Paper Asian Swiss Summer School Thais Bernardes

7/31/2019 Paper Asian Swiss Summer School Thais Bernardes

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Asian-Swiss Public Administration Summer School

Beijing, July 2012

When corruption undermines emergency relief efforts:

how to combine transparency, accountability and flexibility

in governments emergency management

Thais Helena Semionato Bernardes - Masters student in Public Management and Policy

at the Swiss Graduate School of Public Administration (IDHEAP) Switzerland

1. IntroductionPublic Administrations worldwide have enjoyed a resurgence of values such as integrity, transparency and

accountability within the past few decades. Today, more than ever, sound public administration is

synonymous with public trust. Society expects public servants to act in accordance with public interests,

and to manage public resources properly. Good governance in all levels of public administrations is more

and more related to the promotion of integrity, transparency and accountability. On the other hand,

corruption and maladministration is regarded as an indication of weak governance1. Scandals involving

corruption and administrative failure cases have had a major negative impact in public decision-making,

especially when related to governments emergency management.

Emergency situations are a challenge for governments throughout the world. Public administrations are

then expected to act swiftly and efficiently in order to save human lives and provide aid to victims, under

the particularly difficult circumstances of a catastrophe, when time is of the essence. The need to be flexible

and make rapid purchases facilitates corruption and opportunistic behavior in many countries struck by

tragedy. The present work aims to investigate potential means of reducing such malfeasance, by

introducing measures that provide more transparency and accountability in governments emergency

management.

2. Defining corruptionIn order to better precise the object of the present analysis, it is important to define the term corruption.

To do so, we shall use the definition given by the World Bank2, by which corruption is the use of public

office for private gain. Transparency international, on the other hand, understands corruption as the

abuse of entrusted power for private gains. It is important to stress that in both definitions corruption may

include gain that is not limited to financial abuse, but can include the abuse of power to enhance personal

or organizational reputation or for political purposes and nepotism. Clearly, there are various forms of

1 Armstrong, E. (2005), pp.2-3.2 Huther, J. & Shah, A. (2000).


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abuse that go well beyond financial fraud, although prevention and detection of fraud usually gets first

priority in corruption mitigation3.

In this paper, we shall restrict our analysis to emergency management conducted by governments rather

than ONGs and other private entities. Thus, the World Bank definition will serve as a guide for the present

investigation, which basically consists of a study of public sector corruption in emergency relief activities.

3. Corruption vs. InefficiencyCorruption and inefficiency are different things. As authors Schultz & Sreide (2008) put it, corruption

should be clearly distinguished from unintended waste. A simple example given by the authors helps

clarify the distinction: inefficiency can arise when procurement officers, unfamiliar with the local market,

ignorantly accept unjustifiably high offers; they may then purposefully fail to investigate prices sufficiently.

They are not, however, motivated by a desire to capitalize personally from undue benefits. With

corruption, on the other hand, someone has acted intentionally, often creatively, in order to profit

personally from the situation.

Bribery and favoritism are indicated by the authors as probably the most common forms of corruption in

the procurement process4. Corruption occurs, for instance, when a contract is directed to a firm with

connections to the procurement officers family, or when the officer selects a suboptimal bid in return for a

bribe. As we can perceive, the idea of obtaining some sort of private gain is embedded in the concept of

corruption. Nevertheless, there is a sense in which both corruption and ineffectiveness produce the samenet result, since both ultimately reduce the levels of aid that reach the people who need it5, making both

practices highly detrimental to a governments response to an emergency. Undoubtedly, both corruption

and inefficiency need to be eradicated, but since the latter is part of a wider issue, we shall restrict our

analysis to the first.

4. The effects of corruption on emergency reliefWhat is corruptions impact on emergency management? According to Armstrong (2005), the devastating

effects of the lack of integrity, transparency and accountability leading to corruption and misconduct

cannot be underestimated. The author indicates that unethical practices, such as bribery and fraud, have a

very real human cost. This cost in translated into the lives and health of people who are robbed of quality

health care and medicines, for instance.

3 Schultz & Sreide (2008)4 Schultz & Sreide (2008)5 Walker et al. (2008)


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But not only the material costs of corruption can be astounding: corruption can also be particularly

negative in terms of social capital, and more specifically to the trust of citizens towards governments. As

the author puts it, a lack of political trust undermines and even destroys political stability6.

