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Public Finance Quarterly 2011. 56. vol. 1. num. 44-57. p.

FOCUS ON CORRUPTION

Gusztv Bger

Corruption Risks in Public


Administration
Methodology and Empirical Experiences

SUMMARY:The article summarises the experiences of the research conducted at the Research Institute of the State Audit Office of
Hungary in order to adapt the integrity reinforcement based Dutch methodology of risk analysis to public administration. This
paper contains the results of a questionnaire survey as well as two experimental self-assessments carried out by the ministries.
Furthermore, it describes that first and foremost it is the legal and permit procedures that represent a significant corruption risk, and
that complexity, frequently changing legislation and political influence all increase corruption risk. Comparing the results of the sur-
vey and self-assessments with the empirical experiences of the State Audit Office of Hungary stemming from audits and pertaining
to the causes of corruption, it is determined in the article that results and experiences are similar. The article, therefore, recommends
that risk mapping be applied to a wider section of the public sector, the conditions for self-assessment be established, and the
integrity approach be enforced more thoroughly within auditing methodology.

KEYWORDS: corruption, integrity methodology, risk analysis, risk map

H
Hungarys corruption rating has not improved result in permanent improvement. This is why it
by the end of the first decade of the 21st cen- is important besides the necessary activity to
tury, in fact, according to Transparency reveal and repress corruption to direct more
Internationals (TI) Corruption Perceptions attention than before to assessing corruption
Index (CPI)1, as opposed to the countrys vulnerability and to performing multi-faceted
highest rating of 5.3 in 2001, in 2010 Hungary investigations of corruption phenomena.
only reached a score of 4.7, its lowest for this
decade. The changes in this index illustrating
corruption levels in Hungary necessitate a OBJECTIVE
firmer stand against corruption.
But where exactly should we do this? Taking this as a starting point, the article
Obviously where the level of corruption or the attempts to apply a version of the Dutch
risk of occurrence is high. Due to the various methodology of risk analysis adapted for
surveys conducted, we are more albeit still not Hungary2 that is part of the internal control
sufficiently aware of the existence and fre- process of administrative institutions. On the
quency of corruption phenomena, while the one hand to present the logic and essence of
actual reasons behind them generally elude us. the methodology to a wider professional audi-
This is the reason why the targeted measures we ence, and on the other, to familiarise ourselves
have taken tend to be more revealing and puni- with how corruption takes shape in certain key
tive than preventive in nature, which would areas of public administration.

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Based on the experimental nature of the in contracting, document issuing, legislative,


results of risk analyses, we will point out the law application, etc. relationships between the
specificities of the proposed methodology, government and citizens (business sector), as
such as the steps and recommendations that are well as in the management of state property.
required to operate the integrity-control sys- YAssessment of the factors increasing vul-
tem more efficiently. nerability (increasing complexity, rapid changes,
management and personnel).
ZAssessment of the level of development of the
METHODOLOGY integrity-based control system, which shows how
resilient the given organisation or its organisa-
The approach used by the Dutch methodology tional units are in terms of arising corruption
assessing vulnerability to corruption is based risks.
on the neutralisation of the so-called corrup- [As a continuation of the above steps, a so-
tion-triangle motivation, opportunity, and called deviation analysis is performed. This
rationalisation in that it strives to elimi- analysis sheds light on whether the balance
nate possibility, neutralise motivation and between the vulnerability profile determined in
counterbalance personal self-justification. steps one and two and the level of development
The methodology also supposes that organisa- (resilience) of the integrity-control system is
tional operation could become an efficient tool sufficient.
in the implementation of the above. \If it is not, the results of the deviation
As a result, public entities themselves can analysis provide a basis for determining how to
play an important role in preventing corruption manage the most dangerous processes and what
by improving their integrity. Integrity implies measures are required to improve resilience
morally appropriate, incorruptible and correct against corruption risks.
behaviour. It includes the integrity of the As a result of the above steps, a risk map can
organisation, the integrity of the individual as be compiled to illustrate corruption risks and
well as the integrity of relationships and main- designate possible directions of action in the
taining relationships, i.e., professional integrity. public sector. We first attempted this in 2008
Reinforcing the above strengthens the legiti- at the Research Institute of the SAO by asking
macy of the public sector and the trust placed ministries to participate in the survey. As
in public administration, and reduces the part of the survey, ministries by completing
opportunity for corruption. the questionnaire indicated the corruption
With the above approach, the Dutch risks and vulnerability enhancing factors they
methodology3 clearly points out the factors encounter.
contributing to corruption, as well as the deter- In relation to the survey and in order to test
mination of the organisation to fight corrup- the self-assessment method, we asked the
tion. It focuses in particular on those measures Minister of Economy and Transport and the
which the institution can take in order to pre- Mayor of Szigetszentmikls to put the
vent corruption situations from occurring as methodology to the test in a given field of the
well as to increase their own integrity. The ministry and the Mayors Office, respectively.
methodology consists of five steps. In the article we will present the results
XIdentification and assessment of areas of received regarding the narrow, but comprehen-
vulnerability inherent to the activities and sive ministerial activities by also including
processes of the organisation, which manifest empirical investigation experiences from SAO

