Principal investigator: Angelo Cruz do Nascimento Varella
Article title: DO GOVERNMENT AUDITS REDUCE CORRUPTION? ESTIMATING THE IMPACTS OF EXPOSING CORRUPT POLITICIANS
Article authors: Eric Avis; Claudio Ferraz; Frederico Finan;
Location of the intervention: Brazilian municipalities selected by lottery, in all states.
Sample size: 2.241 audits, in 1.949 municipalities.
Main theme: Economic Policy and Governance
Primary variable of interest: Levels of corruption
Type of intervention: Random public audits in municipalities as a tool to combat corruption.
Evaluation method: Experimental Evaluation (RCT)
Evaluation Context
Political corruption is a relevant topic primarily because it hinders economic development and causes harm to the country. Corrupt acts divert public funds, undermine the credibility of institutions, and weaken democracy as a whole. Even so, many nations around the world constantly face this problem, making the fight against corruption a recurring research topic, in which the best ways to combat this evil are studied.
In this context, a necessary condition for combating corruption is the identification of corrupt acts. In other words, the ability to prove the practice of corruption has proven to be a fundamental tool for punishing these activities and preventing them from recurring. In this sense, several countries around the world adopt audit programs to uncover the misuse of public funds, which is indispensable for informing not only the competent authorities but also voters about politicians engaged in corrupt practices.
In Brazil, one of the bodies responsible for auditing political activities is the Comptroller General of the Union (CGU). In 2003, this body initiated a program of random audits in Brazilian municipalities with the intention of identifying and reducing acts of corruption in the country, the Public Lottery Audit Program. An important aspect of this action is that Brazil is one of the most decentralized countries in the world, and every year each municipality receives millions of reais from the Federal Government to finance public services. Logically, the proper application of these funds is a condition for Brazilian economic development.
Intervention Details
The CGU's Public Lottery Audit Program operates through a lottery system that randomly selects Brazilian municipalities to have their public accounts audited. The draw takes place in Brasília every two to four months and selects up to 60 municipalities, with up to 500 inhabitants, to receive 10 to 15 auditors who will ensure that federal funds are being spent correctly, guaranteeing the quality of public services offered in each location. Between July 2006 and March 2013, 40 lotteries were held, totaling 2.241 audits in 1.949 Brazilian municipalities, analyzing more than 22 billion reais in federal resources.
After the audits are completed, the reports are sent to the CGU (Brazilian Comptroller General's Office) and made available on the institution's website, in addition to being forwarded to the TCU (Federal Court of Accounts), the PF (Federal Police), and the Municipal Legislative Branch. Consequently, the program constitutes an important tool in the fight against political corruption in Brazil, so that the information collected is used in investigations, political campaigns, research, and anti-corruption actions throughout the country.
In order to measure the effects of this program in combating political corruption in Brazilian municipalities, the researchers used reports from the CGU program, along with socioeconomic data and electoral process data from Brazilian municipalities, obtained from databases of the Superior Electoral Court (TSE), the Federal Police (PF), the National Council of Justice (CNJ), the Brazilian Institute of Geography and Statistics (IBGE), and the Institute for Applied Economic Research (IPEA).
Methodology Details
Based on selected databases and the random characteristics of the CGU program, researchers evaluated the impact of public lotteries on local corruption in selected Brazilian municipalities. To do this, researchers compared the corruption levels of municipalities that were audited only once with those that had been audited more than once. Since the lottery system is random and all municipalities have the same chance of being audited, it is possible to estimate the effects of the audits on the observed corruption levels in each of these municipalities.
When reviewing the CGU data, researchers differentiate between two types of irregularities. The first type refers to irregularities that occurred due to acts of political corruption. The second type of irregularity is characterized as a consequence of mismanagement, such as the incorrect completion of a form or improper storage of supplies, for example.
It is possible to state that the study focuses on acts of political corruption during the mandates that occurred between 2004 and 2008 and from 2008 to 2012. However, the database covers a longer period, from 2006 to 2013. During this period, among the 1.949 municipalities audited, 14% were audited more than once, with 253 having been selected twice, 18 municipalities having undergone three audits, and 1 municipality being selected four times.
Based on the analysis, the authors identified four mechanisms by which random public audits contribute to the fight against political corruption in Brazil:
- Electoral Responsibility – If a mayor, who is eligible for reelection, realizes that there is a probability of being exposed as a corrupt politician in an election, through an audit, the chance of that politician choosing not to engage in corrupt acts increases;
- Legal Responsibility – If the prospect of being audited increases legal costs or damages a politician's reputation, mayors may prefer not to engage in corrupt acts, even if they are ineligible for reelection.
- Political Selection – If audits allow citizens to identify corrupt politicians, it is possible that voters will prefer to vote for candidates with better reputations, favoring better politicians through the electoral process;
- Political Entry – If the audits impact the political environment of the selected municipalities, new, less corrupt candidates may be able to run, improving the political conditions of the municipality as a whole.
Results
The results found by the authors confirm the importance of audits in combating political corruption. In general, the data indicate an 8% reduction in the identification of corrupt practices in municipalities that were previously audited, as well as a 20% increase in legal actions against corrupt politicians. To help quantify this impact, the authors argue that, on average, a Brazilian municipality receives approximately 15 million reais annually and, according to the data, about 30% of the audited amounts were the target of some act of corruption. This indicates that audit procedures reduce corruption by approximately 355 reais per year per municipality, on average.
Regarding the other tests performed, the authors did not find robust results indicating a reduction in corruption levels in municipalities with better socioeconomic indicators. However, concerning audits in neighboring municipalities, the results are robust when these municipalities have media coverage, so that the audit results are disseminated regionally. For localities with AM radio coverage, audits in neighboring municipalities reduced the identification of corrupt acts by 7,5%, while the presence of television media negatively impacted the incidence of corrupt acts by 10,4%.
Another factor analyzed was the presence of legal institutions. After audits, municipalities with these institutions increase the likelihood of legal action against corrupt politicians by 35,4%, compared to places without this presence. Audits also affect political cycles, especially in municipalities where mayors have recently been audited or are seeking reelection, with the observed reduction reaching 12,7%.
Lessons in Public Policy
Research demonstrates the effectiveness of audits in combating corruption in Brazilian municipalities. This is due to the usefulness of the information obtained from these control procedures in investigations, legal proceedings, and election campaigns. Increasing and improving the performance of sound audit procedures of municipal public accounts appears to be a good way to combat political corruption, as it strengthens institutions and negatively reinforces incentives to commit improper acts. However, the authors emphasize that in addition to improving the means of identifying corrupt practices, it is also necessary to improve the capacity to prosecute corrupt politicians. Strengthening institutions capable of conducting random and well-structured audits appears to be a viable way to move in this direction.
Reference
AVIS, Eric; FERRAZ, Claudio; FINAN, Frederico. Do government audits reduce corruption? Estimating the impacts of exposing corrupt politicians. Journal of Political Economy, vol. 126, n. 5, p. 1912-1964, 2018.
