Monitoring reforms in Defence

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What is monitoring ?

STRENGTHENING INTERNAL AUDIT

Defence Ministries usually have internal audit bodies like other ministries (Sometimes also called Internal control or Internal control and revision bodies). However, they are often not strong organisations, frequently being under-resourced and/or kept away from sensitive areas; especially in Ministries that are largely staffed by military officers.

This is a pity, as a capable audit function can have a strong effect in corruption prevention, as well as in fraud detection.


Audit operates by being the ‘third line of defence’ in a well-functioning system of management. The first line of defence is normal management supervision. The second line of defence comes from other line management control mechanisms such as risk management, inspection and financial control. Audit is the ‘third line’ after that. See the schematic diagram opposite.

Ukraine MOD Audit function – good practice

Here is a powerful example of the good use of internal audit in the MOD of Ukraine, where a strong audit director has built the department up to be the lead entity in the corruption prevention efforts of the Ukrainian Ministry of Defence.

In 2012, she carried out an analysis of 200 MOD audit reports and 200 MOD special investigations, which by law are publicly available in Ukraine. She analysed them into four main categories of corruption:

  1. Loss (waste) of revenues

The revenue side of the defence budget needs to be the subject of a detailed audit. In Ukraine, the MOD receives sales proceeds from surplus weapons, property, and the income of budgetary institutions derived from services made. Audit findings, all quantified, include:

  • unreasonable provision of free usage of resources to some individuals /
    entities (no rent, payment for land,
    )
  • unreasonable lowering of a price/value/volume of property
    sold, paid services, work performed, rent, unreasonable privileges/ discounts for some buyers
  • economically disadvantageous contracts, provision of loans, financial sanctions to some providers/debtors in case of non-contract terms
  • lack of payments by public enterprises due to budget/dividends

1. Illegal expenditures

Illegal expenditures usually mean (i) expenditures, conducted in violation of law, (ii) non-target costs, and (iii) losses from lack or damage of resources. Audit findings, all quantified, include expenditure in relation to:

  • Military towns / cantonments, integral property complexes
  • Movable property
  • Construction, acquisitions of housing
  • Illegal payment of salaries, money allowances, scholarships and other types of incentives
  • Losses (damage) from lack of, or shortages, of Weapons and military equipment

2. Violations that did not result in financiallosses

Audit findings include violations in relation to

  • Overstating the need for budget funds; the inclusion of incorrect figures to budget requests
  • Understating the value of assets, accounts receivable and payable; surplus assets
  • Violation of financial and budgetary discipline

3. Inefficient managerial decisions

Discussion

This analysis was astonishing to many of us working in defence corruption prevention. First, that the audit reports were all publicly available. Second, the analytical skill of the author, at that time the Depury Director of Ukraine MOD audit. Third, her bravery: she was initially fired for that report, and only afterwards reinstated. Fourth, the way that she categorised all the different sorts of loss is an example to other MOD audits department everywhere. Finally, that this department has been supported and strengthened within the Ukrainian MOD so as to have a pivotal role in tackling corruption in the Ukraine military and MOD.

For more detail, including references to the amounts lost and the implications for operating an audit function in a high-corruption country, see Barynina and Pyman (2012) here.

 

INSPECTORS GENERAL 

I know little about the performance of IG organisations in Defence Ministries in regular countries.

If any reader knows more, please be in touch with us at editor@curbingcorruption.com

In relation to Afghanistan, building up a strong IG organisation within the Afghan military and Afghan Ministry of Defence has been a central part of tackling corruption in the MOD and Afghan National Defence Forces. More information on the experience and their performance can be found through the Special Inspector General for Afghanistan (SIGAR). See for example here and here (request made to SIGAR).

STRENGTHENING EXTERNAL AUDIT 

The external audit of defence is an essential safeguard over the Defence Ministry. Why? Read on >

Independent audit offices increase the capacity of parliaments and legislatures to reduce defence corruption risk. Audit offices may perform either general audits, examining government defence spending overall, or focused audits that look at a specific area of defence expenditure. They can be strict financial audits, or analyses looking at value for money and efficient allocation of resources.

Alongside the executive’s budget documents, audit reports are crucial in enabling parliaments, legislatures and citizens to effectively scrutinise the government’s management of public funds, whether the defence budget was executed as approved, and where there are gaps and uncertainties. Through analysis of budget proposals and by independently validating costs, audit offices can provide essential support.