5. Corruptive behavior in emergency reliefAs a rule, an emergency response requires the purchase and delivery of a vast range of goods and services,

such as medical supplies and equipment, drinking water, food, sanitation equipment, transportation,

power, shelter and housing, non-food items, communication equipment, and more7. Since governments do

not usually produce such goods or services, they often resort to contracting out, through procurement

processes8.

Governments must then purchase large quantities of various items, while also considering the time-

sensitive nature of emergencies. Thus, in order to provide a timely response to a calamity, governments

must often forfeit competitive procedures that are conducted under normal circumstances. It is quite

unfortunate, though, that the need to be flexible and make rapid purchases facilitates corruption, in the

sense that it can be easier to steer a purchase to one specific supplier without attracting suspicion.

Furthermore, when bribery is involved, the contract is not necessarily awarded to the firm offering the best

price/quality combination, resulting in bad outcomes, such as poorly maintained vehicles, expired

medicine, or diluted cement9.

Another common problem is the distortion of prices. As the urgency of an emergency increases, bargainingpower is lost. Rapid procurement is thus particularly prone to inflated prices and expenditures. This can be

aggravated if a bribe is calculated as a percentage of the total contract then, the corrupt official is likely to

exaggerate investments in certain products or services, while real priorities lay elsewhere10. Likewise,

procurement officials can exaggerate an emergency, by emphasizing the continued threat to human life,

and then abuse fast-track emergency procedures as a cover for corruption.

Finally, some cases of corruption may take place when apparently no violation of procurement rules has

happened. These are often referred to as hidden violations, and they include: limited invitation; fake

competitors; matching of the evaluation criteria with unique qualities of the bribing firm; misusing

confidential information about other candidates bid, and many others.

6. The risk of corruption

6 Armstrong, E. (2005).7 Schultz & Sreide (2008).8 Procurement can be defined as the purchase by governments and state-owned firms of goods, services and works. It

is also referred to as bidding, or tender procedures.9 Schultz & Sreide (2008).10 Schultz & Sreide (2008).


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The risk of corruption in emergency relief depends on a number of factors, such as the opportunity to

influence decisions; the existence of obtainable benefits; and the possibility of getting away with the

offense11. The table below illustrates factors that affect opportunities for corruption in emergency relief:

Table 1 - Factors that affect opportunities for corruption in emergency relief

Size and location of the

contract

Contracts that are managed at the regional level

(municipalities, for instance) have a greater risk of corruption

in comparison to contracts managed by a centralized

administration.

Complexity

The more technology involved in goods/services to be

provided, the easier it is to cover corruption.

Discretion

The more discretion a procurement officer has to determine

demand and preferences, the easier it is to cover improper

influence over his or her decision. In emergencies, procurement

officers normally exercise high levels of discretion in terms of

identifying beneficiary needs.

Reduced financial controls

Normal financial control procedures are often fast-tracked in

emergencies, to enable staff to respond flexibly and quickly to

needs as they arise.

Pressure to spend

Media and civil society tend to put a lot of pressure on

government to respond to emergencies. The greater the

pressure to spend, the more likely procedures are to be rushed

and the less scrutiny from control officers, opening

opportunities for corruptive behavior.

Country of emergency

Levels of corruption differ greatly between countries, meaning

that opportunities for corruption are contingent to a cultural

and institutional setting.

Source: based on Schultz & Sreide (2008)

7. Case analysis: KatrinaThe aftermath of Hurricane Katrina, which struck the American Gulf Coast in 2005, provides us with an

interesting case study. Considered by many to be the worst disaster on American soil, Katrina is also

recalled as a crisis ripe with opportunity for the well-placed corporation12. As it is usually the case in

emergency situations, there was no time to solicit and weigh bids. Adding to this, there was an immense

pressure from society and media for the government to act quickly, and a considerable amount of money

11 Schultz & Sreide (2008).12 King (2006).


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was allocated for that purpose: US$ 85 billion in hurricane relief and US$100 million from donations of

foreign governments.

In a nutshell, the lack of a competitive bidding system made it nearly impossible to impose any meaningful

accountability on companies staking claim to the billions in federal recovery dollars. But in the particular

case of Katrina, three major problems could be identified, and shall be further explored in the following

subsections.

