February 16, 2011Doug Hadden
Doug Hadden, VP Products
Reuters reported yesterday about an IMF report that found corruption and mismanagement at Kabulbank. There were some interesting points made in the report:
Donors contribute about 70 percent of the Afghan state operating budget, itself dwarfed by billions more in direct aid.
One of the next cards to fall would be the Afghan Reconstruction Trust Fund (ARTF), the biggest vehicle for donor funding. Between 2002 and April 2009, 30 donors contributed more than $3 billion to the World Bank-administered ARTF, according to the fund’s website (www.worldbank.org).
As the provider of the Afghanistan Financial Management Information System (AFMIS), we have been somewhat vocal on the subject of corruption and the superficial reporting on corruption. For one thing, this report doesn’t make the necessary connection that the use of ARTF and budget support through AFMIS is a strong tool to reduce corruption.
Fighting Corruption with Software and Process
This simplified diagram demonstrates the strong anti-corruption tools available to international donors:
- Visibility throughout the budget cycle where every step can be audited increases the chances of discovering corrupt practices
- Segregation of duties to prevent someone from approving purchase orders, indicating that goods were received and approving payment
- Use of budget and approval controls reduces the opportunity for corrupt practices
- Avoiding cash as much as possible reduces corruption
- Standard reports and automated processes improves efficiency
I’m not going to tell you that the FreeBalance Accountability Suite eliminates corruption. It’s a tool for good governance. And, transparency. The vast majority of government corruption in Afghanistan is perpetrated outside of the financial system.
Corruption remains a major concern for the people of Afghanistan and for international donors. Indeed, the World Bank’s own diagnostics recognize that graft and bribery are widespread, even pervasive, in Afghanistan. Yet despite the growing threat of corruption, the Afghan government has improved its accountability measures for public finances, and the essentials of a public financial management system are now in place. In fact, Afghanistan’s Public Financial Management (PFM) per formance compares favorably with other post-conflict countries. An assessment by the World Bank and DFID in June 2008 (the Public Expenditure and Financial Accountability (PEFA) assessment) rated Afghanistan better than the average of a sample of other low-income countries. Interestingly, on some criteria, Afghanistan’s ratings were even better than the average of a sample of middle-income countries.
Practices that Enable Corruption
You’ve read the stories like billions of dollars flying out of Afghanistan. How is this enabled? Ironically, many donors enable corruption by trying to avoid it. This concern that government systems are rife with corruption creates an environment that is impossible to audit.
- Donor aid is provided in multiple projects
- Projects are executed by private sector companies and NGOs
- Some of the money is provided to government entities but is off the books – “off-budget”
- There can be significant amounts of sub-contracting
- Every player in the aid life-cycle has different levels of controls
- Cash is widely used
- Every project requires reports but these reports do not necessarily come from a robust financial application – some could be fiction
- Of course, multiple projects with donors and sub-contracting creates inefficiency and makes it difficult to coordinate
It doesn’t make sense that donors will scrap ARTF because of corruption. There could be other factors at play, but the notion that the ARTF will be the “next card to fall” because of corruption at Kabulbank is something that makes no objective sense.