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Results of a 2005 Worldwide Survey ICGFM 2005 Annual Conference Marriott Biscayne Hotel – Results of a 2005 Worldwide Survey ICGFM 2005 Annual Conference Marriott Biscayne Hotel – Miami Florida Monday 2 May, 2005 Presented by: Dick Willett – Grant Thornton LLP

Table of Contents • About the Survey • Fraud and Corruption – Definition, Types Table of Contents • About the Survey • Fraud and Corruption – Definition, Types and Consequences • Causes of Corruption • Recommendations for Combating Corruption Overall • Selected Specific Corruption-Resistant Recommendations • Closing Thoughts 2

About the Survey • Why we did it • What were we looking for About the Survey • Why we did it • What were we looking for – Not evidence of corruption – know it's there – Rather, ways to resist corruption in Public Sector – Particularly in financial management • Methodology – Anecdotal – reporting what we have heard from respondents – No statistically-based findings/conclusions • Scope – WB, TI work – Gathered info from respondents – Anonymity 3

Fraud and Corruption – Definition, Types and Consequences • UNDP Definition Corruption is the Fraud and Corruption – Definition, Types and Consequences • UNDP Definition Corruption is the misuse of public power, office or authority for private benefit-through bribery, extortion, influence peddling, nepotism, fraud, speed money or embezzlement. • Some interviewees wanted to add "benefit of certain groups or a political party" 4

Fraud and Corruption – Definition, Types and Consequences (Cont'd) High Level – Generally causes Fraud and Corruption – Definition, Types and Consequences (Cont'd) High Level – Generally causes more impact and to larger segment of citizens per respondents • Collusion • Misuse of public power • Irregularities • Bribery • Forged papers • Ignoring and undervaluing 5

Fraud and Corruption – Definition, Types and Consequences (Cont'd) Retail – Less impact and Fraud and Corruption – Definition, Types and Consequences (Cont'd) Retail – Less impact and causes isolated effects • Small-scale everyday graft, extortion and bribery involving low-level public sector employees • Examples of bribery – Police overlooking traffic violations – School officials enrolling students – Bureaucrats speeding-up the processing of permits 6

Fraud and Corruption – Definition, Types and Consequences (Cont'd) Consequences of corruption as defined Fraud and Corruption – Definition, Types and Consequences (Cont'd) Consequences of corruption as defined by respondents • Negative culture - public indifference to corruption is greatest barrier • General public lives with the contradictions – against it, but accept it • Slows economic development which inflicts more impact on poor • Widens the income gap between rich and poor • Lax collection results in lower revenues which affects public services 7

Fraud and Corruption – Definition, Types and Consequences (Cont'd) • Ineffective administrations because officials Fraud and Corruption – Definition, Types and Consequences (Cont'd) • Ineffective administrations because officials are appointed based on their agreeing to engage in corrupt activities • Unfair competition and bribery prevents entrepreneurship and foreign investment • Public health is endangered because of poor protection (food, water) 8

Fraud and Corruption – Definition, Types and Consequences (Cont'd) • Contradictions - people are Fraud and Corruption – Definition, Types and Consequences (Cont'd) • Contradictions - people are against it but they accept it “In my country, we have to destroy corruption definitively because it is destroying us. ” 9

Causes of Corruption Causes of Corruption

Causes of Corruption • Cultural and social • Political • Institutional 11 Causes of Corruption • Cultural and social • Political • Institutional 11

Causes of Corruption (Cont'd) Cultural and Social Causes • Major cause – indifference or Causes of Corruption (Cont'd) Cultural and Social Causes • Major cause – indifference or acceptance by public sector officials • People know justice system will not punish corruptors Corruption is in all levels of society, politics and institutions 12

Causes of Corruption (Cont'd) Political Causes • Politicians and senior government officials say they Causes of Corruption (Cont'd) Political Causes • Politicians and senior government officials say they are against corruption, but accept it • Political leaders lose power if they speak against corruption • Complete politicization of anti-corruption bodies and public prosecutors has made them ineffective 13