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audits from recent years as well as the expert Table 2). The ministries had to consider
workshop of the Committee of Wise Men4 in our whether any of the circumstances featured on
reference framework. the list are typical of the given ministry. If they
replied by checking the Yes column, they
had to provide a brief description of how the
MAIN RESULTS circumstance impacted the ministrys activity.
Eight ministries provided answers to the
Experiences of the Assessment questionnaire that we were able to assess. Based
on the data of Table 1, three general observations
The assessment consisted of two parts. The statements can be made.
goal of the first section was to uncover (inter- There are several processes within the min-
nal) corruption risk (vulnerability) inherent to istries activity (contracting, payments and leg-
the activity performed, while the second sec- islation) which carry the risk of corruption.
tion assessed (external) circumstances con- A significant part of these processes is not
tributing to vulnerability. In the first part of the related to the given ministrys basic, but rather
questionnaire dealing with the relationship of its auxiliary activity.
the government and citizens (business sector), From the aspect of vulnerability to corrup-
and the management of state property we tion, ministries do not form a cohesive cluster,
listed the processes and activities summarised and the tasks of the various ministries differ in
in Table 1. We deviated from the usual template this respect as well.
only in cases where the specificities of the min- The data of Table 1 attest to the fact that the
istries activities so required. Accordingly, two relationship of government and citizens (business
scopes of activity (tax collection and provision sector) carries with it the risk of corruption, how-
of public services) were not included in the sur- ever, in most cases not as part of primary, but
vey as ministries do not directly perform such rather of secondary processes. For example,
activities. At the same time, we have elaborated there were only two ministries which consid-
in detail on legislative preparatory activity, as ered public tendering their primary activity.
this is one of the ministries most emphatic pri- According to the answers provided the most
mary activities. vulnerable field is legislation, specifically
When completing the first part, ministries the determination of funding conditions
had to consider which of the vulnerable (according to the answers of seven min-
processes/activities indicated in Table 1 are typ- istries regarding primary processes),
ical of the given ministry. If the ministry does the determination of permit conditions
not perform such activity, they had to check (according to the answers of six ministries
the Not typical column. Afterwards they had regarding primary processes), and
to decide whether the process/activity is a pri- the determination of technical require-
mary (i.e. is one of the main activities of the ments (according to the answers of six
ministry) or secondary (i.e. is a process facili- ministries regarding primary processes).
tating the performance of the main activity) According to ministerial opinions, the sec-
process at the ministry. ond most vulnerable field to corruption is appli-
In the second part of the questionnaire we cation of legislation, specifically
inquired about two groups of factors contribut- supervision (according to the answers of
ing to corruption: complexity and changes/ five ministries regarding primary processes),
dynamics (characteristics of both are detailed in and

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Table 1
VULNERABILITY INHERENT TO THE ACTIVITY

Typical attributes, type, activity Primary Secondary Not


process process typical
RELATIONSHIP BETWEEN THE GOVERNMENT AND CITIZENS (BUSINESS SECTOR)
Contracts
Public tenders 2 4 2
Restricted tenders 3 5
Contracts of engagement 8
Ad-hoc procurements 7 1
Payments
Grants to enterprises 1 3 4
Allowances and aid for private individuals 3 5
Sponsorship of civil society 3 3 2
Permit issuing
Permits 4 1 3
Approvals 3 1 4
Attestations 2 3 3
Legislation (the contents of which)
Product requirements 4 1 3
Determination of funding conditions 7 1
Determination of permit issuing conditions 6 2
Determination of technical requirements 6 1 1
Application of legislation
Supervision 5 1 2
Audit 5 1 2
Investigation 1 3 4
MANAGEMENT OF STATE PROPERTY
Information
State secret 3 2 3
Professional secret 3 2 3
Business secret 2 4 2
Money
Financial instrument (bond, stock) 8
Portfolio management 1 7
Cash/account management 5 3
Premiums, reimbursement, bonuses, personal
allowances 8
Property (moveable, real)
Buying/selling 4 4
Asset management 1 5 2

