| SAIs are considered as efficient tools for examination and control of national finance. Given their special position in public financial management, they acquire a special role in the fight against corruption. SAI, Vietnam outlines the special role. |
Corruption has, for long, been one of the most serious problems in many countries, particularly developing ones. It causes eroded professional ethics and social chaos. It also jeopardizes public confidence in the political systems of a nation. Corruption and its impact on national development has since attracted increasing attention from many international organizations as IMF (International Monetary Fund), WB (World Bank), INTOSAI (International Organization of Supreme Audit Institutions) etc.
In developing countries, the amount allocated to public investment projects often takes a priority portion in the national budget, usually accounting for up to 20-30 per cent of total annual budgetary expenditure. This is, in fact a breeding ground for corrupt practices. Corruption is seen to be the major cause for the situation wherein, while the budgetary ratio of public investments within GDP keeps increasing, their efficiency and effectiveness remain decreasing. Large cases of corruption are usually associated with national investment projects of a strategic nature, particularly in countries where the watchdog and oversight functions are not efficiently and appropriately discharged. Corruption has the impact of the hindering policy-formulation and investment decisions. It may occur at any stage, starting from the phase of project preparation and continuing through the stages of review, bidding and project execution. Authorized persons may seek ways to increase the volume of projects and/or change project design by extending the project scope and/or complicating its nature and quality. Corruption cases in public investment usually occur at the cost of declining investment efficiency, which impacts adversely on national economic growth.
Every country needs capital for its economic development. This is particularly so in the case of emerging economies, whose requirement for investment capital is becoming increasingly higher. Current trends of development investment expenditure are based on the golden principle that it is a good policy to borrow for investment. This is especially so in developing countries, where capital money from domestic sources is usually inadequate and there is no other option but to call for foreign investment capital to satisfy the investment requirement in public sector projects. High requirement for investment capital usually leads the national government to increase budgetary proportion for investment. However, this often leads to increased chances for corruption by interested officials. Regular budget expenses are seldom affected by arbitrary practices, as they are usually attached with direct benefits and subject to strict regulations on spending expenses. However, development investment expenses are more vulnerable to inaccuracies and irregularities and are difficult to control. This is especially so in cases where auditing and inspecting agencies are less developed or where they do not perform as well.
Many authority levels and administrative procedures need to be cleared for obtaining approval for an investment project. At each level, there exist different opinions and ratification requirements. Therefore, if competent and faithful personnel with high integrity are not placed in proper positions, it will be easy for corrupt action to take place. In the tendering process, for instance, bidders often tend to commit actions like:
Combining bribe money into the project implementation cost
Consenting to increase the price of the bidding package, quoting the reason that some new items and costs may occur beyond the initial design and estimates
Cutting down costs by performing low quality work and providing sub-standard items which do not meet the stated targets, using inappropriate materials and supplies
These actions usually lead to situations of unrealistically high project implementation costs. The projects become more complicated and larger than necessary, their quality does not meet stated criteria, and they require costly maintenance and repairing. This results in skewed targets of development investment expenses and leads to situations wherein, though the economy has many investment projects, their socio-economic benefits are of little account. Whenever corrupt officials are authorized to approve a project, its efficiency and effectiveness will not be the deciding criteria for project selection. In such cases, winning bidders who implement the project will be concerned only about how to maximize their benefits, and the officials who have the power to review and select contractors for the project will pay attention only to the ‘kick back’ money they are going to acquire.
Corruption in the field of development investments has led not only to a deteriorating ratio of capital reimbursement for fresh public investment projects but has also had an adverse impact on the capital retrieval rate of existing physical infrastructure. This is happening for the following reasons:
More expenditure on development investment will result in fewer resources being available for other aims, particularly for operating and maintaining current infrastructure systems. In many cases, new investment projects are established while lots of public works are retained for long periods in stages of critical degradation or damage.
At higher levels of corruption, the maintenance and rehabilitation of basic infrastructure works is not carried out and the works are left in such a bad condition that reconstruction is inevitable. This immediately creates new opportunities for corrupt officials to acquire more bribes.
As mentioned above, corruption in investments usually leads to a paradoxical situation wherein, the more is the capital invested in development projects, the less efficient they are. Corruption in investments is often the easiest to commit and the most difficult to detect. This is the reason why, the more complex the project, the higher are the opportunities for corruption and the greater the ease of concealment. Our auditing experience indicates that we can identify fraud and corruption relevant to public investment projects via some basic signs as follows:
The Bidding process is inappropriate: The investment employer confines bidding access or even omits to follow bidding procedures but directly appoints the contractor. In order to reduce the competitiveness against the favoured tender, the investment employer invites a few bidders to join the bidding process for the reason that these are high value contracts and so require high technology and expertise or materials for special use and, because of the burden of time, it is impossible to invite capable and competent bidders, resulting in very few tenders joining the bidding.
