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According to Transparency International, an international anti-corruption organization headquartered in Berlin, the public sectors of most of the world’s countries are still plagued by high levels of perceived corruption. Based on the latest (2012) public sector corruption perception study performed by Transparency International, the average score of 176 countries was 43 out of 100 (the lower the score, the higher perceived level of corruption). The United States ranked 19th of 176 with a score of 73.
Corruption is a type of fraud and can take on many forms. Bribes, illegal gratuities, kickbacks, bid rigging and undisclosed conflicts of interest are but a few of the variations. Generally, the common thread in these variants is the abuse of one’s position or power for personal gain. One of the best available tools to counter corruption in the public sector is transparency. Transparency means shining ample light not only on what we are doing but how we are doing it.
Fraud examiners frequently rely on the late criminologist Donald Cressey’s fraud triangle model to understand why someone might become involved in corruption or other forms of fraud. The fraud triangle includes three elements that Cressey believed needed to be present for a potential perpetrator to commit fraud. The three elements are pressure, opportunity and rationalization. Pressure describes what Cressey called a non-shareable problem (e.g., financial distress, status or ego related insecurities, embarrassment avoidance). Opportunity is the perception by the potential perpetrator that their act will remain undetected. Rationalization is the thought process by which the perpetrator convinces him or herself that the intended act is justified (e.g., “I deserve it,” “the Robin Hood complex,” “everyone does it”). Since pressure and rationalization are generally regarded as harder to detect and directly address with preventative measures, most agree that minimizing opportunity is the best way to reduce the likelihood of fraud. Opportunity is reduced when potential perpetrators perceive their risk of being caught as too high. Consequently, the more “sunshine” or the greater transparency there is in government, the more we are likely to deter corruption.
In a recent related initiative, the state of Florida has been considering ways to increase transparency on data and decisions related to their $70 billion dollar annual budget. The Florida Department of Financial Services maintains a transparency website. This website provides extensive and, in many cases, quite detailed information to the public on the state budget, state contracts, state audits, treasury and risk management reports, vendor payments, cash balances, state employee payrolls and pensions, regulations and rulemaking, public-private partnerships, state and federal grant expenditures, as well as a database link to many local (county and city) budgets from 1993 to the present. The transparency website also provides a link to the Attorney General’s website where there is further information on the Florida Sunshine Law that requires open meetings and access to public records.
Despite all of the aforementioned content available via the Florida transparency website, the U.S. Public Interest Research Group (PIRG), a non-profit organization that seeks to make government more responsive to the public interest, gives Florida a relatively poor grade of “D” in providing access to government spending data in a recent report. On a more positive note, in the U.S. PIRG report Florida was included among the “emerging states” that have exhibited some recent progress but still lacking many of the desirable features provided by the leading states. Additionally, the areas where Florida’s transparency website could be improved include permitting searches by activity, allowing downloads, and providing more information on state contracts, tax expenditures, economic development grants, and ARRA funding. Notwithstanding, only five states, Kentucky, Indiana, Texas, Louisiana, and Arizona received a grade of “A” or “A-” suggesting that there is considerable room for improvement in most areas of the country. U.S. PIRG research indicates that local government transparency leaders are those who have embraced and adopted, or in a few exceptional cases, exceeded the new “Transparency 2.0″ standards that call for complete, easily searchable information provided via one-stop accessibility. The U.S. PIRG study also reveals that well-designed transparency websites can do much more than just increase public access and government accountability. Many states, for example, have reported that their transparency websites have helped them detect wasteful spending, renegotiate contracts, increase the number of competitive bids and reduce costs associated with public information requests.
Regrettably, calls for greater transparency are often a derivative of distrust and the associated demand for more accountability. With few exceptions (e.g., possibly in our places of worship and with a few select family members or close friends), many of us need to see or hear to believe. A recent Pew Research survey reported that trust in government was “near historic lows.” It has also been shown that increasing the perception (if not the capacity) of detection can be useful in preventing corruption. In their latest annual “Report to the Nations on Occupational Fraud” (2012), the Association of Certified Fraud Examiners reported that the three most common ways of detecting corruption cases are tips (e.g., hotlines), internal audits and management review. All other detection methods exhibited lower detection frequency than “by accident.” Developing comprehensive, accessible and easily searchable transparency websites is a laudable means of further supporting and strengthening these three established methods of detection and contributing towards restoring greater accountability and public confidence in government.
Author: Nick Lebredo, PhD CPA CFE is currently an Associate Professor of Accounting at Saint Leo University near Tampa, Florida. Dr. Lebredo is a graduate of the University of Central Florida, The Ohio State University, and the U.S. Naval Academy. He is also a Certified Public Accountant and a Certified Fraud Examiner. Prior to entering academia, he worked in the private sector, state, and federal government.