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auditing (according to answers of five min- the most part, ministries considered these sec-
istries regarding primary processes). ondary activities and many stated that it is not
Vulnerability inherent to permit procedures is typical of the organisation. We classified state
also significant: issuing permits (according to secrets, professional secrets and business
the answers of four ministries regarding pri- secrets as part of state property, as the state can
mary processes) and approvals (according to dispose of these with certain restrictions as
the answers of three ministries regarding pri- its own. The survey showed that the confiden-
mary processes). tiality of information is less and less character-
The vulnerability of contracting to corruption istic of ministerial activity, as these are increas-
is increased by ingly available to practically everyone. The dan-
restricted tenders (according to the ger of corruption is further reduced by the fact
answers of three ministries regarding pri- that ministries at present with the exception
mary, and the answers of five ministries of personnel payments hardly ever deal with
regarding secondary processes), money or financial instruments. The manage-
contracts of engagement (according to the ment of moveable and real properties is also
answers of all the ministries regarding sec- not very typical of ministries, and they regard-
ondary processes), and ed this as a secondary activity.
ad-hoc procurements (according to Answers given regarding the existence of cir-
answers of seven ministries regarding sec- cumstances that increase the possibility of corrup-
ondary processes). tion have been summarised in Table 2. They
The answers provided in Table 1 regarding clearly show that the majority of ministries con-
the risks inherent to activities related to the sider circumstances related to complexity a factor
management of state property inform us that, for that seriously enhances vulnerability. At the

Table 2
CIRCUMSTANCES INCREASING VULNERABILITY
Complexity Yes No
Innovation/advanced IT systems 5 3
Complex legal environment 8
Specific legal and financial schemes 5 3
Bureaucracy 6 2
Systems of relations/connections 5 3
Lobbying 4 4
Political influence/intervention 6 2
Overlapping of public and private interests 1 7
Necessity to involve outside experts 7 1
Changes/dynamics
Young organisation 4 4
Frequently changing legislation 8
Significant growth or downsizing 3 5
Outsourcing, PPP 4 4
Crisis (restructuring, serious threats, danger of dissolution of the organisation or job loss) 3 5
External pressure (related to performance or expenditures, time-related or political pressure,
scarce financial resources proportionate to the task or lack of funds) 8

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same time, only one ministry indicated the over- ruption. This is something to watch out for, as
lapping of public and private interests as such a experiences show that living up to high per-
circumstance. In contrast, all ministries evaluat- formance requirements accompanied by
ed the complex legal environment as such a cir- scarce financial resources for the task results
cumstance, and with the exception of one min- in frequent and easy exoneration from compli-
istry, all answered yes to the necessity of involv- ance with regulations and performance of thor-
ing outside experts. The majority of ministries ough audits, and can thus become a source of
indicated that political influence/intervention and corruption.
connections are both existing circumstances that In Table 3 without mentioning the names
increase vulnerability to corruption. The written of the ministries we have attempted to illus-
explanations, however, show that the various trate the varying manners in which the various
ministries meant different things by political ministries sizes up the corruption risks of their
intervention. Interpretations ranged from the own activities. At this point it is important to
influencing of individual decisions to the politi- emphasise that vulnerability is an objective cat-
cal control of policy development. egory and does not necessarily imply that cor-
With regard to changes/dynamics, ministries ruption will occur in reality. It is nevertheless
clearly considered frequently changing legisla- very important to be familiar with the areas of
tion and other legislation as a significant circum- vulnerability in order to be able to prevent and
stance contributing to corruption risk. eliminate corruption more efficiently.
It is our opinion that decision makers should The data in the tables attest to the fact that
pay particular attention to these circumstances. ministries judge the vulnerability to corruption
The amendment of single pieces of legislation associated with their own activities very differ-
may be forward thinking, however, the many ently from one another. Apparently, there were
amendments may make the application of leg- ministries that identified all factors contribut-
islation uncertain and allow individual legal ing to corruption within their environments,
interpretations to surface. but there were others which indicated all activ-
All ministries indicated that pressure of per- ities accompanied by the risk of corruption as
formance is a factor enhancing the risk of cor- regular activities. Apart from these extreme

Table 3
CHARACTERISTICS OF VULNERABILITY IN THE
VARIOUS MINISTRIES

Ministry Number of vulnerable activities Number of factors


number Total Primary Secondary increasing vulnerability
1. 20 3 17 14
2. 26 13 13 12
3. 9 6 3 11
4. 20 11 9 10
5. 18 9 9 8
6. 22 7 15 8
7. 21 11 10 6
8. 15 8 7 6
Maximum value 26 26 26 14

