Fiduciary safeguards for minimising corruption risks
Query
What are the lessons on use of fiduciary safeguards for minimising risk in budget support and, in this context, how do bilateral and multilateral donors assess corruption? Which are the most common safeguards used to mitigate fiduciary risks and what are the strengths and weaknesses related to the use of these for partner governments as well as donors?Content
1. Corruption risks and the provision of budget support
2. Examples of fiduciary risk assessment frameworks
3. Common fiduciary risk mitigation strategies
4. References
Summary
It is usually assumed that budget support is more vulnerable to corruption than other forms of aid, as it can be directly affected by existing weaknesses in the recipient countries’ public finance management (PFM) systems.
While donors usually do not consider corruption as a prohibitive factor to the provision of budget support, there is a broad consensus that diagnostic corruption information needs to be integrated into decisions on budget support operations. This is usually done in the form of ex-ante fiduciary risks assessments using tools such as the DFID’s fiduciary risk assessment framework, the World Bank’s analytical tools to assess procurement and PFM systems or the joint assessment framework known as the Public Expenditure and Financial Accountability (PEFA) performance framework. Although most of these fiduciary risk assessment tools do not comprehensively capture corruption risks, it is usually considered that conducting such assessments has a positive impact on the recipient countries’ PFM systems and reform programs.
There are different types of risk mitigation strategies that can be used to address fiduciary risks over different timescales, including: 1) short term safeguards and arrangements facilitating the tracking and accounting of expenditures; 2) mechanisms for monitoring key corruption risks and related reforms in the medium term; and 3) a comprehensive programme of reforms to address corruption risks in PFM systems in the long run. Experience shows that while short and medium term arrangements are likely to reduce the reputational risks of donors, they do not substitute for more credible, coherent and sustainable reform approaches that address the underlying causes of corruption risks to PFM systems in a sustainable manner.
Author(s): Marie Chêne , Transparency International, mchene@transparency.org
Reviewed by: Dieter Zinnbauer, Ph.D., Transparency International, dzinnbauer@transparency.org
Publication date: 6 April 2010
Number: 240