Master Overview of Corruption Issues & Recommendations
Solutions for Donor Countries for Reducing
Corruption in Developing Countries Like Iraq
Below is a growing master list of most of the Iraq Corruption & Fiscal
Oversight issues I have described in various posts on this blog, plus
information and recommendations not posted before. Hopefully it will
serve as a "lessons learned" and planning document for anyone in a
position to improve future fiscal and program oversight over anti-corruption
programs and policy in foreign countries anywhere. Several
recommendations refer to "recipient" countries receiving foreign aid,
and aggressive steps by donors to "encourage" expanded
anti-corruption actions.
I will be adding documentation in no particular order, and revising it when
needed. Later I will attach a Word document containing the outline with
dates - thus the latest date will be the most current, and include pictures
when appropriate. It is possible I might duplicate some issues, but will
pull them out later.
Vance Jochim - June 12, 2008
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Issues and Recommended Donor Practices to
Reduce Corruption in Developing Countries Receiving Foreign Aid
1. Establishment of Independent Anti-Corruption Agency with Strong
Prosecution Authority - Ensure that a completely independent
anti-corruption commission ( aka Integrity Commission ) be established in the
aid recipient country (i.e.
Iraq
, etc. ) which has full authority to investigate and prosecute corruption cases. Base the commission on the successful programs in Hong Kong & Singapore (developed by a
UK
consultant many years ago). The Iraq Commission of Public Integrity was based upon those programs and defined in Order 55 issued by the Coalition Provisional Authority in 2004, but then diluted by the current Iraqi leadership. 6/12/2008
2. Assignment of Anti-Corruption Policy & Implementation to Hard
Nosed Government Agency not Affiliated with Diplomatic Agencies - Transfer
complete US responsibility for implementation and success of anti-corruption
programs from the State Dept. to a hard nosed authority such as SIGIR, the CIA
or GAO. The GAO would need most likely need expanded powers to operate in
foreign countries. The State Dept. are diplomats and focus on other
priorities and seem to continually avoid responsibility for anti-corruption
efforts. For purposes of this document, I will label the new unit the ACU
(Anti-Corruption Unit). Also ensure that the State Dept. gives the ACU
required living space, etc. I say that because I sat in
Iraq
watching as the State Dept. fought continuous requests by the GAO to go to
Iraq
to review reconstruction spending. Remember, the Iraq Reconstruction Management Office was run by a State Dept. Diplomat. Although they already had SIGIR there, SIGIR did not have authority to audit some spending (and balked at reviewing USAID reconstruction programs), thus the GAO or a future ACU needs full authority to enter a country when they deem it necessary. The ACU also needs complete authority to audit USAID spending programs based upon their own risk analysis. 6/12/2008
3. Provide Foreign Aid Funding Veto Power to Anti-Corruption Policy
Bureau - Provide the above new anti-corruption implementation units
with full authority to halt some or all foreign aid spending if the recipient country
does not quickly implement and support required anti-corruption action
plans. 6/12/2008
4. With-hold Foreign Aid if Recipient Country Does not Emphasize
Aggressive Prosecution and Punishment for Small and Large Corruption Cases
- Ensure the aid recipient country passes and enforces laws to allow full
prosecution, sentencing and imprisoning of corrupt officials at any
level. This week, at a Donor's Conference in
Paris
for Afghanistan Foreign Aid, many donor reps demanded that the AFG Prime Minister Karzai do something about corruption other than talk. This Corruption issue was in many headlines from different news sources all over the world. Donors need to actually go to the next step and actually stop payment on funding if corruption progress is not clear and measurable. 6/12/2008
5. Ensure the aid recipient country approves, signs, enforces and uses
the UN Convention on Corruption to Prosecute Corrupt Officials who Have
Escaped to Other Countries - That action facilitates prosecution of a corrupt
official in another country. The recipient country should also show
progress in using the Convention on Corruption to pursue prosecution of corrupt
officials who have escaped to other countries. This issue includes using
the Convention's regulations to also retrieve the stolen funds discussed below.
(Note:
Iraq
has recently started doing this regarding the Oil-for-Food program bribe payers. )6/12/2008
6. Aggressive Electronic Tracking and Retrieval of Funds Moved by
Corrupters to Other Countries Should Be Initiated - The US should develop a
hard nosed investigative program for the ACU as well as the recipient country
to track wire transfers and foreign bank deposits of funds taken by the corrupt
officials. As they say, follow the money, and track down the
perpetrators. The US Treasury Dept. has a unit that focuses on those techniques
to track money laundering and their expertise should be tapped. 6/12/2008
7. Fund and Require Recipient Countries to Implement International
Accounting, Auditing, Procurement and Other Standards to Improve Controls and
Transparency of Financial Transactions - Poor Accounting methods allow
corruption to flourish.
