Nicholas, a citizen of an Eastern European nation and a highly respected scientist, worked as the director of a public institution in his country. He had the power to grant funds to research institutions in his country from international organizations, such as the Global Fund, the United Nations, the European Commission and the United States Agency for International Development (which included U.S. taxpayers’ money).
The country’s state civil service bureau, which receives and reviews officials’ income-asset disclosures (IAD), selected his declaration to inspect. The bureau’s staff noticed some red flags when they matched his information on the declaration to the external data sets, such as public land ownership, salaried employees by public resources and police records. Then the board sent the suspected case to the state audit office for further review. Helen, a smart oversight professional from the office, discovered Nicholas had committed a fraud via a conflict of interest (COI) by granting funds under his signature to an institution that, in exchange, had hired his daughter.
Because Nicholas had failed to declare income for relatives under his custody in his IAD, his employer fired him for COI. Similar organizations in the country blacklisted him for the rest of his career despite his highly respected scientific bonafides. His ethical breach obviously was more important for him than his good name. (This story is an amalgamation of several cases.)
Organizations are now using a relatively new tool, IAD management systems, to detect fraud and corruption by those in high-level political, governmental and civil servant positions who could receive remuneration from tax dollars.
The public, which is eager for transparency and accountability, is asking for clear disclosures in changes in income, assets and fortunes of top officials in community service. Mere income monitoring doesn’t work anymore. Citizens won’t tolerate the illicit enrichment and conflicts of interest of these high-ranking leaders while on duty.
IADs can increase public confidence in accountability and perception of good governance. Organizations can use them to discover illicit enrichments and COI. In recent years, private-sector entities — multinationals and other large firms — are also using systems similar to IADs to vet their top executives, and enhance accountability and transparency.
“The potential for IAD systems to contribute to broader anti-corruption efforts, such as national international financial investigations and prosecutions, international recovery efforts, the prosecution of illicit enrichment, and the identification of politically exposed persons is as yet largely untapped,” according to Public Office, Private Interests: Accountability through Income and Asset Disclosure, Stolen Asset Recovery Initiative, The World Bank, UNODC, 2012.
An IAD isn’t a magic bullet. Public officials can still find ways to hide their crimes. But an IAD is an important weapon in a country’s anti-corruption arsenal.
The public, which is eager for transparency and accountability, is asking for clear disclosures in changes in income, assets and fortunes of top officials in community service.
IADs deal with two major accountability issues: illicit enrichment and COI.
Fraud examiners can focus on this when perceptions of corruption and impunity are high. An IAD can assist in combating the underlying issues and behaviors that contribute to these perceptions.
Governments might prefer to adopt a model that concentrates on monitoring officials’ wealth to detect the concealment or theft of assets, and sanctioning violators through administrative or criminal means.
Rather than focusing on the detection of wrongdoing, COI models concentrate on avoiding situations that might lead to unethical behavior. These models can provide ethics frameworks to avoid COI situations that might lead to corrupt behavior.
Public-sector organizations review high-risk officials’ performances based on fraud and corruption risk inherent in such groups’ behavior. A fraud risk assessment (FRA) thus employed to determine leaders’ possible illicit enrichment and COI. (For examples, see the ACFE/Grant Thornton Anti-Fraud Playbook and the ACFE/COSO Fraud Risk Management Guide; and the ACFE’s Fraud Risk Assessment Tool.) Public-sector organizations review high-risk officials’ performances.
World governments are debating how to provide public access to data in countries that lack serious verification or where anti-fraud laws are weak and often ineffective. Therefore, some countries grant tiered access. In other words, some of the information is publicly available, whereas disclosure of more sensitive and detailed information is reserved for the use of specific authorities, such as during court cases. The idea is to preserve sensitive personally identifiable information from public consumption thus preventing possible abuse.
A jurisdiction’s thorough IAD system will:
Disclosures in IAD systems need to be anchored in sets of norms that obligate income and asset declarants to behave in ethical ways. Such norms are commonly set out in criminal laws and/or in ethics codes and codes of conduct. The codes can broaden the categories of unacceptable behavior that wouldn’t be covered under criminal statutes, such as awarding contracts to brothers, cousins or close friends. These codes must gibe with internal cultures, so employees find them relevant.
This anchoring provides filers with additional motivation to fill in IAD forms completely, accurately and timely. Linking an IAD system with an ethics/conduct or criminal code also provides parameters to evaluate disclosure documents.
The public won’t trust inflated expectations of achievements. Exaggerated campaign statements about “wiping out corruption” can extinguish goodwill because the public has seen past failed, unsustainable attempts.
Politicians’ and legislators’ visionary leadership must drive the introduction and development of IAD systems. At a minimum, they should show accountability, consistency and transparency. So, good tone at the top will increase a system’s credibility.
Accountability must begin with legal frameworks written in organizations’ statutes and bylaws. Organizations must require their officials to demonstrate their accountability by participating in all minor and major internal and external systems without requesting special treatment. Organizations also must enforce accountability by swiftly penalizing officials to send the message it won’t tolerate contravention of standards.
Consistency includes harmonization with, and no contradictions from, countries’ anti-fraud legislation. IAD documents should reflect all laws and penalties and not supersede them. And definitions, such as COI and gifts that officials can accept, should be consistent within a jurisdiction’s various IADs.