The price is implicitly arranged by bidders:
The arrangements usually take place between bidders subordinated to the same corporation or enjoying a good relationship among themselves. After winning the contract, the winner will share the contract with the others.
The winner of the bid is previously decided: This type of fraud usually occurs through agreement between most of the parties concerned (including the bidders and the investment employer). The parties agree with each other on selecting the winner on the basis of the previous occasion. This is especially the case when the investment employer has several projects to implement and very few businesses participate in the bidding efforts. Businesses that take part in the bidding will negotiate with each other (with the involvement of the investment employer) to reach an agreement that every bidder wins at least one contract. This results in a situation wherein the bidding price no longer plays its inherent role of competitiveness.
‘Phantom’ works are reported : In the list of work items supposed to be done, some unnecessary items are included, which are not required to be done at all. However, the bidder knows this. For instance, on the work list of a project on underground drainage networks, a large volume of digging is shown as being necessary. However, on the real site, digging is not necessary. The tenderer knows this, offers an out-of-charge price for that item and so wins the bid. This fact will not be known until the work is finalized and the bid prices offered are unusually high.
Work occurs unexpectedly: The bidder could intentionally give less items or perform a deficient volume of work, compared to what is actually necessary, so that there are some items that occur later, outside the contract. At that time, there are no longer competitive bidders and such a high price might be accepted. This is quite a common phenomenon in investment projects. It defeats the purpose of the bidding process, insofar as the objective of saving expenses for basic construction investment are concerned.
Non-performance works are included. When finalizing the contract, the bidders tend to count in even the items of work that do not meet the targeted requirements on quality and quantity. Some items are not backed by sufficient proof (evidence/documents) of actual completion. Some others are supported by adequate documentary evidence but examination reveals that they were not actually executed.
Fighting corruption is the task of the whole society. It also requires cooperation, as well as exchange of experience and information among countries. In this process, Supreme Audit Institutions can play a special important role as, through auditing activities, they are capable of detecting potential irregularities and warning on corruption risks, and on this basis, making recommendations on suitable preventive solutions.
In most countries, Supreme Audit Institutions are considered one of the most efficient tools in examination and control of national finance. They take active part in preventing and mitigating corrupt practices. SAIs acquire an important role in this regard because:
Firstly, SAIs’ mandates are usually undertaken by auditors possessing high professional competence. These auditors are also entitled to independence in their job with no interference from any individual and organization. Any actions in disregard of professional standards and legal provisions stand a high chance of being revealed. Through auditing activities which are carried out on the basis of regularity and continuity over State budget-funded agencies/institutions, SAIs become best capable of detecting irregularities and fraud in management and use of national resources. Based on that foundation, SAIs can play an important role in preventing corruption through proposing recommendations to State agencies on good practices in financial management and mitigating corruption risks.
Secondly, SAIs discharge functions of warning on the possibilities of corruption and so are capable of putting forward suitable measures for uprooting corrupt practices. Operations by SAIs are carried out on an extensive scope and on the principle that ‘wherever financial resources of the state are used, they must be audited by the SAI’. On that basis, SAI activities help detect fraud and corrupt behavior in the usage of public funds. Through audit reports, the SAI advises the auditees and the State management agencies on the abuse of public money, the wastage of financial sources and the misuse of budget. It brings to notice evidence of corruption, so that functional authorities can design and execute proper and appropriate methods of administration.
Thirdly, though the Supreme Audit Institutions of most countries do not discharge executive functions, they can impact executive bodies through their audit recommendations to have in place necessary behaviors to curb corrupt commitments. In addition, when necessary, the SAI can transfer relevant documents to authorized agencies to follow up potential cases of crime.
Fourthly, on the basis of audit results, the SAI proposes recommendations to the Legislative, Executive and other State authorities on revising and supplementing relevant policies and statutory regulations. It also helps consolidate the existing system of legal documents and strengthen the capability of preventing corrupt behaviors, as well as the waste and misuse of public funds.
In conclusion, it is easily realized that SAIs, with their inherent special position in public financial management, take on a special role in the fight against corruption on both domestic and global scope. For enhancing the quality of audit performance, besides improving audit competence, SAIs should cooperate with other SAIs and international organizations for exchanging professional experience and information of mutual interest. With this, SAIs of different cultures can best enrich themselves with relevant knowledge and skills to further prevent corruption, nationally and internationally.