption. The actions listed below, suggestedby survey participants, may seem small, but eachmakes a particular transaction between citizen andgovernment less prone to bribery and abuse.

    Fines, Fees, and Parking. Require that people

    pay fines by mail, electronically, or at a reliable collec-tion agency. This includes fines for things like trafficviolations, for operating a food store without a healthpermit, running a business without the proper license,or not having an up-to-date vehicle registration. Also,install parking meters in high-volume parking areas,keep them in good repair, and enforce parking lawsconsistently. Do not allow private citizens to take overpublic areas and charge for parking in them.

    Electronic Payments. Design financial transactionsbetween citizens or companies and the government tobe electronic, which reduces the opportunities for graftand bribery. In addition, electronic payment mayencourage the use of credit and debit cards, whichprovide good transaction histories. Transactions suchas drivers license renewals, vehicle registration, andbuying license plates are good examples of processesthat benefit from electronic payment. For government-owned or -regulated utilities, use tamperproof electric/water/gas meters at businesses and households toreduce pilferage and enable electronic reading of themeters with results compared to expected usage.

    Outsourcing. Consider contracting out selectedservicescontractors tend to pay competitive wages.Services to consider include checking weights andmeasures (e.g., in gas stations), building inspections,traffic and parking fine collection, and utility meterinstallation and reading.

    Tax Payments. Make it easy for people todetermine the amount of income tax they must pay

    by using simple tax forms and making blank formsand instructions available in public places. Also,have the revenue collection agency provideassistance in filling out the forms.

    Queues. Where lines typically form for publicsector transactions, such as applying for licenses, usenumber-dispensing machines that indicate the orderin which people will be served. Monitor the queues,for instance through video cameras, to prevent line

    jumping and selling of numbers.

    Courtesy. Even the most honest civil servant givesa negative image of government if he or she is rude,unpleasant, or unable to handle difficulties. For thisreason, provide public employees who work with thepublic training in interpersonal relationships andconflict management. Also, encourage citizens to usecomment cards about the quality of services theyreceive; follow up on responses that report problems.

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    Some of the countries included in this surveyhave set up independent boards and commissionsresponsible for dealing with corruption. Other coun-tries in the survey have organizations with broadercharters, but that include anti-corruption activity as a

    responsibility. Typical responsibilities of these bodiesinclude preventing corruption; supporting govern-ment in detecting, investigating, and helping toprosecute incidents of corruption; and educating thepublic, such as through media campaigns. The inter-viewees opinions of the performance of such boardsand commissions ranged from ineffective tohighly effective. The interviewees consider someboards to be political window dressing, but think thatothers are producing greater success as these anti-corruption bodies gain experience and demonstratethat their mission is serious business.

    Characteristics of Effective Anti-Corruption Boards

    Survey participants offered the following recom-mendations to countries contemplating forming orenhancing existing anti-corruption boards. First, aneffective board must be truly independent; includingit in the executive branch reduces potential effec-tiveness considerably. Some respondents think aboard should be a virtual fourth branch of govern-ment (but caution against potential abuses, such as

    the chair of the board using it to persecute his orher enemies). In addition, the board should bemanaged by a single strong leader with assuredlengthy tenure, who is not associated with aparticular administration or majority party.

    Such independence should include the freedom tofollow any leads a board determines to be worthy ofits use of resources. These resources need to includeample staff and budget, so that board employees canpursue leads without delay. The staff should be paid afair wage and be well educated in the skills neededfor the work. A good working relationship with thepublic media can be a great resource for an effectiveanti-corruption board, but independence applies inthis area as much as in any other.

    Unfortunately, serving on an anti-corruptionboard or its staff can put people in harms way. Themore effective the board, the greater the number ofenemies it will gain, which may necessitate takingmeasures for the physical security and safety ofboard members, staff members, and their families.

    Finally, anti-corruption boards or commissionstend to be no better than the laws and regulationsa country establishes to combat corruption andthe governments willingness to enforce them.Governance reforms may be needed to createan appropriate framework for defining corruptionand prosecuting those who practice it.

    Anti-Corruption Boards or Commissions

    (S)pecialized anticorruption agencies

    appear most effective for attackingspecific areas of corruption within anoverall environment of stability andeffective governance.

    U.S. Agency for International Development,Anticorruption Strategy, January 2005, page 17

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    Institutional SolutionsSeveral respondents said that a first and important

    step in anti-corruption reform is to establish orstrengthen an existing independent anti-corruptionboard or commission. We provide more informationon these boards in the box on page nine.

    Civil service laws that reduce the post-electionwholesale turnover of public employees at all levels

    will help to prevent the formation of the network ofaccomplices that facilitates fraud and corruption.Likewise, ministers hiring, promoting, and transfer-ring of employees may need to stop or be greatlycurtailed, replaced by a career civil service.However, personnel in positions that are especiallyvulnerable to corruption should be periodically

    rotated to other assignments, said an interviewee,which will help prevent their concealingillegal transactions. Regular evaluations of anti-corruption policies and procedures will help keepthem effective, said another.

    Salaries for civil servants and police should be set atreasonable levels. This helps reduce employees temp-tation to engage in corrupt activities in order

    to pay for the necessities of life. In return, publicemployees should receive training on avoiding corruptactivities and in reporting such actions, in addition tobeing monitored in the effectiveness of their workperformance. Effective whistleblowing procedures forcivil servants should accompany the related lawsmentioned in the political solutions earlier in this

    report, both to improve reporting and toprotect the whistleblowers. Several intervie-wees said their governments had introducedanti-corruption telephone hotlines because,in the words of one official, We should be

    hearing about corruption that way, ratherthan at the dinner table.