7.1No accountability for outcomesOne of the most distressing images recorded by the media in the weeks following hurricane Katrina, was

that of the floating bodies in the flooded streets of New Orleans. In order to give proper treatment to this

problem, the American Federal Emergency Management Agency (FEMA) contracted Kenyon International

Services to collect more than one thousand bodies floating in public streets right after the hurricane. Eight

weeks later, the company had collected a little over five hundred bodies, and charged no less than US$ 6

million for that service, amounting to almost US$ 12,000 per body recovered.

Besides that, TV crews seemed to discover new bodies faster than Kenyon, raising criticism and anger in

public opinion after all, what had they paid millions of dollars for? Moreover, a year after the tragedy,

bodies continued to be found. Later on, an investigation found that Kenyons CEO was a close friend of the

Bush family, and a major donor of George W. Bushs presidential campaign, triggering what was then

called the FuneralGate13

.

7.2Inflated pricesThe next situation is a revolting example of how prices can be inflated in face of an emergency. A company

(Emergency Disaster Services) was awarded a 30-day no-bid contract to provide three meals per day for

200 to 400 emergency personnel, at a cost of US$ 3.6 million. This meant that the meals cost between US$

100 and US$ 270 each. The contract was later extended for another 30 days, although the price had dropped

to US$ 2.6 million for the same number of people and the same timeframe. By the time the contract was

extended for a third time, the price had dropped to US$ 1.6 million for the exact same service14.

As we can see, as the urgency diminished, the price went down accordingly. In the Katrina catastrophe, it

is estimated that contractors inflated their actual costs from 40 percent to 1,700 percent when billing the

government15.

13 King (2006).14 King (2006).15 King (2006).


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7.3Layers of subcontractorsIn the Katrina disaster, there was an enormous political influence in awarding the contracts. A study has

shown that companies making campaign donations were approximately four times as likely to receive a

Katrina contract16. For the execution of the works, however, several companies were often subcontracted. In

fact, one can observe a truly labyrinthian layer of subcontractors on nearly every project. For example,

AshBritt, a Florida-based firm with close ties with Florida governor and presidential brother Jeb Bush and

major donor to state and federal government candidates, was awarded a US$ 500 million contract for

debris removal.

According to the contracts terms, AshBritt would be paid US$ 23 for every cubic yard (0.75 m3) of debris

removed. Ashbritt in turn hired C&B Enterprises, which was paid US$ 9 per cubic yard. That company

hired Amlee Transportation, which was paid US$ 8 per cubic yard. Amlee hired Chris Hessler Inc., for US$

7 per cubic yard. Hessler, in turn, hired Les Nirdlinger, a debris hauler from New Jersey, who was paid

US$ 3 per cubic yard. In this setting, accountability becomes next to impossible to enforce 17. Moreover, if a

service can be performed for US$ 3 per cubic yard and not for US$ 23 per cubic yard in the first place, it

makes one wonder what the extra US$ 20 per cubic yard are for.

These and many other scandals triggered a series of investigations by the American government, especially

in regards with FEMA, the federal agency responsible for most of the contracts and purchases for Katrinas

emergency relief18, and many charges of political corruption ensued.

8. Measures to improve accountability and transparency in emergency managementThe rationale behind government contracting is based on the notion that free markets create competition

that can promote the distribution of services more efficiently and effectively than the state19. However,

several problems can arise in the contracting system. For instance, as Maskin and Tirole (2008) clearly

suggest, political corruption is likely to occur in a contract system.

As a result, strict rules about competitive procurement have been designed to eliminate or prevent some of

these abuses. In the case of natural disasters, however, such rules are not likely to be effective, since the

government must act quickly and it does not have time to solicit proposals. As we have shown, in the case

of Hurricane Katrina, the government issued a substantial number of no-bid contracts. These no-bid

processes allowed contracts to be awarded without full and open competition under several conditions,

including unusual and compelling urgency, national security and the public interest20.

16 Hogan et al. (2010).17 King (2006).18 King (2006).19 Hogan et al. (2010).20 Hogan et al. (2010).


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This is also the case in most emergency situations all over the world, when governments overthrow formal

competitive procedures in order to gain speed in purchasing goods and services. This, nonetheless, opens

the door to many possibilities of corruption. In view of that, the following question arises: how are we then

to determine the balance between flexibility, accountability and transparency, in order to reduce the risk of

corruption in emergency-related procurement?

