Personal Gain and Public Accountability

By Grace Espiritu and Romy Devergara

In government, one is faced with two interests: personal gain and public accountability.  When there is abuse of power in public office for private gain, there is corruption. A government that is characterized as being unaccountable is a government that proves to be a fertile ground for the cultivation of dictatorship, tyranny, repression, oppression and every other type of abuse of power.

The Asian Development Bank (ADB) describes corruption as detrimental to development. Corruption drives away investments and dries up public resources with reduced reserves. It increases costs and breeds wasteful allocation of money. ADB states that corruption weakens public institutions, especially those with distorted interests, those who put personal gains above public interests. These institutions have poor public services, inefficient and ineffective bureaucracy, thus creating public distrust and loss of confidence in the government.

The identification of the risks involved in a possible fraud is a major concern during audit. In public expenditures, procurement is an area in governance of great interest to international agencies as it impacts directly on economic development. This is also true in countries like the United States, United Kingdom, Canada and Australia. Public procurement also has a large share of public expenditure in most states in the United States.

As such, it would only be logical that the inherent risks in the area of procurement be assessed as to whether they could result in material misstatement of the financial statements. These risks are inherently present in government audits and international bodies because of their exposure to several factors such as competitive bidding, requirements imposed by funding sources and/or grant provisions on various categories of expenses, and unrecorded liabilities, among

At the United Nations, 85% of its global procurement was represented in peacekeeping operations, of which nearly US$300 million in fraud was uncovered. The UN Security Council in its 5376th meeting reported evidence of mismanagement and the risk of “serious financial loss” on three findings: (1) the UN was exposed to serious risk of financial loss due to inadequacy in internal controls, management supervision and strategic guidance; (2) there was evidence of financial irregularities due to overstated budgets, padding of requirements and inadequacy in controls to ensure value for money in its procurement activities; and (3) there were indications of serious potential irregularities.                                                          

To address the broader underlying weaknesses that had been identified in procurement, the UN Department of Management undertook a comprehensive review to focus on updating procurement rules and regulations and policies. This includes the need for greater transparency and accountability. The Department implemented an internal control framework which included risk management. It also structured a framework to provide a comprehensive prevention and diagnostic controls environment. Their challenge was to build a system that allowed the staff to do their jobs as effectively as possible while arming management and member states the information, tools and resources they can use to ensure proper accountability and oversight.

For these, a better condition of service to field staff was envisioned with the aim of improving staff training. UN also saw the critical need to put in place new IT systems and services to provide for a stable and motivated workforce better equipped to handle the problems identified.

The effort of the UN to improve the condition of the staff in the field, where most of the corruption occurred, is one way of ensuring public accountability.                                                                                                  

Compared to other governments, the United States is the largest consumer of prime contracts as published in the CPA Journal February 2008 issue. According to statistics reported by the U.S. Department of Justice for the fiscal year ending September 30, 2005, the US recouped more than US$1.4 billion in settlements and judgments pursuing allegations of fraud. Such procurement fraud squandered limited funds, threatened safety and national defense, cheated the American people and harmed government efforts to obtain needed goods and services.

From 2003 to 2008, spending on federal contracts was the fastest growing part of the discretionary budget which can be attributed to the rebuilding of Iraq and the recovery efforts from Hurricane Katrina. In these cases, the “sole source” type of procurement was used due to it being an emergency in nature, which is allowed under the federal acquisition law that provides exemptions from competitive sourcing requirements.

The “sole source” process vests much power to contracting officers although the justification is still the responsibility of oversight bodies like committees or government agencies like the US Congress. The use of this type of contract increased from 33% of Federal contract dollars in 2000 to 38% in 2005. 

In competitive proposals and negotiations, the government knows what it needs but lacks the resources to establish the process, specifications and costs to get the job done. As such, contractors have a degree of freedom to develop the procurement proposal. This gives them a good opportunity to sway the government to contract them for higher cashflow and profits.

Competitive and advertised bidding types of contract are used when the government can identify clearly, accurately and completely the specifications for the product or service it requires. This method promotes competition among vendors. The goal of this process is to purchase the most appropriate goods or services for the lowest cost while not compromising quality. There are, however, legitimate reasons to reject a low bid: an unrealistic bid price, an unresponsive bidder (i.e. poor reputation), poor specification standards, conflict of interest, and/or appearance of favoritism.

In the Philippines, corruption has been a part of the country’s history. According to the e-publication “Why Procurement in the Philippines Has Limited Prospects”, the Office of the Ombudsman estimated in 2001 that US$48 billion had been lost to corruption, an amount that could have been paid for the total debt of the Philippines for the same period.

The same publication presented in a June 2000 survey that road projects and tax collections were areas most prevalent to corruption in the Philippines. This showed that corruption was widespread in both the revenue-collection and government spending activities.

The World Bank in its 2001 report made recommendations on how to address corruption. It stated that by reducing discretion in government decision-making, increasing competition, transparency and involving civil society in monitoring governance activities, we can indeed fight corruption. To support this, in the Chan 2005 publication, Hongkong was mentioned as being successful in its fight against corruption because there was a strong social backing.

The discussion on the different instances of fraud committed in procurement is a clear indication that corruption is prevalent in the governments of the world, even in a complex organization like the United Nations. Nevertheless, measures should be taken to fight this human flaw to cheat, to squander, and to put personal gain over public accountability. In the end, for as long as people continue to device ways to stain the essence of societal equity and fairness, people will continue to look for ways to bring back the faith, to fight the temptation of corruption that rots governments away.