11

Local Government Local Government Accountability: Challenges Accountability: Challenges

and Strategiesand StrategiesWorld Bank: Public Sector and World Bank: Public Sector and

Expenditure Management Thematic Expenditure Management Thematic GroupGroup

Michael SchaefferMichael SchaefferMarch 2005March 2005

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Strengthening LGU AccountabilityStrengthening LGU Accountability

Good Governance, Accountability and Good Governance, Accountability and DevelopmentDevelopment

Accountability: A Diagnostic FrameworkAccountability: A Diagnostic Framework

Mechanisms For Improving Information Mechanisms For Improving Information FlowsFlows

Policy ConsiderationsPolicy Considerations

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Four Pillars of Good Local Four Pillars of Good Local GovernanceGovernance

Accountability – Capacity to Hold Public Accountability – Capacity to Hold Public Officials Accountable for Their ActionsOfficials Accountable for Their ActionsTransparency – Low Cost Accessibility to Transparency – Low Cost Accessibility to Relevant InformationRelevant InformationPredictability – Results from Laws / Predictability – Results from Laws / Regulations that are Clear, Uniformly and Regulations that are Clear, Uniformly and Effectively EnforcedEffectively EnforcedPublic Participation – Citizens are Public Participation – Citizens are Informed and Involved.Informed and Involved.

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Effective Accountability Effective Accountability

Answerability – Local Public Officials Answerability – Local Public Officials Should Respond to Questions:Should Respond to Questions: How They Use Their Authority; How They Use Their Authority; Where The Resources Went; And,Where The Resources Went; And, What Was AchievedWhat Was Achieved

Consequences – There is a Need For Consequences – There is a Need For Meaningful ConsequencesMeaningful Consequences

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Accountability LinkagesAccountability Linkages

Bottom-up: By Local Government To Bottom-up: By Local Government To Local CitizensLocal Citizens

Horizontal Accountability: By the Local Horizontal Accountability: By the Local Government To Various Public Institutions Government To Various Public Institutions of Accountabilityof Accountability

Vertical Accountability: By the Local Vertical Accountability: By the Local Government to the Central GovernmentGovernment to the Central Government

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Accountability LinkagesAccountability Linkages

Local Government

Citizens / Electorate Civic Organizations

Media

Courts Ombudsman Auditing Agencies Anti-corruption

Agencies Local Government

Council

Horizontal Accountability

Bottom-Up Accountability

Central Government

Vertical Accountability – Top-Down

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Characteristics of an Effective Budget[1]

TermsCharacteristics

Accountability Detailed controls should be established which have the goal of ensuring that policy directives are carried out by managers, contractors and all concerned parties.

Comprehensiveness Includes all uses of government financial resources.

Constraint Contains limitations on the amount of money that need be acquired by government.

Cooperation Budgeting should exist in harmony with other decision processes and should not be dominant.

Honesty Contains unbiased projections.

Judgment Encourages participants to seek the most effect at the least cost.

Legitimacy The budget process should reserve important decisions to legally appropriate authorities.

Perception Considers both near and long-term.

Responsiveness The budget must adopt policies that match public preferences.

Timeliness A budget process should complete regular tasks when expected.

Transparency The budget and budget procedures should be understood by participants and outside stakeholders.

[1] See Meyers, Roy T., 1996. Is There a Key to the Normative Budgeting Lock, The World Bank, Washington, D.C.

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TermCharacteristic

Extra budgetary Funds Extra budgetary funds do not force tradeoffs between competing priorities.

Extra budgetary funds generally circumvent central controls, thereby violating the comprehensiveness standard.

Earmarked Funds (Earmarking)

Earmarked funds are dedicated to particular uses or purposes. Agencies with earmarked funds may have little or no incentive to economize.

Earmarking may impede the government’s ability to be flexible in managing its budget or in allocating resources.

Unpredictability Inaccurate budget estimates, arbitrary budget cuts, and non-timely fund disbursements will create substantial budget unpredictability.

Unreliable Information Inaccurate and unreliable information will conspire against enhancing budget performance.

Source: Meyers, Roy T., 1996. Is There a Key to the Normative Budgeting Lock, The World Bank, Washington, D.C.

Factors That Adversely Impact Factors That Adversely Impact Budget PerformanceBudget Performance

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Weak Local AccountabilityWeak Local Accountability

Institutions of Local Accountability in Institutions of Local Accountability in Developing Countries Often WeakDeveloping Countries Often Weak

‘‘Capture’ of Public Resources By Local Capture’ of Public Resources By Local EliteElite

Remedies – Ensure Greater Information Remedies – Ensure Greater Information Dissemination About the Roles and Dissemination About the Roles and Responsibilities of Government and the Responsibilities of Government and the Outcomes of Public Resource Allocation Outcomes of Public Resource Allocation

1010

Accountability: A FrameworkAccountability: A Framework

First Phase: Diagnostic Questionnaire First Phase: Diagnostic Questionnaire Tool Tool

Document Existing System Using the Document Existing System Using the Diagnostic as the Background ToolDiagnostic as the Background Tool

