Local Government Reform: Corruption and Accountability

By Donna Kim and Yuriy Gorodnichenko (UC Berkeley)

Robert Hawkins once said that corruption has been with us since the beginning of human organization but one cannot be complacent about corruption because it eats not only at the economic fabric of society but also at the moral foundations. It is hard to imagine that corruption is going to be eradicated completely but there is a simple set of rules that can minimize corruption. “Corrupt cities” is a wonderful cookbook of such rules. The guiding principle is that one can identify areas where corruption can arise and then prevent it.

Specifically, the book offers a simple formula: corruption = monopoly power + discretion of officials minus accountability. In other words, corruption is strong where an official has exclusive power to deliver a service (e.g. issue a permit), where he or she has freedom in interpreting facts and rules (e.g., there is no framework or formula for making consistent decisions),  where he or she does not report to anybody and his/her activity is not subject to the public’s scrutiny (e.g., all documentation is for “internal use only”). “Corrupt cities” presents many examples of how one can break corruption by a combination of simple policies that reduce monopoly power (e.g., use procurement or vouchers to obtain services) and discretion (e.g., minimize stages of decision making and simplify rules) and increase accountability (e.g., make hearings on key decisions public, publish reports about tenders, and use e-governance).

Using past experience of minimizing corruption at the local level is key for the design and implementation of the decentralization reform in Ukraine. Indeed, opposition to decentralization often points out the potential risks of corruption and accountability issues at the local government level where it could be easier to capture government. Obviously, this is not a problem specific to Ukraine. The key question is how to minimize possibilities for such adverse effects and this is where the formula above is very helpful. In this post, we review two policies implemented in Poland with the goal to raise accountability and transparency of local governments.

Poland certainly experienced cases of corruption during the decentralization process, especially in the realm of municipal property management and local positions of authority. The Polish government responded to such cases by making various legislative amendments and creating new institutions. For instance, the 1994 Law on Public Procurement addressed the problem of local positions of authority being offered to individuals based on their party affiliation and contracts concluded with friendly terms by obliging local governments to follow public procurement procedures. The 1995 changes to the Local Government Act enacted so-called anti-corruption regulations to address common cases of executive boards employing gmina councilors and thereby subjecting them to dependence on the executive bodies. The rest of this post will elaborate on the two notable institutions established by the 1990 Local Government Act: the Appellate Committee and the Regional Audit Chambers.

 

The Appellate Committee

The Appellate Committees are independent entities operating at voivodship levels, funded by the state budget. By allowing decisions relating to gminas’ inherent and delegated responsibilities to be appealed to such independent committees, the citizens’ right to make appeals was ensured while limiting the central administrative authority.

Only legal provisions guide members of appellate committees. This regulation guarantees that they are independent in their rulings on administrative matters and eliminates interference from other authorities. The principle of collective decision-making applies, while the principle of equal parties used in appellate committees differs from ordinary administrative proceedings in which administrative authorities occupy a privileged position.

            With signs of irregularities in the work of a gmina authority, the chairperson of the local appellate committee may make the so-called “signal” decision that provides the basis for starting disciplinary proceedings against local government officials. The committees also have the option of submitting legal queries to the Supreme Court of Administration and Constitutional Tribunal, an important measure in standardizing rulings on matters addressed. Most of the questions have concerned with financial law, liquor licenses, land use, local taxes and fees. Refer to Table 1 for more details. 

Table 1.

Subject	number of cases	%
Land Use	11,335	15.6
Public Welfare	10,852	14.9
Local Taxes & Fees	21,475	29.6
Housing Regulations	5,153	7.1
Environmental Protection	1,604	2.2
Liquor License	4,821	6.6
Real Estate Mgmt.	3,698	5.1
Perpetual Usufruct Fees	11,687	16.1
Other	1,969	2.7
Total	72,594	100.0

Source: Regulski, J. (2003). Local government reform in Poland: an insider's story.

Regional Audit Chambers

Regional Audit Chambers (RIOs), composed of representatives from the government, the ministry of finance and associations of local governments, is another institution created during the local government reform in Poland. There are 16 of them, one in each voivodship, and the National Council of Regional Chambers of Audit (the KRRIO) coordinates the work of all the chambers and represents them before other state entities. As of 2001, the Minister of Interior and Administration supervises RIOs in what concerns the compliance of their operation with law.

RIOs were established primarily to combat the central interference problem such as the central administration meddling in gminas’ finances. They supervise the financial matters of local authorities and audit financial management and public procurement for the following local bodies: 1) local government units (gminas, powiats, voivodships) 2) local government unions and associations 3) local government organizational subsidiary units, including legal entities and 4) other bodies' use of subsidies received from local government budgets. Comprehensive audits are performed at least every four years, but unscheduled or problem-focused audits can be carried out any time if necessary or upon proposal of the local authorities. The audit chambers are only able to evaluate expenditures in terms of their consistency with the law and documents of the actual state of affairs.

            Based on the audit findings, the inspectors draw up a post-audit report, which includes information on detected irregularities, persons responsible and recommendations or solutions. The report is sent to the audited local government, who must reply within 30 days informing the chamber of the measures adopted in response to the report or the failure to do so with stated reasons. The board of the RIO, whose decision is final and binding, considers such objections by the audited local government.

            RIOs may also perform opinion-giving functions on matters such as paying back credits or loans, financing the budget deficit and public debt forecast, etc.

In summary, the key question is not whether decentralization is going to increase corruption but whether the reform is going to establish institutions to control corruption effectively. Ukraine can emulate best practice from other countries and the Polish experience can be a useful starting point.