Authors Schultz & Sreide (2008) point to possible solutions. For instance, incentives for corruptive

behavior can be dampened when the risk of sanctions is high. These sanctions may be social,

administrative, or judicial, and are altogether related to accountability mechanisms.

Another manner to prevent corruption lies on planning. Purchases which would be required in times of

turmoil could be anticipated. They can follow on from long-term agreements with specific firms, based on

sound pre-emergency tender procedures describing the cooperation to take place once an emergency

occurs. However, it is clear that many requirements cannot be anticipated, or organized in advance, and

rapid acquisitions will often be necessary. The solution is then to render emergency procedures more

accountable and transparent, allowing better ex post control.

Of course, since recovering resources can be quite difficult, it is also very important to prevent corruptive

behavior from happening in the first place. In order to do so, the necessary first step is to gain an

understanding of the underlying causes, loopholes and incentives which feed corrupt practices at any

level21. It is only then that public administrations will be able to provide measures for mitigating risks of

corruption. The table below lists four different categories of measures of that kind namelycoordination/internal procedures, beneficiary participation, monitoring and evaluation and sanctions.

Table 2 Measures for reducing corruption

Ex ante measures

Coordination/ internal procedures

Understand the risks: assess and address risks in existing

procedures.

Plan and foresee: organize advance procurement of commonly

used supplies and services the more relief procurement can

be organized before a disaster occurs, the less likely purchases

will be affected by the particular corruption risks inherent in

emergency contexts. To do so, organizations should establish

frame agreements that cover the most frequently purchased

relief items.

Standardize: use standard products when possible; technical

references for quality and price can serve as a shield against

21 Walker et al. (2008).


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corruption where procuring personnel or their supervisors are

unfamiliar with the local context or under pressure from

manipulative suppliers.

Create institutional memory: use simple software solutions to

track suppliers and payments, compare bids and prices, and

keep records of suppliers, in order to mitigate risks from staff

turnover. New technologies include e-bidding, in particular

with the mandatory publication of procurement opportunities

and documentation on-line, allowing more transparency.

Re-enforce professional integrity: employees must be

reminded of what is ethically expected of them, through

administrative codes, complaints procedures and sanctions.

Clear reporting channels, defined sanctions, and an established

procedure for responding to complaints are necessary to

support the implementation of codes of conduct.

Improve the overall transparency of information: resource

flows, assessments, program elements, targeting criteria, aid

recipient lists, entitlements, etc are important in order to

document processes and to clarify procedures.

Strengthen downward accountability practices: to clearly

define responsible officials at every level as a way of

preventing and detecting corruption.

Establish specific guidelines on emergency exemptions to

normal policies: this can be done by requiring two quotes for

procurement, rather than the normal three, for instance, and by

giving shorter response deadlines. Further, allow hiring on

conditional contracts provided normal procedures, including

background checks, are carried out within three months.

Beneficiary participation

Facilitate beneficiary participation: beneficiaries should be

involved in the selection and monitoring of goods and services.

As far as is feasible, beneficiaries should be informed about

procurement processes and provide input to procurement

decisions.

Ex postmeasures

Strengthen internal procurement expertise: while nothing can

replace practical experience, building up a pool of trained

procurement staff can be an important tool for corruption


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Monitoring & Evaluation

control.

Focus on outcome, not process, in audits and evaluations:

auditing units can ask beneficiaries directly whether they felt

value for money was achieved.

Ensure adequate budgeting for Monitoring & Evaluationand

facilitate effective monitoring by media and NGOs.

Deepen the scope of audits: they should go beyond the paper

trail to include forensic objectives and practices.

Increase the use of independent external evaluation.

Sanctions

Increase the costs to dishonest procurement officers and

suppliers with sanctions: firms that offer bribes should lose

their eligibility to participate in future tenders for a defined

period of time. The best systems in the world are likely to be

subverted is there is little possibility of being caught, and if

there are few penalties if you are.

Reinforce whistleblower policies: offer confidentiality and

protection to members of staff reporting corruption on the part

of anyone else in the agency.

Source: based on Schultz & Sreide (2008) and Walker et al. (2008).