Iraq
still is using an old, communist based accounting system that is not credible. Potential investors cannot rely on any Iraqi accounting reports for making investment decisions. Thus, the US should demand that the aid recipient country adopt and implement a) International Accounting Standards (known as IFRS or International Financial Reporting Standards), b) International Audit standards, c) International procurement professional practice standards, and d) International cost and management accounting standards. The country will not be able to attract many investors until that is done. Banks won't guarantee loans, etc. In early 2005, I provided a list of the needed international standards in these and other professional standards to US State Dept. personnel and they ignored the issue. 6/12/2008
8. 6/12/2008 - Foreign aid should be contingent on more
rigorous documentation and work practices that emphasize a resistance to paying
bribes. For instance, I talked to construction managers in
Iraq
, and in the case of rebuilding Fire Stations, they paid an average $5,000 bribe to fire chiefs to complete the project. However, construction managers for rebuilding schools told village elders and demanded the bribe requests cease, or no work would be done. That practice resulted in no bribes being paid. Thus US officials need to come up with a best practices guideline for all foreign aid program managers on how to handle bribe requests.
9. 6/12/2008 - A formal process should exist for US and other
donors to report any bribe requests from any party, whether foreign nationals or
US citizens. They should also be required to report all bribe requests to
a central agency, such as www.Bribeline.org
(in
Annapolis
). Funding for specialized anti-bribery investigators should be provided for both US and the recipient country to quickly react and investigate even small bribe requests. Prosecutions should be publicly announced to give the public a sense of improvement and reduction in bribe requests, whether for attendance at college classes, being released from a traffic stop, or requests to pay third parties for huge defense spending programs.
10. 6/12/2008 - Specialized, fast acting investigators should be
trained and ready to react to any threat to any anti-corruption staff.
There was supposed to be one for the Iraq CPI, but it wasn't developed,
and over 30 CPI investigators have been killed, including three I knew
personally. The plan for this type of program was based upon similar
groups established in
New Jersey
to react to threats from mafia members being investigated by state prosecutors.
11. 6/12/2008 - All employees in the aid recipient country's
government agencies should be required to sign an ethics policy every
year. This was started in
Iraq
, but the
Iraq
Ministers didn't support it. Thus, a law is needed also that removes any Minister or department head who does not enforce the requirement. Any employee that does not sign the policy by a deadline should also lose their job.
12. 6/12/2008 - All managers in the country should be required
to fill out and sign a conflict of interest form, including a list of assets, financial
disclosures, etc. Any manager who does not enforce this
requirement, or will not sign it should be fired. This program was
initiated in
Iraq
also by CPI, but Ministers ignored it, and the mass of paperwork overwhelmed CPI. Instead, a large department like the Ministry of Finance should be required to implement the program, subject to audit by the anti-corruption commission.
13. 6/12/2008 - Require that the recipient country adopt, implement
and enforce international best practices for procurement. Don't give ANY
funds to the country to spend until they adopt this recommendation. Without
it, funds can be siphoned off since there is no transparency or professional
system of procurement controls. A big problem in
Iraq
is they use outmoded, uncontrolled procurement systems where people in power can dictate who gets contracts, etc. The procurement process needs to be professional, VERY transparent and contract details should be published on the internet in the local language (like www.FBO.gov ) Procurement decisions should be subject to public inspection and investigation when challenged by any non-winning party. The Federal government uses such a system (ok, except for a few, like Halliburton...). I don't believe any country should recieve any foreign aid funds without using professional procurement systems and staff.
14. 6/12/2008 - Transparency International ( aka TI at
www.Transparency.org ) in
Belgium
tracks and ranks corruption ratings of over 170 countries, and provides lots of information on anti-corruption programs and best practices.
Iraq
is in the bottom five most corrupt countries. The ACU should post and watch the TI index, and implement an aggressive program to establish a TI chapter in the recipient country. Such a program takes about three years, and requires that NGO's form the committee to create the chapter, and meet certain requirements. Currently, there is no TI chapter in
Iraq
or
Afghanistan
. The ACU should provide leadership to engage NGO's to get the program started. Any
US
funds given to a country should be contingent on requiring them to aggressively support establishment of a TI chapter, AND to implement corrective actions specified by TI to achieve higher rankings in the TI Corruption Perception Index.
15. 6/14/2008 - A salary study should be conducted of government wages
in developing countries to determine if the wages are an adequate living
standard for middle class employees. Various research reports have
indicated that a major reason why government employees practice corruption is
that their pay is too low. In
Iraq
, for instance, most government employees including doctors only worked from 9am to about 1pm , then left to work a second job to make enough money to survive. Market rate for degreed accountants to work in local businesses was about $600-800, but government accountants were only paid about $200 per month. Thus a major initiative in such countries should be to move employee pay up to allow a "decent" middle income lifestyle. Without it, they either commit corruption or work second jobs. (When I find the research that supports this issue, I will add it here.)
16. 6/14/2008 - Eliminate Extensive, Un-necessary Steps to Obtain
Government Approvals Until Bribes are Paid - Another issue that enables
corruption in developing countries is the proliferation of requirements for
permits and steps to get government approval for any task. That can
include buying a house, entering college, or getting a business or construction
permit. Developing countries will usually have many more steps to jump
through, and mostly manual steps where an official can extract a kickback.
