How We’re Losing the War on Corruption

Increasingly, we’re trivializing ethics and falling short on financial accountability. The citizens deserve better.
by | April 30, 2012
 

While the world was watching the General Services Administration scandal, in which a few hundred thousand of the federal government's 3.6 trillion dollars were wasted, little notice was taken of the case in which the comptroller of Dixon, Ill., allegedly stole $30 million from a town with an annual budget of only $8 million to $9 million. The (you'll excuse the expression) money quote from the mayor of Dixon: "The annual audit didn't show anything. Auditors even commented that we were doing fine with our cash controls." Now, of course, the town is in a world of hurt.

The citizens of Dixon hardly are alone in their pain. Recently the Los Angeles Times did an article that focused on the enormous legal bills incurred by a number of California cities in which corruption occurred. In Lynwood, the mayor was convicted of funneling about $500,000 in city money into a company he secretly owned. In Bell, the former city administrator and other officials were arrested for allegedly stealing millions of dollars from the city by giving themselves exorbitant salaries and benefits. The Times article points out that in addition to such direct losses, citizens are saddled with enormous legal bills siphoning off money that could be used for basic services for years to come.

Despite ever-multiplying conflict-of-interest rules, ethics laws and efforts at transparency, theft, fraud and misappropriation of funds continue largely unabated. During the years I taught public finance to public-administration graduate students, I tried to bring to every class an example from the news of the day of a fraud, embezzlement or misappropriation that illustrated the importance of the particular aspect of public finance we were covering that evening. I did this once a week for nearly 20 years, and I rarely had trouble finding my horror story for the night.

So how do we fix this? More rules? More disclosure? In their book "The Pursuit of Absolute Integrity: How Corruption Control Makes Government Ineffective," Frank Anechiarico and James B. Jacobs argue that "laws, rules, and threats will never result in a public administration to be proud of; to the contrary, the danger is that such an approach will create a self-fulfilling prophecy: having been placed continuously under suspicion, treated like quasi-criminals or probationers, public employees will behave accordingly."

We've been adding rules and transparency at a steady pace for decades with little appreciable real effect except that it costs more and more to comply with them all and the situation has become so complex that at any time you can unwittingly fail to comply with one or more of them. We need fewer rules, not more, and we need to embrace two broad policy directions: Stop trivializing ethics and strengthen financial accountability.

On the trivialization front, I've seen a mid-level career employee demoted and transferred to bureaucratic Siberia for allegedly using a government fax machine to send a personal document. I've been in mandatory ethics classes where we were told that it was essentially unethical to take a government-issue pen home from the office or that we were "stealing" time if we showed up for work 10 minutes late.

The real damage is done not by wayward pens or minor tardiness but by officials at the highest level who abuse the public trust in a big way, as in Dixon, Bell and Lynwood. Discussions of ethics usually devolve into sanctimonious diatribes divorced from the real world. If you really want to curb corruption, take Willie Sutton's advice: Go where the money is.

As for financial accountability, we need to recognize that auditing is too important to be left to the auditors alone. In the case of Dixon, I took a look at the financial audit report and, as the mayor said, it indeed gives the town a clean bill of health. But two of the most basic audit procedures clearly were not performed.

First, the review of internal controls should have uncovered the fact that there was no segregation of duties: The comptroller reportedly had a relative pick up the city's mail every day so she could intercept letters from the bank that referenced her secret account. And second, there was no bank reconciliation that included all the city's accounts: The comptroller's alleged thefts were discovered while she was on leave when the person filling in for her asked the bank for all of the accounts--something the auditors should have done routinely.

Citizens depend on auditing as a critical element of their governments' financial accountability. But too many auditors, left to their own devices, are letting the citizens down to the point where today a clean-audit opinion isn't worth a damn. For ordinary folks, like the taxpayers of Dixon, we need to fix that.

Mark Funkhouser  |  Director, GOVERNING Institute
mfunkhouser@governing.com

Join the Discussion

After you comment, click Post. You can enter an anonymous Display Name or connect to a social profile.

Contributors

More from Finance