    Of special interest to financial executivesis the recommendation by several inter-viewees to strengthen internal controls atpublic entities, with particular emphasis onthose that prevent fraud and abuse. Priorityfor internal controls improvement should goto processes involving revenue collections,procurement, and financial transactions.Introducing electronic procurement andpayment should greatly enhance internal

    controls to those processes. Also, financialprofessionals working for or with thegovernment should receive training toimprove the quality of public sector audits.This includes auditors in chartered or inde-pendent public accounting firms who areengaged to perform government audits.

    Revenue Collection that Works

    Many countries with severe develop-ment problems have inadequate revenuecollection functions, often rife with corrup-tion. In such countries, citizens are rarelymotivated to make honest tax payments,because they believe much of the moneythey pay will line the pockets of corruptofficials. This creates a vicious downwardspiral of government resources that in turngenerates even more corruption.

    No system of revenue collection isentirely free of corruption risk; however,there are actions that can lead to corrup-tion-resistant collection processes. Page 11is a list of actions suggested by interviewees.

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    Anti-corruption action

    Combine all major revenue collection activities inone agency (e.g., income tax, customs fees, sales tax,and value-added tax or VAT).

    Make the revenue agency autonomous, reportingdirectly to the chief of state.

    Have all departments in the revenue agency reportdirectly to its head.

    Pay going commercial wages to revenue collectors.

    Periodically rotate the roles and relationships ofrevenue collectors.

    Make sure no single revenue collector or agent isresponsible for a single taxpayer. In this scenario, twoagents are always assigned to a case or account andmeet with taxpayers together.

    Run a continuous education program for revenuecollectors and agents.

    Where realistic, tax gross revenue rather thannet income.

    Require employers to withhold taxes from employeesalaries, with amounts that are determined by formula

    and reported and paid directly to the revenue agency.For small businesses, calculate tax based on agreed-upongross revenue category; frequently check the appropri-ateness of the business inclusion in that category.

    Provide ample direct training to small businesses abouthow to keep books and how their tax category is selected.

    Set priorities: focus effort on largest individual andcorporate taxpayers.

    Conduct frequent, sophisticated audits for thebiggest taxpayers.

    Require installment payments of taxes throughoutthe year.

    Use electronic transactions whenever possible.

    Have the revenue agency monitor chartered orindependent public accounting firms and imposeheavy fines if they help enterprises to cheat on taxes.

    Lobby for enforcement of laws and prosecution.

    Maintain close coordination with justice system agencies(police, investigators, prosecutors).

    Benefits of the action

    Shows that government is serious about its collection activitieThe action also enables the agency to rotate employee assignments, which helps prevent cover-up of corrupt activities.

    Reduces the number of opportunities for senior officials tointerfere with revenue collection and reporting.

    Minimizes opportunities for collusion between departments,such as between tax assessment and tax collection organization

    This may create disparity with salaries in other government agecies, but it will reduce revenue collector staff turnover and theneed to engage in corrupt activities in order to survive.

    Reduces the possibility of a revenue collector and an outsideparty becoming overly familiar over time.

    Having two agents means that corrupt activities will requirecollusion by the two, which adds the difficulty of carrying ouillegal acts.

    Reduces guess work by agents, keeps them abreast of recentdevelopments in detection and prevention, and adds to theirsense of professionalism.

    Eliminates judgment calls for both parties, because thenumbers used for determining taxes are not derived in waysthat enable fraud.

    Takes steps out of the tax reporting process and reduces thenumber of tax audits needed.

    Makes overall process less prone to questionable numbers.

    Reduces the I did not know factor and demonstrates thefairness of the tax system.

    The majority of uncollected tax revenues will be foundamong wealthy individuals and corporations.

    Reduces the possibility of accounting fraud going undetected

    This eases the pain for the taxpayer and reduces thechances of defaulting on a large one-time payment.

    Reduces the opportunity for personal contacts that makecorrupt activities easier.

    Discourages accountants from helping their clients to reducetax payments illegally.

    Shows that cheaters or those bribing tax collectors will not go fre

    Enables more effective data and evidence collection needed tsuccessfully prosecute violators of tax and other revenue laws

    Revenue Collection That Works

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    Additional Information

    Survey Contributors

    If you would like more copies of this survey or an opportunity to hear more about itscontent and about reducing public sector corruption, please contact ICGFM or GrantThornton at the addresses below. We will be pleased to discuss providing your organizationwith a briefing or to present survey results at a conference or seminar.

    International Consortium ofGovernmental Financial Managers444 North Capitol Street, Suite 234Washington, D.C. 20001Telephone: (202) 624-8461Web: www.icgfm.org

    Grant Thornton LLP333 John Carlyle Street, Suite 500Alexandria, VA 22314Telephone: (703) 837-4400Web: www.grantthornton.com/publicsector

    ICGFMLin Weeks, PresidentPeter Aliferis, President-electRichmond Van Danecker, Past PresidentNina Powell, Executive Director

    Jesse Hughes, Publications Editor

    Grant Thornton LLPDick Willett, Survey DirectorBraj Sharma

    Jason LevergoodJorge LiacurisSteve ClyburnDamien Enderle

    Partners and staff of Grant Thorntonmember firms participated in thissurvey by interviewing governmentofficials in their regions. Listing theirnames here might compromise theanonymity of the survey respondents.

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    444 North Capitol Street, Suite 234

    Washington, D.C. 20001

    333 John Carlyle Street, Suite 500Alexandria, VA 22314

    2005 International Consortium oGovernmental Financial Manageme

    All Rights Reserve

    ICGFMThe International Consortium onGovernmental Financial Management