Each approval step is an opportunity for a government worker to demand a
bribe. While in
Iraq
, I was saw a book an IRMO manager was researching which clearly laid out all the honorous, extra steps needed in some other developing countries (including
India
) where there were a horrendous number of steps to get an approval from government. If the applicant for the approval refused to pay the bribe at each step, the request would sit for months until they broke down and paid it. Thus providing advice and expecting more efficient government with fewer approval process steps will help reduce corruption.
17. Replace Human Collection Agents with Machines - This will
reduce the use of humans who either demand a bribe or skim from cash
collections. In one country ( I think it was Malaysia) , they switched
from people as ticket takers for trains to using all coin machines to issue
tickets, and it reduced skimming of cash collections by quite a bit. This
is really a standard accounting control, and other such controls should also be
used. Increased use of automated payment, accounting and collection
systems will reduce the opportunity for a corrupt human to demand bribes. 6/14/2008
18. Upgrade Competencies of Foreign Aid Program Managers to
be Subject Matter Experts in the Economic Sector Receiving Foreign Aid -
While in Iraq, I worked in the Iraq Reconstruction Management Office (IRMO)
which was created using recruited civilians who were subject matter experts.
For instance, the Sr. Advisor for Agriculture was a scientist who really understood
crop economics and food processing, and using his industry contacts he arranged
an international group of crop sprayers to visit
Iraq
and spray crops with needed pesticides. The Sr. advisor to the Water Ministry was an experienced manager from the Tennessee Valley Water Authority which managed many rivers, water systems and dams. The Sr. Advisor to Telecommunications was a prior region vice president for a telecomm company who rolled out cell phone systems to two countries in the mid-east. In my case, I was a corporate internal auditor for 18 years, and I designed a 7 topic training program in accounting, internal audit, and other subject areas that was taught in Baghdad IN ARABIC to over 300 Iraqi internal auditors in different agencies to get them current with international audit practices. . That is the type of senior advisor you should be providing as a donor program manager providing services and funding for an economic sector in a developing country. In contrast, the
US
uses USAID in many countries to "manage" foreign aid, and many of them are ex-Peace Corps workers. They don't have subject matter experience, leading to lower quality service RFP's, and they lacked professional project management experience or training to aggressively monitor technical services and reconstruction. As a result, the contractors could provide loose, non-technical rfps without specific measurable timelines to fit their expertise rather than providing the expertise a true subject matter expert would expect. DON'T send amateurs with humanities degrees to manage reconstruction or technical programs. Do like IRMO, and only send some subject matter experts. They will develop more credibility with the related country Ministries and be more respected for their opinion. Then let the subject matter experts develop the service and materials rfps. IF you don't agree, go to the GAO website and pull up audit reports on USAID projects and read what they say (you can't rely on USAID or State Dept. IG reports which are, in my opinion, not aggressive enough.)
19. Implement this Sure Fire Method to Improve Documentation
Supporting Billings from Contractors - Many audits from SIGIR, DoD IG's and
headlines have shouted about US Government or Iraqi Government payments
being made when no documentation existed to support what they were for.
Periodically, news articles appear about billions in payments made to KBR or
other programs without enough documentation to justify the payment. To
solve this, the US
20. The Effect of Free Market Economies on Ease of Corruption -
We found a theory
paper HERE that suggests that a free market economy makes it much harder to
continue corrupt practices, because market forces will force elimination of
some corrupt practices vs a centralized government (i.e. socialist or
communist) where government controls too many activities, creating more
opportunities for corrupt officials to get bribes, etc. And, this
is a separate issue from having a Democracy.
Iraq
now has a Democracy, but plenty of corruption. According to this theory, one reason is that the government controls too much, and
Iraq
is not a free market economy. Added Jul 19, 2008
21. Foreign Aid agreements with foreign governments should include
right to audit provisions - This is common in large businesses.
For instance, Boeing may use sub-contractors and have a right to audit clause
in their contracts, AND their internal audit department will actually visit and
walk through the vendor systems to evaluate their quality and ability to
prevent production and accounting mistakes, etc. I did this in several
firms, and we reduced group insurance costs by 16% by identifying improvements
needed in the insurance company internal systems. I also did that in a
marketing services firm for Nissan Motor Corp., and identified lots of
duplication, which when eliminated, reduced costs, and eliminated some
duplicate invoice problems. This same type of provision should exist in
any foreign aid program so the receiving country is on notice that US auditors
will have the right to walk through systems and inspect them, interview people,
etc. to verify the quality of the accounting, purchasing and other systems that
should exist to detect and prevent mistakes and corruption. Audit groups
should be funded as part of the foreign aid program an be tasked to walk
through systems BEFORE funding starts. This is called pre-contract review,
and is also common in some better run businesses, especially for new
vendors. Without doing this, the US Government is not following sound
business practices and not expecting them of "foreign aid partners"
or recipients. (Added 7/30/08)
more later...
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