Transcript Improving Governance and Combating Corruption in the Transport Sector William D.O. Paterson

Improving Governance and
Combating Corruption in the
Transport Sector
William D.O. Paterson
Pinki Chaudhuri
May 30, 2006
Rationale for Review of Corruption in
the Transport Sector

The Economic Rationale
– Substantial size of infrastructure budgets
– Large and numerous contracts in the transport sector – easy
target for corrupt capture
– Resulting in unjustifiable losses of public funds through
leakage – approximately 5-40% of transport allocations are
lost due to corruption

The Integrity Rationale
– Inter-sectoral, pervasive nature of corruption: need for macroinstitutional integrity
– Vulnerability of the transport sector due to higher incidence of
tangible state goods such as permits, licenses, and contracts
that are targets for corrupt capture
– Need for a practice and knowledge base to combat corruption
to facilitate work of operational teams
AC Transport chapter - zero draft
2
Defining Corruption

Corruption
– (1) The misuse of public funds for private gain
– (2) The misuse of public funds, goods, or office for
private or political gain

State Capture: Use of public office, entities,
rules, laws, policies other than for their
intended purpose/s.
BOTH CORRUPTION AND STATE CAPTURE
MUST EVIDENCE INTENT AND ACTION
OTHER THAN FOR INTENDED PURPOSE
AC Transport chapter - zero draft
3
Distinguishing Corruption and
Governance Failure


Governance failure vs. Corruption:
Inefficiency vs. intent and action to divert state
goods for illicit private gain
Governance Failure vs. State Capture:
Inefficiency vs. use of public office, entities, laws,
rules other than for intended purpose/s
ALL CORRUPTION AND STATE CAPTURE
IS GOVERNANCE FAILURE, BUT NOT
ALL GOVERNANCE FAILURE IS
CORRUPTION.
AC Transport chapter - zero draft
4
Types of corrupt Behavior Most
Prevalent in the Transport Sector
Bribes
 Kickbacks
 Collusion
 Bid rigging
 Fraud

– Misrepresentation of legal status or
qualifications
– Front companies, etc.
AC Transport chapter - zero draft
5
AC Transport chapter - zero draft
6
State Capture at National and Sector Levels
National Level
Sector Level
•Election rigging
•“Buying” of candidates by
engg. Firms
•Large pockets of
discretionary funding
•Large scale political capture
of agency leadership
•Manipulation of the judicial
process
•Sector budgetary allocation rules
subverted for political purposes
•Road Fund revenues not
earmarked
•Road Fund revenues used for
political purposes
AC Transport chapter - zero draft
7
Governance Failure at the Agency Level








Unclear budgetary allocation rules within the sector
Outdated planning methods and mechanisms, undue
political influence in the selection and prioritization of
projects
Weak procurement mechanisms with ample scope for
leakage
Weak financial and project monitoring systems and
protocols allowing scope for manipulation
Absence and/or scarcity of information technology,
communication systems and networks, causing uneven
work and monitoring quality
Absence of rigorous recruitment and human resource
development procedures, with scope for subversion of
established rules and technical requirements
Inadequate audit procedures and systems
Lack of explicit anti-corruption plans and awareness
AC Transport chapter - zero draft
8
Administrative Corruption at the Project
Level
Manipulation of design and cost estimation
 Deceptive, uncompetitive bid
specifications
 Collusions and kickbacks
 Firm collusion
 Change orders
 False certification
 Bribes for processing payments to
contractors

AC Transport chapter - zero draft
9
Corruption Risk Mapping: What It
Looks Like and the Forms it takes


Political Economy Context: the broadest enabling
environment
Failure of Sector Governance
–
–
–
–
Discretionary allocation of capital expenditures
Political influence over recurrent expenditures
Manipulating budgetary entitlement criteria
Capture of State entities




Governance failure: concentration and bundling of
power and functions
Macroeconomic justification for “legitimate”
diversion of user charge revenues to subsidize other
sectors
Appropriation of funds for projects/programs with
political kickbacks or purpose
Outright corruption: looting of Road Funds
AC Transport chapter - zero draft
10
Transport Corruption
at the Project Level

Arbitrary Appointments
– reward for favors, channel for corrupt actions
– lack in skill, capacity or qualifications