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cases, the figures show that ministerial activity Experimental application was aimed at the
is exposed to a number of corruption risks. As a Department of Building and Construction of the
consequence, revealing these risks and the fac- Municipality of Szigetszentmikls, specifically at
tors contributing to them are of great impor- the issuing of building permits. In this particular
tance in preventing and curbing corruption. case, the high risk of breaching integrity-relat-
It can be concluded from the survey results ed regulations was caused primarily by the
that the ministries involved had interpreted inadequacy of the information system and a
certain sections of the questionnaire different- shortage of personnel. The overlapping of pub-
ly. This is not uncommon in the case of such lic and private interests could be another
assessments as respondents do not always potential risk factor in this field.
receive specific instructions on how to fill out The lesson learnt from these two experimen-
the questionnaires. In this case we interpret tal programmes was that integrity is a relative-
bureaucracy as a negative factor with respect to ly unknown concept among public entity
corruption; one which complicates work employees. Therefore, in the interest of of self-
processes and prolongs administration, and, as assessment efficiency, close attention should be
a consequence, staff are not likely to follow paid to familiarisation with the method (uni-
applicable legislation and internal regulations, form term use, correlations between various
but tend to avoid them. Over-regulation, there- sections of the methodology and the simplifi-
fore, does not decrease, but rather increases the cation of the scoring method applied), as well
risk of occurrence of situations involving cor- as preparation of application (providing writ-
ruption and conditions that infringe upon ten information, training and a qualified mod-
integrity. However, this was not the only inter- erator). However, in the case of appropriate
pretation reflected by the feedback from the management support, self-assessment is feasible,
ministries. as the participants took part in the joint work
with interest and responsibility and expressed a
willingness to take part in similar projects in
Experiences of the Experimental the future.
Self-Assessment

The Ministry of Economy and Transport Experiences of Audits Performed


involved the Small and Medium Enterprises by an Audit Institution
Appropriation in the self-assessment. The
appropriation provides financial grants through Given the fact that the survey results presented
tenders to the entrepreneurial community, here are very close to the corruption opportuni-
which, in turn, plays a major role in the devel- ties related to the various activities and the fac-
opment of the economy. In this particular field, tors contributing to them experienced during
the factors contributing to corruption were the SAO audits performed in recent years, this sim-
difficulties of specific legal interpretations, lob- ilarity on the one hand confirms everything that
bying, political influence as well as pressure of has been said regarding the utility of the
performance. This first and foremost called methodology, while on the other, based on the
attention to the importance of the wider appli- audits on a supplementary basis allows for
cation of the principle of transparency and the the detailed analysis of corruption risks observed
increased need to provide information regard- in various specific fields of public administration,
ing amendments to legislation. as well as their nature and causes.5

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In the course of this we will be following the The general cause of the dysfunctions present
method of analysis employed in the expert in the system of economic development is the
workshop of the Committee of Wise Men, in lack of a long-term socio-economic strategy,
accordance with which the presentation of main and consequently, development fluctuations,
case types is followed by the examination of caus- accelerations and halts due to frequent concept
es, introduction of players, and finally the draft- changes. Therefore, there was no clear picture
ing and qualification of management methods of what the state was supposed to do, what
and the creation of required conditions.6 answers should be provided to arising chal-
lenges, and thus there was adequate room for
Public grants political decision-makers to improvise.
In this particular field the main, most typical This background explains why the compre-
cases of corruption are the following. hensive planning mechanism was not imple-
Awarding of Economic Development Grants mented by the 2007 deadline. The System of
In light of the fact that deciding on grants is not Requirements of Governmental Strategy-
derived from a comprehensive national econom- Making elaborated by the Prime Ministers
ic plan, in recent years this activity has been Office has only been applied by a few min-
managed by the person or committee responsi- istries (Ministry of Economy and Transport
ble for development policy as appointed by the and Ministry of Education), and the ministries
government. Decision making, therefore, on the did not have any general strategy-making
one hand has been largely influenced by political requirement; the handful of sectoral strategies
aspects while on the other, personal (entrepre- prepared could not constitute an adequate sys-
neurial) ambitions to enforce interests have also tem to base a national economic development
played a major role. Corruption risk is equally programme on.
characteristic of EU and domestic grants. The modern instruments of efficient fund util-
The Use of So-Called Professional Chapter- isation, such as, for example programme-based
Managed Appropriations in the Chapters of the budgeting, have not been applied in practice dur-
Budget Since practically all types of expendi- ing planning. In many cases the development of
tures (funding of social organisations, con- expedient practices of professional development
sumers, etc.) can be found among chapter- grants were hindered by the legal, regulatory and
managed appropriations, and because the interpretational uncertainties accompanying
requirements of the legal provision in force on institutional changes and reorganisations such
the operational procedures of public finances as in the case of the Government Decree on the
stating that these appropriations serve profes- National Development Agency adopted in 2006.
sional-sectoral and region development goals In accordance with the decree, the National
have not been met. This circumstance, along Development Agency prepared comprehensive
with those mentioned above, largely con- national development plans, however, it only
tributed to increasing corruption risk. performed this task with respect to EU funds.
Determination of the Main Directions of In several instances no financing plans were
Development As a consequence of the state not prepared for approved development pro-
having a vision for the future of the country or grammes (e.g. motorway constructions). This
a clear idea of the directions of development, increased corruption risks, opportunities for
lobbying had a greater than acceptable role in cartelism and collusion between parties.
determining the directions of development to It was impossible to ascertain what kind of
be enforced in practice. effect the granted corporate tax benefits had on