The production of audit reports by an independent institution can serve to redress the imbalance of defence information and expertise between government and parliament. Audit offices provide the documents which help ensure that government defence expenditure can be overseen from the beginning of the budget process to its end.

Comparison of countries in the TI analysis: effectiveness of external audit +/-

How effective are external audits of defence? The TI defence database contains analysis of the quality of external defence audits of 82 countries, in answer to the question: “Is there effective and transparent external audit of defence?” The results of the 2013 analysis show that almost two thirds the countries in the survey scored reasonably well (receiving above 50% score; for the methodology, see here). African and Middle Eastern countries have the poorest record, as at 2013. Click on the line below for a chart showing the detailed country ranking.

Good example: JAPAN

Japan’s defence expenditure is audited by the strictly independent board of Audit. The Japanese constitution requires the Board to audit the final accounts of the expenditures and revenues of the state on an annual basis. The audit reports are then submitted to parliament (The National Diet) via the cabinet, during the fiscal year immediately following the period covered. These audit reports are deliberated by relevant parliamentary committees in the lower and upper chambers of the Diet, both of which have a committee dedicated to their scrutiny.

Good example: LATVIA

According to the GI 2013, Latvia’s Auditor-General’s Office has become increasingly more effective and respected in the Ministry of Defence (MOD) in recent years. It is an independent institution and carries out both regular and specialised audits. For example, the Auditor-General’s Office has examined the “Use of Government Funds in Training Military Personnel”. All audit reports are publicly available online and easily accessible to parliament.  The Board’s senior officials always attend the deliberations of the parliamentary committees. They use this opportunity to explain the contents of the audit reports or relevant audit activities and to present the Board’s opinion. The board of Audit consults the Diet when preparing the audit plan and implementing its audits and takes its requests into consideration. This is to ensure the Board’s work reflects the concerns and expectations of parliament and the public. The board’s reports are made publicly available, enabling public criticism and scrutiny of defence expenditure.

Latvia’s Parliamentary Public Expenditure and Audit Committee is tasked with overseeing the implementation of the Auditor- General’s recommendations and holds regular meetings to this end. The progress on any audit recommendations made to the MOD is reported to the parliamentary defence committee.

Good example: UK

Every year, the UK’s National Audit Office carries out a detailed analysis of the top 20 major projects in the defence sector. These results are probing and are published. The report on the MOD equipment plan for 2017 can be found here.

PARLIAMENTARY OVERSIGHT 

Parliament is intended to be one of the major controls over the integrity and management of defence by the government. The reality is that this is only rarely the case. In TI’s detailed analysis of the quality and transparency of parliamentary oversight of defence, only 12 of the 83 countries scored either Very Low risk or Low risk (Very low: Australia, Germany, Norway, UK; Low: Austria, Brazil, Bulgaria, Colombia, France, Japan Poland, Slovakia, South Korea, Sweden, Taiwan, USA). Eighty-five per cent of the countries lack effective scrutiny of their defence policy. The detailed country results can be seen by clicking the table below.

Comparison of countries in the TI analysis: Effectiveness and transparency of Parliamentary Defence Committees  +/-

(more to come)

TI analysis: Monitoring of defence Procurement by Parliaments

Parliaments and legislatures should legislate for provisions to formalise the procurement cycle, guarantee transparency surrounding purchases, and provide for controls on the fundamental and complex elements of defence procurement. In doing so, they increase representatives’ and citizens’ understanding of corruption and elevate controls to a statutory footing. An important aspect of ensuring such legislation is effective is the avoidance of exemptions from formal processes. Legislative mechanisms may be in place, but may ignore certain types of procurement on the basis of national security or secrecy. This is a concern: such items may be most prone to corruption in procurement.

Parliaments and legislatures also have an important part to play in scrutinising defence procurement. Although purchases are often subject to a certain degree of oversight from auditors, comptrollers, and internal Ministry of Defence staff, parliaments and legislatures should play a central role. As defence procurement is often secretive and shielded from public view, the ability of elected representatives to carry out meaningful oversight is crucial. This may

mean that such scrutiny takes special forms. A sub-committee may be convened to oversee secret procurement that is subject to confidentiality agreements. Yet the nature of this scrutiny, and the processes governing it, should be transparent. Where there is no security element, actual and intended purchases should be publicly disclosed, and should match subsequent procurement audits.