Causes of Corruption (Cont'd) Institutional Causes – respondents said • Minor problems with corruption Causes of Corruption (Cont'd) Institutional Causes – respondents said • Minor problems with corruption among lower employees • Pay below poverty level leads some to corruption • Even if salaries rise, corruption continues • Lax enforcement of laws is a cause • Negligence attributed to entire justice system 14

Recommendations For Combating Corruption - Overall Recommendations For Combating Corruption - Overall

Recommendations for Combating Corruption • Cultural and social • Political • Institutional 16 Recommendations for Combating Corruption • Cultural and social • Political • Institutional 16

Recommendations for Combating Corruption (Cont'd) • Survey respondents made dozens of recommendations about what Recommendations for Combating Corruption (Cont'd) • Survey respondents made dozens of recommendations about what governments can do to reduce corruption and its impact on citizens, society and institutions • Our experience is that most countries with severe, endemic corruption will need to develop a comprehensive anti-corruption initiative that takes into account nearly all of these recommendations 17

Recommendations for Combating Corruption (Cont'd) Cultural and Social Solutions • Fight against corruption has Recommendations for Combating Corruption (Cont'd) Cultural and Social Solutions • Fight against corruption has to happen openly and with people involved • It is important to educate citizens on the value of a corruption-free society 18

Recommendations for Combating Corruption (Cont'd) Political Solutions • Political reform is absolutely essential to Recommendations for Combating Corruption (Cont'd) Political Solutions • Political reform is absolutely essential to combat corruption • Reviewing and strengthening existing laws and monitoring their enforcement are key • Laws protecting people who report corruption, especially public servants (e. g. , “whistleblower” laws), are particularly important 19

Recommendations for Combating Corruption (Cont'd) Institutional Solutions • Large number of respondents said establishing/ Recommendations for Combating Corruption (Cont'd) Institutional Solutions • Large number of respondents said establishing/ strengthening an anti-corruption board is an important step • Personnel rotation will help prevent concealing of illegal transactions • Regular evaluations of anti-corruption policies and procedures will help keep them effective 20

Recommendations for Combating Corruption (Cont'd) Institutional Solutions • Effective laws to protect whistleblowers and Recommendations for Combating Corruption (Cont'd) Institutional Solutions • Effective laws to protect whistleblowers and improve reporting should be in place • This reporting is better, as one respondent said, “We should be hearing about corruption that way, rather than at the dinner table” 21

Recommendations for Combating Corruption (Cont'd) Institutional Solutions • Strengthening internal controls at public entities Recommendations for Combating Corruption (Cont'd) Institutional Solutions • Strengthening internal controls at public entities with particular emphasis on those that prevent fraud and abuse - is important • Internal controls is a priority involving revenue collections, procurement and financial transactions 22

Selected Specific Corruption-Resistant Recommendations Selected Specific Corruption-Resistant Recommendations

Selected Specific Corruption–Resistant Recommendations Respondents prioritized intervention areas • Strengthen anti-corruption boards • Introduce Selected Specific Corruption–Resistant Recommendations Respondents prioritized intervention areas • Strengthen anti-corruption boards • Introduce effective revenue collections • Adopt transparent procurement process • Reducing corruption on little things means a lot 24

Revenue Collection that Works Revenue Collection that Works

Revenue Collection That Works 26 Revenue Collection That Works 26

Revenue Collection That Works (Cont'd) 27 Revenue Collection That Works (Cont'd) 27

Revenue Collection That Works (Cont'd) 28 Revenue Collection That Works (Cont'd) 28

Procurement That Resists Corruption Procurement That Resists Corruption

Procurement That Resists Corruption • Migrate manual to electronic process – Takes unneeded discretion Procurement That Resists Corruption • Migrate manual to electronic process – Takes unneeded discretion out of process – Provided transactionby-transaction audit trail 30

Procurement That Resists Corruption (Cont'd) • Centralize procurement – Facilitate bulk pricing, gain the Procurement That Resists Corruption (Cont'd) • Centralize procurement – Facilitate bulk pricing, gain the benefits of specialized procurement employees – Reduce the opportunities for kickbacks and other corruption • Develop results-oriented specifications instead of spelling out the process of producing and delivering products and services • Broadly publish bid solicitations and awards, including on the Internet, to make the procurement process more transparent and trustworthy to vendors 31