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economic growth or employment. Neither the organising principle, would determine the
Ministry of Finance, nor the Hungarian Tax directions and areas of development. The ten-
and Financial Control Administration had any dering system managing the utilisation of EU
information on this matter. funds should be adapted to this. In the absence
The above reasons and circumstances explain of this, a disordered situation came about, pro-
the phenomenon of so-called development viding an opportunity for decision making
corruption, on the extent of which a voluntary processes that served the interests of individu-
opinion survey performed within the frame- als or small groups. The situation was further
work of an SAO audit provides some informa- worsened by the fact that staff and decision-
tion. It shows that 20 per cent of respondents makers of the background organisations actual-
supposed there were phenomena alluding to ly awarding grants had authority on the utilisa-
corruption in the case of EU grants, while 24 tion of grants that was greater than required
per cent of respondents presumed this in the and thus were more vulnerable and exposed to
case of domestic grants. The proportion of corruption. All this was exacerbated by the fact
grant recipient respondents that considered that they were often under strong political
EU grants to be absolutely corruption-fee (80 pressure from the background.
percent) was four percent higher than that for Although the draft bill on the institutional
purely domestic grant recipients (76 percent). system of development policy had been pre-
Eighty-two percent of respondents felt that the pared in 2006, development policy still
harmony of grants, tax and contribution remained without a legislative background and
allowances with growth and employment its operation is regulated by (government and
objectives is moderate or worse. (State Audit ministerial) decrees. The repetition of regula-
Office of Hungary, 2008a, p. 32). tions and the creation of legal loopholes was
The development of the legislative back- frequently discernible within these decrees. In
ground for development policy should have the interest of harmonising EU grants, a
been the responsibility of political leaders. National Development Council and a
Within the fulfilment of the development cor- Development Policy Steering Committee was
ruptions indicated above, the role of the deci- set up, the head of which was the Prime
sion-makers of organisations in charge of ten- Minister. Therefore, decision making was char-
ders and company executives seeking opportu- acterised by political decisions, and the role of
nities for development at any price stands out. sectoral (professional) planners was greatly
In this field, in addition to other control and reduced.
regulation related changes aimed at mitigating The indicator and monitoring system that
corruption risks, the State Audit Office of supervised the utilisation of grants was imple-
Hungary recommended that the government mented incompletely, as State Audit Office
prepare the comprehensive regulation aimed at audits pointed out on several occasions (see for
reinforcing the planning of state development example State Audit Office of Hungary, 2008a,
tasks, which includes unified planning method- p. 101102). Although the result-oriented indi-
ology for the use of domestic and EU funds.7 cator-system was realised in operational pro-
grammes, it was not suitable for comparing
European Union Funding objectives and results.
A comprehensive country strategy would also Data management security was another sig-
be required for the funding system of the nificant risk factor, because outside develop-
multi-annual EU budgetary cycle, which, as an ment and operating firms were authorised to

