Different forms of aid are generally associated with different risks of corruption. A distinction can be made between budget support, programme aid, and project aid. In budget support and programme aid the corruption risks are associated with the general accountability of public resources. In project support corruption risks can present itself at various stages of the project cycle. Aspects of corruption in aid and development cooperation discussed here are:

• budget support and programme aid
• project aid
• debt relief

More budget support can create new challenges and opportunities for civil society activity. It requires governments to become more transparent. Budget transparency is also one important prerequisite for public participation and accountability. Budget transparency is defined as the full disclosure of all relevant fiscal information in a timely and systematic manner. There are a variety of measures and tools that enhance budget transparency and reduce the risk of corruption. Below several examples of measures to increase budget transparency are given.

Avoiding off-budget activities
In budget presentation, the full picture of the government's financial status must be given. Many developing countries have lost control over their financial affairs due to the segregation of budgetary execution data, or ad hoc budgetary execution records. Donors should be particularly aware that off-budget programmes should be avoided or be fully transparent. Aid practices could otherwise distort the budgetary process and undermine government accountability.

Sound budget and expenditure management systems
Ideally the budget system should be built in a way that is transparent and open to public scrutiny. Improved public expenditure management systems are currently put in place in many developing countries in the context of Poverty Reduction Strategies (PRS). They are part of an overall reform package consisting of macro-economic and budget reform, civil service reform, and changes in the legal and regulatory structures.

Making information available
The budget system should be designed in a way that produces comprehensive, timely information. Communication technology can play a crucial role in this. Electronic records of all transactions can contribute to avoiding expenditures without previous authorisation and proper justification. For example, in Peru, an internet portal for fiscal transparency has been providing free access to detailed budget information since 1999. Pro-active government or civil society organisation information campaigns can generate public interest in the monitoring of spendings and thus prevent leakage of funds.

Build budget literacy
Understanding and analysing budgets is not an easy task. However, if citizens are to hold their leaders to account, they have to be able to understand the budget. The legislature is more likely to effectively monitor the budget process if there is widespread public interest in budget issues. The media and civil society organisations play a particularly important role in sparking public debates about the budget.

Develop capacity of parliamentarians
Budget literacy is particularly important for members of parliaments who should be able to analyse the budget proposal, monitor expenditures and evaluate outcomes. Parliamentarians can initiate public hearings and debates, establish special committees and request further information from the executive. They are therefore important dialogue partners besides civil society.

Public Expenditure Tracking
In the budget execution phase, transparency can be enhanced through expenditure tracking, a method of finding out how, and at which level of the system, money disappears. It examines the flow of public funds and the extent to which resources actually reach the target group. Public Expenditure Tracking Surveys (PETS) measure the transformation of public expenditure into public goods and are today carried out by a number of institutions, including the World Bank. Public Expenditure Tracking can help identify entry points for anti-corruption reform.

Strong and independent audit institutions
Unfortunately, fiscal review bodies, such as audit institutions, are not always able to do their job. Means to enhance budget transparency should therefore also aim to strengthen the effectiveness of these institutions. To effectively monitor and assess public spending, they need political independence as well as adequate financial and human resources that allow them to produce accurate reports in a timely manner.

Project selection
Corruption can negatively affect the selection of development projects. Corruption can divert resources away from social sectors and toward defence and major infrastructure projects. It may also encourage the selection of uneconomical projects because of opportunities for financial kickbacks and political patronage.

Project design
The distorting effects of corruption on projects can take effect early in the project design phase. Project requirements may be overstated or tailored to fit one specific bidder. More generally, a corrupt system deflates the value of work performed in project planning because subsequent planning decisions do not depend on a careful assessment of needs and goals, but rather on the need to maintain cash flow from the diversion of development aid.

Procurement
The risk of corruption in the procurement of goods and services needed for the implementation of development projects is particularly high. This can involve attempts by aid borrowers to limit competition via insufficient advertising, short bidding times or similar. It can also take the form of corrupt practice on the part of bidders, like unjustified complaints or misleading bids. Collusion among firms or between public officials and bidders can also render competition ineffective, leading to contracts to underperforming firms at inflated prices.

Implementation
Corruption at project implementation stage can involve practices including corrupt contract amendments, over-billing or underpayment, the provision of equipment or goods of lower than specified quality, as well as outright theft of materials, equipment or services. Expenditure leakage refers to the corrupt diversion of allocated project funding. This can lead to significant reductions in the aid received by end-users. In extreme cases, aid may only reach those able to pay for it.

Financial management
Corruption in the financial management of development projects can include duplication of payments, alteration of invoices, lack of supporting records, ineligible payments, misuse of funds or unauthorised payments.

Project evaluation
Corruption can distort the evaluation of development projects, thus ensuring the continued flow of development resources for potential diversion. Kick-backs can be given to persuade recipient government officials or aid agency staff to turn a blind eye to sluggishly implemented projects, unfulfilled contract requirements, undelivered aid and other instances of malpractice.

Heavily Indebted Poor Countries (HIPC)
A special mechanism for financing development in poor countries is the enhanced Heavily Indebted Poor Countries (HIPC) initiative started in 1999. Debt relief releases funds in the budget, which would otherwise have been used to pay multilateral debt service. The HIPC package in total is worth around US$ 100 billion. Increases in education and health spending are expected to absorb about two-thirds of the total relief.

G 8 Initiative
The G8 group of countries at its 2005 meeting reached a deal under which, the World Bank, the International Monetary Fund and the African Development Bank agreed to immediately write off 100% of the money owed to them by 18 countries, an estimated total of US$ 40 billion.