Procurement Value Chain - Vulnerabilities
–
–
–
–
–
–


Design Specifications: tailoring to favor contractor/s
Bid specifications: information asymmetry
Kickbacks: corrupt quid pro quo
Contractor Collusion, cartel activity
Circumventing fairness rules
Ex post change orders
Certification of Works
Payments to Contractors
AC Transport chapter - zero draft
11
What Can Task teams and
Governments, Donors Do About It
Optimal approach:
 Prevention
 Detection
 Deterrence
 Reform of Sector, Entities, and
Incentives
AC Transport chapter - zero draft
12
The Operational Role of WB
Projects
AC Transport chapter - zero draft
13
Prevention


Measures to make it difficult to perform corrupt
acts, e.g.
Procurement –
–
–
–
–
–

Computerized prequalification
Standardized bid & evaluation docs
Web announcements of bids, awards
Open access to ads, bid docs
Citizen participation in bid opening
Financial management –
– Accounting systems
– Transaction tracking
– Trial balance and other internal controls
AC Transport chapter - zero draft
14
Detection

Red Flags: Indicators of Suspicion
– Local agents with unclear roles
– Bidding irregularities in favor of a few
contractors
– Unexplained delays
– Unreasonable pre-qualification requirements
– Selection of unqualified contractors /
prolonged prequalification period
– High bid prices, few bidders, same bidders
– Apparent affiliations among bidders’ affiliated
companies
– Bid securities issued by same bank, serial
numbers
AC Transport chapter - zero draft
15
Detection – Pattern of Bid Rigging
DPWH Foreign Assisted Projects (2001-2004)
Lowest Evaluated Bid (LEB) in Million Pesos
2000
1500
1000
500
0
0
500
1000
1500
2000
Approved Budge Ceiling (ABC) in Million Pesos
WB
AC Transport chapter - zero draft
ADB
JBIC
KFAED
16
Red Flags vs. Actionable Evidence:
Where is the Proof?

Real task of detection is in conducting
investigations to gather evidence
– Receipts, forged docs, bid analysis, technical audits


Techniques combine legal, forensic, and
accounting expertise
Some recent tools and techniques
– Maintenance of databases containing bid information
that can be checked or searched based on queries that
“trigger” incriminating information
– Maintaining reporting hotlines to accept tips,
information, complaints
– Range of new financial investigative software
applications
AC Transport chapter - zero draft
17
Operational Issues for Task Teams





Training in detection skills
INT type activity has a cost, not all complaints
can be handled by expert investigations
When should task teams call in the experts, when
to handle in house?
How to mainstream some of the investigative
techniques to assess in house?
Implications: resources, learning curve, training,
commitment
AC Transport chapter - zero draft
18
Controls and Monitoring

Accounting, Auditing
–
–
–
–

Internal controls & audit
Financial mgt systems – tracking systems
Audit access clauses in contracts
Technical audits
Monitoring
– In-house monitors (can be captured)
– Independent monitors at arms length more
effective
– Third party monitoring – an evolving concept
– Third party monitoring consortium completes
the enforcement task spectrum
AC Transport chapter - zero draft
19
Deterrence

Sanctions
– Scope - Agency-wide, donor-specific, or
international
– Important to establish strict sanctions,
including debarment
– More important to enforce

Legal and Judicial Integrity
– Finally, legal and judicial environment must
promote a culture of compliance
– Transport teams can play a role in contributing
to procurement laws and reforms by
identifying sector specific issues, loop holes,
remedies
AC Transport chapter - zero draft
20
A-C Plan Design Options

Improving Accountability and Transparency
– External Monitoring - formal
– Internal agency controls
– External Monitoring – civil society
(e.g., Agency report cards)
– Industry integrity actions

Business Process Improvements
– E-government
– Applications to improve efficiency, monitoring,
transparency and reduce human influence
– Empowering human resources to manage organizational
change

Restructuring of sector entities for improved
efficiency
AC Transport chapter - zero draft
21
Key New Areas of Work Needed

Measuring Integrity:
– Indicators and Baseline Data to measure progress

Anti-corruption Frameworks and Plans
– Teams will need to identify appropriate approach for
country conditions:


a strict enforcement approach; or
integrated enforcement and sector reform approach
– More analytical and operational expertise is needed to
test approaches, build communities of practice in this
area and share knowledge
– Important for governments and donors to fund this
mandate adequately at country and project levels in
order to mainstream into core development practice
AC Transport chapter - zero draft
22
This is a work in progress – your
comments and suggestions will
be very welcome to make this
chapter operationally useful
Thank you
AC Transport chapter - zero draft
23