Transparency demonstrates accountability of governments, agencies and officials. They should make laws and guidelines publicly available for scrutiny and ongoing education.
Organizations must maintain the same principles in their IAD systems through the years so they’re as forceful and coherent on day 3,000 as they were on day one. And they must clearly communicate the purposes of their systems to internal parties and citizens.
Most officials, of course, initially negatively react to IAD systems. They often view the processes as cumbersome and unnecessary. Management’s challenge, over time, is to persuade public officials that IAD systems are beneficial for them and their organizations. It can emphasize to officials that their lack of transparency and accountability can cause non-governmental organizations to produce incorrect reports and conclusions and weaken systems’ reliability.
Organizations, in constructing their IAD plans, must determine those offenses that warrant punishment. They generally impose sanctions to ensure compliance with requirements to declare in a timely fashion and veracity of submissions.
In practice, offenses are: (1) late filing (2) non-filing (3) incomplete declarations (4) false declarations. The first two are focused on the submission process while the second two on the content of declaration.
A system focused on identifying and preventing potential COI will tend to rely on a collaborative approach among the administering agencies and the declarants. The individuals subject to declaration are expected to disclose anything that could even give the appearance or perception of COI. Public officials can’t be too careful.
A system focused on identifying and preventing potential COI will tend to rely on a collaborative approach among the administering agencies and the declarants.
Once an agency has largely verified the content of officials’ declarations, it can expand its IAD system to focus on accuracy and veracity. A country can gradually increase the credibility of its system by including sanctions that are enforceable and proportionate.
Sanctions might range from fines to administrative penalties (such as reprimands, demotions, suspensions from office and dismissal) to criminal penalties. Those who lie on IAD forms to elude illicit enrichment detection can be subject to criminal penalties.
The unique U.S. Ethics in Government Act of 1978, passed in the wake of Watergate, created mandatory public disclosure of financial and employment history of public officials and their immediate families. (The U.S. Congress passed the Ethics Reform Act in 1989.) The act created the U.S. Office of Government Ethics. Criminal penalties for falsifying information can include imprisonment of up to a year plus civil penalties not exceeding $50,000. (See §104. Failure to file or filing false reports.)
Italian public officials and members of government can be criminally liable for not submitting declarations of interests and for providing false information. In the U.K., criminal sanctions can be applied to some categories of public officials. (See SIGMA Papers.)
In Poland, local public officials can be sentenced up to three years in prison for false declaration of interests. (See Asset Declarations for Public Officials: A Tool to Prevent Corruption, OECD, 2011, Part II, Chapter 7, “Liability and Sanctions.”)
The severity of sanctions needs to be calibrated both to its enforceability and to its potential for deterring noncompliance. The possibility of a prison term could be as ineffective as a small fine if an organization doesn’t enforce sanctions.
The trend is leaning toward imposing fines and administrative sanctions in cases of late and non-filing, and criminal sanctions for false statements. Organizations who incompletely file might get a second chance to submit additional information. (See Stolen Asset Recovery, by Ruxandra Burdescu, Gary J. Reid, Stuart Gilman and Stephanie Trapnell, StAR Initiative, November 2009, page 14.)
Administrative sanctions, which appear to hold the greatest promise of ensuring compliance, consist of fines or suspension of salaries for late filing. Some administrative sanctions, such as publishing names of non-compliant officials, might carry personal reputational, political, career and earnings costs that can effectively compel compliance. And linking officials’ compliance to performance evaluations can pressure them to buy into the system.
Serious administrative sanctions, such as suspension and/or dismissal, might apply in cases of failure to file. Different categories of officials might require varying administrative sanctions. Members of parliament, judiciary, ministers and heads of state, of course, can’t generally be immediately dismissed from office, reprimanded or suspended from duty like civil servants without formal procedures.
The severity of sanctions needs to be calibrated both to its enforceability and to its potential for deterring noncompliance. The possibility of a prison term could be as ineffective as a small fine if an organization doesn’t enforce sanctions.
Review of participants’ declarations can be grouped into three levels:
For example, Argentina performs electronic reviews while in Mongolia ethics officers manually review the top 256 officials. Reviews by some other counties emphasize compliance rather than content verification. Staffing per number of officials’ disclosures vary widely. Mongolia uses 10 staff members in its Independent Authority Against Corruption per 256 disclosures — a ratio 1 to 25. Kyrgyzstan allocates four staff for 17,000 disclosures — a ratio of 1 to 4,250. Argentina has 12 staff for 34,000 IAD — a ratio 1 to 2,833. And Croatia has 27 staff for 1,800 disclosures — a ratio of 1 to 66. (See Asset Declarations for Public Officials: A Tool to Prevent Corruption, OECD, 2011, Part II, Chapter 6, “Processing of the Declarations.”)
Accountability and transparency require each person controlling public funds to be clear of suspicion of corruption and fraud. As the old Russian adage says, “Doveryay, no proveryay” — “trust but verify.” The way to prove the absence of corruption is via a system of verifications and to sanction those not complying with sets of rules. Income and asset disclosure frameworks can help ensure compliance and combat corruption and fraud in any jurisdiction.
Haluk Ferden Gursel, Ph.D., CFE, CPA, is a training/coaching consultant and content provider for policy documents and e-learning training. Contact him at hgursel@gmail.com.
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