Second Phase: Assess Each Element of Second Phase: Assess Each Element of the System and Design Improvements the System and Design Improvements According to Local [Central] Government According to Local [Central] Government PrioritiesPriorities

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Diagnostic QuestionnaireDiagnostic Questionnaire

Comprehensive: {budget should include Comprehensive: {budget should include all revenue / expenditure}all revenue / expenditure}

Should Diagnosis Accuracy of LGU Should Diagnosis Accuracy of LGU ReportingReporting

Authoritative {Are Public Funds Spent as Authoritative {Are Public Funds Spent as Authorized By Law?}Authorized By Law?}

Transparent {Does the LGU Publish Transparent {Does the LGU Publish Timely Information}Timely Information}

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Example: AlbaniaExample: Albania

Insufficient Attention Paid to Strategic Insufficient Attention Paid to Strategic Allocation of ResourcesAllocation of Resources

Sustained Improvements in Delivery of Sustained Improvements in Delivery of Public Services Require Balance Between Public Services Require Balance Between Central / Local GovernmentsCentral / Local Governments

1313

Albania: Operation and Maintenance Allocations for Pre-University Education and Primary Health

Care(Lek Million)

Pre-Pre- SchoolSchool EducationEducation Primary Health Care

19991999 20002000 20012001 1999 2000 2001

Actual 1,0341,034 1,1431,143 1,6891,689 402 509 469

MTEF Target 1,4901,490 585

Actual as % of Target

113.3%113.3% 80.1%

Source: Republic of Albania, Ministry of Finance. “Medium Term Expenditure Framework 2003-2005.” Tirana Albania September 2002 Pg 29

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Lessons LearnedLessons Learned

Overdependence on Central Government Overdependence on Central Government Transfers May Undermine Local Transfers May Undermine Local Government AccountabilityGovernment Accountability

May Create Perverse Incentives For May Create Perverse Incentives For Misallocation of Public ResourcesMisallocation of Public Resources

Technical Design of Transfers May Not Technical Design of Transfers May Not Have Desired Impact on Local [Central] Have Desired Impact on Local [Central] Government AccountabilityGovernment Accountability

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Lessons LearnedLessons Learned

Policy Interventions That Address Local Policy Interventions That Address Local Information Asymmetries Are Likely to Be Information Asymmetries Are Likely to Be Critical To Empower Citizens to Hold Their Critical To Empower Citizens to Hold Their Local Government Representatives Local Government Representatives AccountableAccountable

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Expenditure Tracking SurveysExpenditure Tracking Surveys

Operational Approaches to Improve Local Operational Approaches to Improve Local Government Expenditure Management Government Expenditure Management and Accountability Rests Upon:and Accountability Rests Upon: The Information Problem is MassiveThe Information Problem is Massive Specific Entry Points Need to be IdentifiedSpecific Entry Points Need to be Identified Path Dependence is a RealityPath Dependence is a Reality Many Developing Countries Have Limited Many Developing Countries Have Limited

Human Resource CapacityHuman Resource Capacity

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Expenditure Tracking Survey - Expenditure Tracking Survey - UsesUses

Serve as Diagnostic Tool on Service Serve as Diagnostic Tool on Service DeliveryDeliveryEnabling Analysis of Public Expenditure Enabling Analysis of Public Expenditure Priorities Priorities Takes into Account Implementation Takes into Account Implementation Capacity of LGUs (Other Levels of Capacity of LGUs (Other Levels of Government)Government)Provide Good Primary Data For Empirical Provide Good Primary Data For Empirical ResearchResearch

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Areas of Effectiveness Key Findings

Information Flow of funds to the frontline and the efficacy of service delivery agencies hampered by information asymmetries.

As access to and ability to acquire information differ among segments of society, the actual programs benefits may also be unequally distributed.

PETS showed that cash budgeting, deemed necessary in a number of low-income countries to bring about fiscal discipline has serious negative side effects in that it produces volatile monthly releases of funds, aggravating the informational disadvantages that beneficiaries typically have.

This may lead to substantial leakage of funds.

Accountability Non wage expenditures are found to suffer more leakage than salary expenditures.

The sources of leakage can be found at different tiers of government.

Source: World Bank. 2002. “Assessing Frontline Service Delivery” by Ritva Reinikka and Jakob Svensson. Washington, DC: The World Bank. Page 249

Expenditure Tracking Survey: Expenditure Tracking Survey: General FindingsGeneral Findings

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Mechanisms For Improving Mechanisms For Improving Information FlowsInformation Flows

Increased InformationIncreased Information

Consultation (and, Oversight)Consultation (and, Oversight)

Active Community ParticipationActive Community Participation

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Mechanisms For Advancing Public Sector Mechanisms For Advancing Public Sector AccountabilityAccountability

Accountability Mechanisms Task Method

Information Provision of Information Mandatory provision of information by the government through annual reports, brochures, newsletters, and the publication of normative acts in newspapers.

Financial Disclosure Timely accounting and budget information. Budget updates should be disclosed in a timely and regular basis (quarterly basis at a minimum).

