Do audits help fight corruption in Brazil?

Responsible researcher: 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 intervention: Brazilian municipalities selected, in all states

Sample size: 2,241 audits, in 1,949 municipalities.

Major theme: Economic Policy and Governance

Variable of main interest: Levels of corruption

Type of intervention: Random public audits in municipalities as a tool to combat corruption.

Evaluation method: Experimental Evaluation (RCT)

Assessment Context

Political corruption is a relevant topic mainly because it hinders economic development and causes damage to the country. Corrupt acts divert public funds, weaken the credibility of institutions and weaken democracy as a whole. Still, several nations around the world constantly face this problem, so the fight against corruption is 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 corruption has proven to be a fundamental tool for punishing these activities and preventing them from occurring again. In this sense, several countries around the world adopt audit programs to discover the misuse of public money, which is essential to inform not only the competent authorities, but also voters about politicians engaged in corrupt practices.

In Brazil, one of the bodies responsible for carrying out audits on political activities is the General Comptroller of the Union (CGU). This body, in 2003, began a program of random audits in Brazilian municipalities with the intention of identifying and reducing acts of corruption in the country, the Public Raffle Inspection Program. An important aspect of this action is the fact 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 adequate application of these funds is a condition for Brazilian economic development.

Intervention Details

The CGU Public Draw Inspection Program works through a lottery system, which randomly chooses Brazilian municipalities to have their public accounts audited. The draw takes place in Brasília for two to four months and selects up to 60 municipalities, with up to 500 thousand inhabitants, to receive 10 to 15 auditors, who will make sure that federal funds are being spent in the right way, guaranteeing the quality of public services offered at each location. Between July 2006 and March 2013, 40 lotteries were carried out, totaling 2,241 audits, in 1,949 Brazilian municipalities, which analyzed more than 22 billion reais in federal resources.

After completing the audits, the reports are sent to the CGU and are made available on the institution's website, in addition to being forwarded to the Federal Audit Court (TCU), the Federal Police (PF) and the Municipal Legislative Branch. Consequently, the program constitutes an important weapon in the fight against political corruption in Brazil, so that the information collected is used in investigations, political campaigns, research and actions against corruption 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, together with socioeconomic data and electoral processes from Brazilian municipalities, based on databases from 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 the selected databases and the random characteristics of the CGU program, the researchers evaluated the impact of public lotteries on local corruption in the selected Brazilian municipalities. To do this, the researchers compared the levels of corruption in municipalities that were audited once, with municipalities that had been audited more than once. Since the lottery system is random and all municipalities have the same chances of being audited, it is possible to estimate the effects of audits on the levels of corruption observed in each of these municipalities.

When reviewing 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 result of poor administration, such as filling out a form incorrectly or improperly storing supplies, for example.

 It is possible to state that the study focuses on acts of political corruption in mandates that occurred between the years 2004 to 2008 and 2008 to 2012. However, the database covers a longer period, between 2006 and 2013. During this period, Among the 1,949 municipalities audited, 14% were audited more than once, with 253 having been drawn twice, 18 municipalities had undergone three audits and 1 municipality was selected four times.

Based on the analysis, the authors distinguished four mechanisms through which random public audits contribute to the fight against political corruption in Brazil:

1. Electoral Responsibility – If a mayor, who is eligible for re-election, realizes that there is a probability of being exposed in an election as a corrupt politician, through an audit, the chance of that politician choosing not to commit acts of corruption increases;
2. Legal Responsibility – If being audited increases legal costs or causes damage to the reputation of a political agent, mayors may prefer not to commit corrupt acts, even if they are not eligible for re-election;
3. 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;
4. Political Entry – If the audits impact the political environment of the selected municipalities, new less corrupt candidates will be able to compete, improving the political conditions of the municipality as a whole.

Results

The results found by the authors prove the importance that audits have in combating political corruption. In general, the data points to an 8% reduction in the identification of corrupt practices in municipalities that were previously audited, in addition to a 20% increase in legal actions against corrupt politicians. To help quantify this impact, the authors argue that, on average, a Brazilian municipality receives around 15 million reais annually and, according to the data, around 30% of the audited amounts were the target of some act of corruption. This indicates that audit procedures reduce approximately 355 thousand reais per year and per municipality, on average.

Regarding the other tests carried out, the authors did not find robust results that point to a reduction in corruption levels in municipalities with better socioeconomic indicators. Regarding audits in neighboring municipalities, the results are robust when these municipalities have media coverage, so that the results of the audits are disseminated regionally. For locations 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 probability 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 re-election, so that the observed reduction reaches 12.7%.

Public Policy Lessons

The research demonstrates the effectiveness of audits in combating corruption in Brazilian municipalities. This occurs due to the usefulness that information from these control procedures has in investigations, legal processes and electoral campaigns. Increasing and improving the implementation of suitable procedures for auditing municipal public accounts appears to be a good way to combat political corruption, as it strengthens institutions and negatively reinforces the incentives to carry out improper acts. However, the authors reinforce that in addition to increasing the means of identifying corrupt practices, it is also necessary to improve the capacity to prosecute corrupt politicians. Strengthening institutions capable of carrying out random and well-structured audits appears to be a viable way of moving 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.