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modify data and directly perform queries on a public procurement. Thus, they are unable to
database level. take advantage of the benefits of centralised
By not ensuring the appropriate preparation public procurement, which would also mitigate
of the comprehensive legal regulation of devel- corruption risk.
opment policy, the government did not con- The main reasons for public procurement-
tribute to making the allocation process of EU related corruption risks are impenetrable legal
grants transparent. over-regulation and political intervention.
Corruption risks are further increased by the
Public Procurements circumstance that central government control
Regarding public procurements, the main fields is not sufficiently palpable in shaping public
of corruption risk are the following. procurement policy as pointed out by State
Collusion of contracting authorities and bid- Audit Office audits (State Audit Office of
ders (State Audit Office of Hungary, 2008b, p. Hungary, 2008b, p. 12).
22): within the framework of this leaked infor- The number of legal remedies in Hungary is
mation or tailor-made calls for proposals are high legal remedy proceedings are launched
common, in return for which contracting in approximately 20 percent of cases which is
authorities offer financial gain to bidders. very difficult to apply, and this phenomena can
A specific manifestation of this is when the also be linked to frequently changing legisla-
preferred bidder submits a lower price and tion (State Audit Office of Hungary, 2008b, p.
hence wins the tender. Another specific 16). The launching of civil proceedings for
method of collusion is determining tender damages is not typical following the protrac-
conditions in a way that favours a singled-out tion of the administrative phase, as this pro-
bidder, meaning that all other bidders are at a tracted process often results in a lapse of inter-
disadvantage to begin with. est. As a result, there is no possibility of actual
Bidder cartelism: entrepreneurs submitting legal remedy, as there is already a valid agree-
bids divvy up the public procurement projects ment in force between the contracting author-
beforehand, which means that the costs of ity and the winner, which cannot be subse-
implementation rise compared to the costs quently amended through legal remedy, and
realisable in competition, as there is only a sem- therefore in most cases the contracting author-
blance of competition. ity is only hit with a fine.
Withdrawal of funds available for public pro- In the absence of relevant legislation, only a
curement: corruption can also occur when in limited number of organisations concerned
the case of an apparently winning, but undesir- could produce information on the field of pub-
able bidder the contracting authority con- lic procurement. No database exists for the
sciously withdraws the funds available for pub- supervisory agencies on institutional public
lic procurement. procurements (as shown by audit reports pre-
PPP-schemes: given the complex nature of pared by the SAO), therefore they were unable
these projects, it is easy to determine unjustifi- to support the reform process of public pro-
ably high prices with respect to certain ele- curements with appropriate indicators. The
ments, and this goes unnoticed by public indicators assisting the unfolding of the new
administration and local government decision strategy urged from 2007 in the interest of
makers, who thereby accept the price. curbing corruption have not yet been prepared.
The low rate of participation (approximately The deficiencies of the cooperation of the
30 percent) by local governments in centralised government and the Public Procurement

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Council also contributed to the fact that many Under such circumstances there is adequate
tasks remained unresolved, including room for election campaign funds to exceed the
the organisation of a monitoring system limits set by law, possibly several times over.
suitable for measuring the efficiency of the Operation and Financial Management of
public procurement system; Political Parties The balance sheets and financial
the creation of conditions for the check- reports issued on party finances are not in line
ing-warning system ensuring the detection with the reporting procedures set out in Act C
of public procurement irregularities and of 2000 on Accounting. There are no regula-
corruption risks; tions as to what should happen to funds origi-
the development of electronic public pro- nating from prohibited grants and/or activities.
curement, and It is unclear under what conditions parties can
the amendment of public procurement use real estate owned by local governments. It
regulations to express the specificities of is also not clear what qualifies as a contribution
PPP-arrangements. or funding to a party. All this is disadvanta-
geous from the aspect of the transparency and
Political Corruption controllability of party financing, however, it is
This particular type of corruption manifests also auspicious for corruption.
itself in three typical cases. Among the reasons, with respect to the con-
Obtaining Election Campaign Funds ditions and circumstances of auditing, it must
Exceeding campaign fund limits and the high be stated that neither the provisions of the Act
number of reports submitted to various gov- on Election Procedures (hereinafter: Election
ernment bodies regarding these violations are Act) in force since 1998, nor the provisions of
recurring phenomena in domestic practice. As the Party Act regarding the third parliamentary
both parliamentary and local elections serve the election cycle ensured the conditions necessary
acquisition of political power, due to chaotic for the complete transparency of the origin and
circumstances it is highly unlikely that any utilisation of campaign funds. Therefore, in its
political groups could refrain from these limit reports issued since 1998 on the audits of
violations. According to our analyses, this cor- accounts the SAO has repeatedly indicated that
ruption risk is further enhanced by the follow- it cannot fully fulfil the role that constitutional
ing phenomena: regulation would require of it relating to the
with respect to the utilisation of normative transparency of the election campaign.
state subsidies, it is not transparent what The SAO, furthermore, regularly called
the concept of a non-personnel cost is, and attention to the fact that effective regulations
what the form, content and paying agency on expenditures available for election cam-
of utilisation is; paigns and their auditing pose a corruption risk,
in the case of election expenses, it is not pos- and do not fully support the enforcement of the
sible to find out from whom the allowances basic principles of the election procedure.
originate among the other financial grants; The SAO repeatedly recommended that the
how the registry of the costs and funds of government initiate the amendment of the
individual candidates take place in a more Election Act in the National Assembly so that
controllable manner; it ensures the transparency and controllability
what sanctions are imposed for missing of campaign financing, and clearly determines:
deadlines and failure to adhere to reporting which period and the funds and expenses
obligations. of which activity should be taken into