Procurement That Resists Corruption (Cont'd) • Ensure that all vendors have full access to Procurement That Resists Corruption (Cont'd) • Ensure that all vendors have full access to information they need to prepare bids, including special conditions and requirements, the procurement process to be used, and the government’s estimated budget range for each procurement • For frequently purchased items, use pre-approved vendors with negotiated catalog rates • Prepare and use clear, well-understood signoff procedures for bid evaluations and purchase transactions • For complex acquisitions, engage objective experts to determine specifications and expected pricing, and also participate in approving deliverables 32

Procurement That Resists Corruption (Cont'd) • Use this information to draft pre-proposal specifications and Procurement That Resists Corruption (Cont'd) • Use this information to draft pre-proposal specifications and invite comments from potential bidders • Provide for prompt and objective bid protests, perhaps by a government-wide procurement board, especially when losing bidders allege arbitrary decisions • Have a person or organization not directly associated with a specific purchase monitor its delivery for meeting timeliness, quality and quantity requirements • Routinely evaluate vendors’ performance and establish and update a database of their performance “grades” 33

Characteristics of Effective Anti-Corruption Boards/Commissions Characteristics of Effective Anti-Corruption Boards/Commissions

Characteristics of Effective Anti-Corruption Boards/Commissions • Independence/Management – Truly independent – not part of Characteristics of Effective Anti-Corruption Boards/Commissions • Independence/Management – Truly independent – not part of other organization – "Virtual fourth brand of government" – Freedom to follow any leads worthy of use of its resources – Single strong leader with assured lengthy tenure – Controls to avoid political or bureaucratic "witchhunts" 35

Characteristics of Effective Anti-Corruption Boards/Commissions (Cont'd) Resources • Ample staff and budget – pursue Characteristics of Effective Anti-Corruption Boards/Commissions (Cont'd) Resources • Ample staff and budget – pursue leads without delay • Fair wages • Well-educated staff • Good working relationship with public media • Appropriate physical safety 36

Characteristics of Effective Anti-Corruption Boards/Commissions (Cont'd) Supporting Laws/Regulations • Needed to establish board • Characteristics of Effective Anti-Corruption Boards/Commissions (Cont'd) Supporting Laws/Regulations • Needed to establish board • Needed to show country's willingness to support board activities • Governance reforms may be needed to create framework for defining corruption and protecting those practicing it 37

Little Things Mean a Lot Little Things Mean a Lot

Little Things Mean a Lot • Daily encounters between the general public and public Little Things Mean a Lot • Daily encounters between the general public and public employees are the most frequent opportunities for corruption - and for reducing a country’s “culture of corruption” • Here are six areas respondents mentioned frequently 39

Little Things Mean a Lot (Cont'd) • • • Traffic and parking Electronic payments Little Things Mean a Lot (Cont'd) • • • Traffic and parking Electronic payments Outsourcing Tax payments Queues Courtesy 40

Closing Thoughts Closing Thoughts

Closing Thoughts • Respondents affirmed corruption is rampant • Corruption is now a topic Closing Thoughts • Respondents affirmed corruption is rampant • Corruption is now a topic being openly addressed – by government officials, media and general public • Respondents provided significant illustrations of ways to reduce corruption 42

Additional Information Additional Information

Additional Information If you would like more copies of this survey or an opportunity Additional Information If you would like more copies of this survey or an opportunity to hear more about its content and about reducing public sector corruption, please contact ICGFM or Grant Thornton. We will be pleased to discuss providing your organization with a briefing or to present survey results at a conference or seminar. 44

To Contact Us International Consortium of Government Financial Managers Grant Thornton LLP 333 John To Contact Us International Consortium of Government Financial Managers Grant Thornton LLP 333 John Carlyle Street, Suite 500 Alexandria, VA 22314 Telephone: (703) 837 -4400 Web: www. grantthornton. com/public sector 444 North Capital Street, Suite 234 Washington, D. C. 20001 Telephone: (202) 624 -8461 Fax: (202) 624 -5473 Email: [email protected] com Dick Willett Grant Thornton LLP 333 John Carlyle Street, Suite 500 Alexandria, VA 22314 Telephone: (703) 837 -4444 Email: Dick. [email protected] com 45