Another option for reducing procurement-related corruption risks is to transfer those risks to beneficiaries

themselves by providing vouchers and cash. Beneficiaries have an obvious interest in securing the best

value for money when their own food or shelter is at stake (of course in some situations government

purchase is clearly preferable better exploit economies of scale the benefits and risks of cash transfer

should therefore be carefully considered on a case-by-case basis)22.

Finally, Russel & Leeson (2006) seem to have more liberal ideas in mind when it comes to solutions for

emergency management. The authors, referring to the scandals involved in New Orleans after hurricane

Katrina, propose a set of reforms that depoliticize the process of disaster relief, as a means to mitigate thepublic choice problems associated with government-directed disaster relief that were identified in their

study. Ultimately, this would mean putting more responsibility for these activities in the hands of the

private sector, which according to the authors, is a lot more efficient and does not suffer from the public

choice problems of government-provided disaster relief23. This view, of course, is far from undisputed.

22Schultz & Sreide (2008).

23 Leeson, P. T. & Sobel, R. S. (2008), p.69.


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After all, the ultimate loyalty of the private sector is to shareholders, while government was designed as a

servant of the greater good24.

Lastly, it is impossible not to notice the pervasive influence of New Public Management theories in most of

these measures. For instance, NPM has certainly shifted the emphasis to explicit standards and measures of

performance, as well as on output controls, both of which are present among the proposed solutions to

emergency management.

9. A need to adapt measures according to circumstancesNaturally, not every measure can be applied to anywhere. It is important to consider the idiosyncrasies of

every country, since measures will be quite different depending on the quality of governance and other

factors25. What works in Switzerland is not necessarily useful for Brazilians. The strategy to increase

accountability and transparency in emergency management should take into consideration factors such as

bureaucratic culture and institutional environment.

A study conducted by Huther & Shah (2000) has presented empirical evidence relating corruption to

factors such as media independence, judicial independence and citizen participation. All of those are

negatively correlated to the level of corruption observed. The same study showed, nevertheless, a positive

correlation between command and control type of civil service and corruption. As can be seen in the table

below, priorities of anti-corruption efforts can change depending on the quality of governance.

Table 3 - Effective Anti-Corruption Programs Based on Governance Quality

Incidence of

Corruption

Governance

Quality

Priorities of Anti-Corruption Efforts

(Based on Drivers of Corruption)

High Poor Establish rule of law, strengthen institutions of participation and

accountability; limit government intervention to focus on core

mandate.

Medium Fair Decentralization and economic policy reforms; results-oriented

management and evaluation; introduction of incentives forcompetitive public service delivery.

Low Good Explicit anti-corruption programs such as anti-corruption

agencies; strengthen financial management; raising public and

officials awareness; no bribery pledges, fry big fish, etc.

Source: Huther, J. & Shah, A. (2000).p.12

A closer look to most of these propositions shows again a great familiarity between the proposed efforts

and New Public Management theories.

24 Words of David Walker, Controller-general of the USA, in: King (2006).25 Huther, J. & Shah, A. (2000).


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10.Final considerationsThere are perverse effects related to corruption in emergency management. Corruption reduces the

resources available for life-saving operations, lowers the quality of products and services provided, and

diverts aid from those who need it most26. The purchase of goods and services, which comprises the biggest

line item in most emergency budgets, is certainly one of the most vulnerable processes in this matter.

Special difficulties arise from emergency procurement, including shifts in bargaining powers stemming

from the sudden rise in demand, as well as time pressures. In these situations, there must be a balance

between cost efficiency and flexible, speedy purchase.

In spite of the recent surge of interest in the matter of accountability and transparency in emergency relief,

crisis situations have always provided ripe ground for corruption. In these situations, financial controls are

reduced, funding levels can soar, and staff changes frequently27. Pressure to act and to be seen to be acting

by the media militates against accountable and cost-effective purchases. As a result, as was the case in

Katrinas emergency management, many of the purchases occur in an uncoordinated, hurried manner that

only amplifies the potential for fraud.

Not all, however, is lost. Several studies indicate that better accountability, transparency and quality of

programming can mitigate the risk of corruption. It is important, though, when designing policies to

reduce these risks, to identify the individual incentives, opportunities and mechanisms through which

corruption transactions take place. Only then will the public administration be able to efficiently implement

ex ante and ex post measures to prevent and fight corruption and render procedures more transparent andofficials more accountable.

26 Schultz & Sreide (2008).


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