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account in terms of the accounting of elec- corruption vulnerability required to build the
tion expenses; integrity-control system to fight corruption.
with respect to the utilisation of normative These elements were assessment, self-assess-
state subsidies provided based on the num- ment and auditing.
ber of candidates, what the concept of a The assessment as we have seen can be
non-personnel cost is, and what the form, very helpful in identifying and assessing cor-
content and paying agency of utilisation is; ruption risks. The survey, however, mainly pro-
among what funds for election expenses vided us with results on vulnerability to cor-
and other financial grants, in what form ruption and the factors contributing to this,
and originating from whom must i.e., the so-called vulnerability profile, but not
allowances be taken into account; on the whole range of measures arising from
what the format and detailed content of the deviation analysis required to assemble the
the election report published in Magyar risk map. Thus, it is extremely difficult to
Kzlny (Official Gazette) presenting the obtain information regarding the so-called
amount, source and mode of utilisation of soft measures (values and norms to follow,
state and other funds and financial support integrity awareness, attitude of management
for parliamentary elections should be; and organisational culture), as opposed to
how enforcement of the registry require- information on hard measures such as
ment for the election costs and funds of amendment of legislation, official organisation,
individual candidates should take place in a amendment of internal controls and sharing of
more controllable manner; responsibility.
what the realistic value limit of expendi- The usability of the results of the assessment
tures per candidate above the budgetary we have presented is also limited by its exten-
subsidy should be; sive nature, which only concerns ministries and
what the content of the written agreement omits other central institutions and local gov-
entered into by organisations delegating the ernments. Therefore it is necessary to extend the
same candidate should be regarding campaign mapping of corruption risks to a wider section of
financing, record-keeping and accounting; the public sector.8
what sanctions should be imposed if We have presented two examples of self-
accounting and reporting obligations with assessment. This narrow sample is far from rep-
deadlines are not met. resenting the great significance of this method
Despite the fact that the SAO has engaged in in corruption risk analysis. During the self-
repeated talks with legislative bodies regarding assessment, at meetings the institutions
recommendations and possible solutions employees focus on the problems which based
which they have accepted and taken into on Dutch experiences manifest themselves in
account when drafting legislation to this day, the shape of specific measures (including so-
for lack of consensus, no decision has been called soft measures) and are suitable for mit-
made to resolve the issue. igating residual risk from the given institutions
deviation analysis, and thus strengthening the
integrity-control system. It can therefore be
CONCLUSIONS recommended that in the interest of the wide-
spread application of the self-assessment method,
We have briefly presented all three elements of public entities with the governments assistance
the methodology for detecting and assessing should put the required conditions into place.

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FOCUS ON CORRUPTION

The most important of these are the will and it is extremely difficult to increase manage-
commitment of leaders, the necessary informa- ments sense of responsibility with the same
tion and familiarity with the self-assessment tool.
method. It should not be neglected that in By applying the assessment methodology in
order to appropriately perform the self-assess- practice, we can collect information on a regu-
ment in addition to fulfilling numerous other lar and continuous basis on the corruption
tasks time is required, which, presumes capac- risks arising in public entities, as well as on the
ity and financial resources. level of development of anti-corruption meas-
The third element of corruption assessment ures. A decision on whether this can be effi-
methodology, auditing is performed by profes- ciently achieved through assessments, self-
sional independent auditors. Albeit the level of assessments or audits must be made within the
objectivity of the assessment will be high, it is framework of an implementation strategy.
much more difficult to get a true picture of the Two very important factors have to be con-
actual operation and level of development of sidered in order to elaborate the implementa-
the integrity-control system this way. Once tion strategy. One is that as we have seen
again we cannot get a reliable picture regarding above a large number of organisations and
internal information and soft measures. This institutions belong to the key areas of public
is because we cannot gain full awareness of the administration, all with special features, unique
most problematic issues within the organisa- vulnerabilities and risks and varied levels of
tion with the help of the acquired documents development of integrity-control measures.
or during the interviews. Recommendations The other factor is that a multi-faceted, analyt-
similarly to the assessment also primarily ical overview of the integrity profile of the public
concern hard measures. It is possible to sector is required in order to appreciably lower
increase awareness through auditing, however, the level of corruption.