Financial Management Systems To produce regular and effective local government financial accounts and budget information, local self governments must have effective financial management systems.

Competitive Procurement Local government procurement processes must be transparent (open) and competitive.

Consultation/Oversight Notice and Comment Rule-making Requirement that draft normative acts be published in public prior to their enactment.

Public hearings Laws may require that public hearings be held as laws are being developed.

Administrative Procedure Systems Administrative actions require that citizens receive prior notice of any legislation or other actions.

Advisory Committees Permanent or ad hoc bodies that provide input to government in various areas of government policy.

Active Participation Right to Petition The public has the right to propose the adoption, amendment or repeal of a normative act.

Consensus / Negotiated Rulemaking Councils that engage groups must reach consensus with respect to policy initiatives.

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Policy ConsiderationsPolicy Considerations

Local And Central Government RelationshipsLocal And Central Government RelationshipsBuilding Integrity Incentives into Decentralization Building Integrity Incentives into Decentralization PolicyPolicyOperational ApproachOperational ApproachConsultation and Participation At Local LevelConsultation and Participation At Local LevelPublic DiscussionPublic DiscussionInstitutional ControlsInstitutional ControlsTransparency of Rules, Regulations, Laws and Transparency of Rules, Regulations, Laws and ProcessesProcessesThe Audit FunctionThe Audit FunctionProcurementProcurement

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Local Central Government Local Central Government RelationshipRelationship

Insure that LGUs Provided With Services Insure that LGUs Provided With Services in Accord With The Assignment of Powers in Accord With The Assignment of Powers and Functions to Local Governmentand Functions to Local Government

Insure that LGU Resources Should be Insure that LGU Resources Should be Utilized Efficiently and in the Manner Utilized Efficiently and in the Manner IntendedIntended

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Building Integrity Into Building Integrity Into Decentralization PolicyDecentralization Policy

Issue Action

Functional decentralization must be coordinated and precede financial decentralization

Transfer revenue raising capacity before grants and only transfer revenues if obligation for service provision is clearly spelled out.

Assets not liabilities should be transferred to local governments

Before decentralizing a service ‘clean it up.” Do not decentralize inefficiency.

Political decentralization must be complete Transfer full authority and demand full accountability.

Intergovernmental transfers must provide the correct incentives

Design the transfer system to meet the following criteria: autonomy, equity, predictability, efficiency, simplicity, incentives, and attained objectives.

Assure the regulatory framework, the structure of government and internal procedures do not provide incentives for corrupt behavior.

Put in place a local integrity system. Include a mechanism to assure transparency and public participation.

Source: V. Vergara, ‘Municipal Integrity Workshop’, World Bank.

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Operational ApproachOperational Approach

Installing Meritocracy ProgramsInstalling Meritocracy Programs

Clarifying Government PrioritiesClarifying Government Priorities

Ensure Full Budget Control and CoverageEnsure Full Budget Control and Coverage

Enhance Policy Coordination – And Enhance Policy Coordination – And Budget Formulation Process Between Budget Formulation Process Between Executive and CouncilsExecutive and Councils

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Consultation and ParticipationConsultation and Participation

Three Criteria For Evaluating Three Criteria For Evaluating Transparency and Accountability Transparency and Accountability Mechanisms in Local Circumstances:Mechanisms in Local Circumstances: Degree of Visibility Degree of Visibility Simplicity of the MechanismSimplicity of the Mechanism The Degree to Which the Mechanism can The Degree to Which the Mechanism can

Have a Direct Rather than Indirect Impact on Have a Direct Rather than Indirect Impact on Government Policies and ProgramsGovernment Policies and Programs

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Policy ConsiderationsPolicy Considerations

Public DiscussionPublic DiscussionInstitutional ControlsInstitutional Controls Honest and Effective SupervisionHonest and Effective Supervision Auditing Oversight and ControlAuditing Oversight and Control Standards of Ethical BehaviorStandards of Ethical Behavior

Transparency of Rules, Regulations and Transparency of Rules, Regulations and ProcessesProcessesThe Audit FunctionThe Audit Function InternalInternal ExternalExternal National Audit InstitutionNational Audit Institution

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Regulation of Procurement Regulation of Procurement ProcessesProcesses

Procurement – One of the Areas Most Procurement – One of the Areas Most Heavily Affected by Lack Of TransparencyHeavily Affected by Lack Of Transparency

National Public Procurement AgencyNational Public Procurement Agency

Implement LGU Oversight MeasuresImplement LGU Oversight Measures

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Concluding Remarks Concluding Remarks

Local Government Accountability May Local Government Accountability May Deteriorate in Effectiveness if Not Guided Deteriorate in Effectiveness if Not Guided by Coherent and Universal Principlesby Coherent and Universal PrinciplesStrengthening Governance Strengthening Governance (Accountability, Transparency, (Accountability, Transparency, Predictability, and Participation)Predictability, and Participation)Reinforce Foundation of Civil SocietyReinforce Foundation of Civil SocietyEngage in Improvements in LGU Engage in Improvements in LGU Expenditure Management ProgramsExpenditure Management Programs