A legislature that truly represents its people is a vanguard against secrecy and privileged relationships in the arms trade—a trade at risk of scandals which cost the taxpayer billions. Without effective controls, legislation, and oversight, there is distortion between necessary purchases and those only pursued for corrupt ends. This may lead to ineffective or ill-suited equipment which threatens the safety of troops, and the citizens they protect.

Comparison of countries in the TI analysis: Effectiveness of oversight of procurement  +/-

The TI analysis asks: Does the country have legislation covering defence and security procurement with clauses specific to corruption risks, and are any items exempt from these laws?  Are defence procurement oversight mechanisms in place and are these oversight mechanisms active and transparent? Are actual and potential defence purchases made public?

 

MONITORING BY NGOS

NGOs play a vital role in monitoring government and government corruption. This is equally true in the defence sector. However, in many countries NGOs are less present in the defence sector than in other sectors.

If you are a public official or Minister seeking to reduce corruption in the defence sector, do work with the NGOs that take an interest in defence. You can bring them in to advise, to train, to challenge. In some countries, NGO representatives are invited to assist in making policy

If there is no defence-related NGO, it is in your interest to try to encourage one to exist, and/or to encourage existing NGOs to branch out into defence.

Across the defence sector globally, the Defence and Security programme of Transparency International has been the predominant international NGO since 2004. The TI defence and security team, founded in 2004, has experience of working with multiple countries and has carried out more research and analysis on defence corruption and corruption reforms than anyone else. The team of approx 20 staff is centred in London, but also has out-posted team members in Brussels, Lebanon, Ukraine, USA, (others). Their work is extensively referenced throughout this review.

TI Defence & Security has extensive country analyses and guidance material that you can access freely and without charge. They also have some one hundred detailed country defence assessments and 160 defence company assessments.

Look  at their website, here, and their list of publications, here.

A good action would be to contact the TI Defence Group and ask for assistance. Their email is here. Alternatively, contact your national TI organisation (you can find their contact details here). They may not be competent in tackling defence corruption, but they can connect you to the central TI Defence group and act as local liaison.

Corruption watch – South Africa Read more >

(to come)

HYBRID INDEPENDENT OVERSIGHT 

The quality and depth of independent monitoring entities can easily suffer from two sorts of tension. On the one hand, having good local knowledge, but perhaps not deep functional knowledge, whilst at the same time being vulnerable to members of the organisation being subverted by those in power. Or the opposite problem, of having international experts with deep functional knowledge, a greater ability to withstand corrupt local influence, but vulnerable by not having enough local knowledge.

There have been two examples in the past few years of independent anti-corruption organisations that try to get over this problem by having a mix of locals and internationals on the Commission. One example is CICIG in Guatemala, the other is MEC in Afghanistan (the joint independent anti-corruption monitoring and evaluation committee).

Specifically, there is now also one such organisation in the defence sector, in Ukraine. Called the Independent Defence Anti-Corruption Committee (NAKO is the Ukrainian acronym), it was established in 2015 and has three local members and three international members with deep knowledge of defence anti-corruption. The mandate of the Committee is as follows. Read more >

NAKO’s Mandate

Monitoring and evaluating efforts to reduce corruption and corruption risks within the defence sector of Ukraine, to include risks in the provision of international security assistance and military aid.

Developing anti-corruption recommendations for the defence sector and advocating for and monitoring their implementation. Supporting reform efforts with technical advice where possible and where this does not present a conflict of interest with the NAKO’s monitoring role.

Providing open, regular analysis and reporting to the President, Government, Parliament, Ukrainian people, and the international community, about the state of the fight against corruption in the defence sector. This involves analysing defence sector corruption and identifying structures of corrupt networks. Here is one such example, on defence procurement.

Promoting transparency of defence sector establishments and, in conjunction with international partners, facilitating communication and openness between the Ministry of Defence, civil society and the public.

Contributing to policy through input and evaluation of the Strategic Defence Bulletin, National Security Strategy, and other policies as it relates to anti-corruption in the defence and security sector.

Strengthening international and national accountability structures as they relate to anti- corruption in defence, particularly the Rada.

Enabling citizen feedback through the creation, resourcing, and maintenance of a feedback reporting mechanism to receive complaints related to corruption in the defence sector and to provide advice regarding possible legal proceedings. Grounded suspicions of corruption will be forwarded to relevant law enforcement agencies.

For the full NAKO terms of reference, see here.

WHISTLEBLOWING 

(TO COME)

BETTER CONTROL AND PERFORMANCE MANAGEMENT 

( TO COME)

 

 

Section 9 

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