NOTES
1 On a scale of one to ten, 10 indicates a country free Wise Men, namely: Pter Csermely, Istvn Fodor,
from corruption. Eva Joly and Sndor Lmfalussy to undertake the
task of elaborating recommendations to rebuild the
2 Within the framework of the Transition Facility of system of education and to curb corruption. (See
the European Union, in 20072008 the Research Csermely, Fodor, Joly et al., 2009). Seventeen experts
Institute of the State Audit Office of Hungary (until (among them the author of this paper) assisted in the
31 December 2008 the Institute for Development elaboration of these recommendations.
and Methodology of the State Audit Office of
5 Regarding the approach and priorities of the previ-
Hungary, abbr. SZ FEMI) and the Dutch Audit
Office implemented a Twinning Light project. The ous anti-corruption activity of the State Audit Office
objective of this project was to elaborate a risk analy- of Hungary see for example Bger Kovcs, 2005,
sis method that would allow for the identification of pp. 4048. Regarding the international experiences of
the types, places and nature of corruption risks in the the anti-corruption activity of state audit offices see
Hungarian public sector. Bger Jnossy Kovcs, 2010.

3 6 Given that this latter aspect is the subject matter of


For detailed presentation see Bger, Pulay, Korbuly,
2008 and Bger, Korbuly, Pulay et al, 2008 the article published by Istvn Fodor and Tibor
Hjj in the current issue of Public Finance
4 Dr. Lszl Slyom, President of the Republic of Quarterly, in our study we will only touch upon
Hungary called on members of the Committee of the topic briefly.

56
FOCUS ON CORRUPTION

7 For more detail see Bger Kiss Kovcs Vigvri, risks. Based on the answers, a vulnerability profile
2010, p. 92. will be prepared for each data supplying institution,
and in accordance with these using complex indica-
8 This is what the State Audit Office of Hungary is tors the results of the various institutions will be
attempting in 2011 by sending out a questionnaire of published online with the assistance of spatial tools
approximately 150 questions to 4,200 public author- (risk maps). In accordance with the adopted pro-
ities, which following the approach of the method gramme, the data recording shall be repeated yearly
described above assesses and analyses corruption until 2017.

LITERATURE
BGER, G. KOVCS, . (2005): Corruption and Research Institute of the State Audit Office of
the Options of the Activities of the State Audit Office Hungary
of Hungary, Fejleszts s finanszrozs (Development
and Financing), Issue 3, pp. 4048 BGER, G. KISS, D. KOVCS, R. VIGVRI, A.
(2010): A nemzetgazdasgi tervezs megjtsa
BGER, G. PULAY, GY. KORBULY, A. (2008): Nemzeti ignyek, unis kvetelmnyek (Reformation
Korrupcis kockzatok feltrkpezse a magyar of National Economy Planning National Needs, EU
kzszfrban, (Mapping of Corruption Risks in the Requirements). Research Institute of the State Audit
Hungarian Public Sector). Research Institute of the Office of Hungary
State Audit Office of Hungary
CSERMELY, P. FODOR, I. JOLY, E. LMFALUSSY,
BGER, G. KORBULY, A. PULAY, GY. BENNER, H. S. (2009): Szrny s teher (Wings and Weights).
DE HAAN, I. VOS-SCHELLEKENS, J. VAN EST, D. Committee of Wise Men Foundation, Budapest
(2008): Corruption risk mapping in Hungary:
Summary of the twinning light project of Netherlands State Audit Office of Hungary (2008a) (0802):
Court of Audit and State Audit Office of Hungary, Jelents a gazdasgfejleszts llami eszkzrendszere
EUROSAI 14. pp. 7883 mkdsnek ellenrzsrl (Report on the Audit on
the Operation of the System of State Instruments
BGER, G. JNOSSY, D. KOVCS, R. (2010): Available for Economic Development)
Tjkoztat az llami szmvevszkek antikorrup-
cis tevkenysgnek nemzetkzi tapasztalatairl State Audit Office of Hungary (2008b) (0831):
(Summary on the International Experiences of the Jelents a kzbeszerzsi rendszer mkdsnek
Anti-Corruption Activities of State Audit Offices). ellenrzsrl (Summary of the Audit of the
Operation of the Public Procurement System)

57