THE WAY FORWARD: REDUCING THE RISKS FROM CLIENTELISTIC INTERGOVERNMENTAL TRANSFERS

There are a number of policy measures, that could reduce the risks from discriminatory and biased funding from the central towards the local level, as well as the misuse or mismanagement of national and foreign donors’ funds.

Improve strategic planning and evidence-based decision-making

The first step involves the recognition of the problem in strategies, plans   and counter-measures. Once the problem is recognised, the process could move towards the establishment of clear and transparent criteria for funding allocation, made on objective grounds, and not based on political (or personal) considerations. Any discretionary and politically biased decisions-making mechanisms should be limited. The prevention, detection, and countering of these risks should also be included in the obligations and mandate of:

• the national parliaments and their budgetary, economic and anticorruption committees;
• the ministries of finance, ministries of regional/local development, and managers of national and EU funds supporting the municipalities;
• the national audit offices, financial police and inspectorates;
• the ethical and anticorruption committees to the municipalities, integrity managers, and the municipal councils.¹⁰¹

The effective fiscal oversight in particular should involve collaboration among multiple public bodies in order to ensure transparency, accountability, and equitable distribution of resources between central and local governments.

The ministries of finance should establish practices to require an independent external due diligence audit of the accounts of the local self-government unit before the approval of long-term debt.

Officials responsible for making funding decisions need to be trained to recognise and react to cases of preferential treatment and bias, while municipal officials should be equipped to detect public procurement irregularities and use electronic tendering procedures. Civil society could help with the organisation of such training, as well as the introduction of electronic procurement.

Establish a regular public-private mechanism for monitoring funding decisions

Putting in place mechanisms for public oversight and accountability should start with strengthening the capacities and functions of:

• the anti-corruption agencies;
• the audit offices, financial police and inspectorates;
• the associations of municipalities;
• the civil society and the media.

These bodies should review decisions related to budget transfers and assess any potential bias, discrimination, or conflict of interest. The audit offices and financial inspections institutions should establish procedures  for  random and regular inspections, in addition to the ad hoc checks performed based on requests, referrals and complaints (e.g.  submitted by the prosecution,  the Council of Ministers, the Ministry of Finance or the Public Procurement Agency).

The review of the budget transfer decisions should:

• Consider the choice between unconditional transfers and conditional transfers;
• Detect the corruption risks associated with  formula-based  transfers  such as manipulation of the formula criteria, data falsification, formula complexity and political interference in formula design;
• Check the accuracy of data inputs for the formula and the fairness of the allocation process;
• Recommend steps towards the reduction of formula complexity and the increase of transparency during and after its implementation to avoid and reduce policy indiscretion and political capture.

A pre-condition for efficient oversight is for governments to clearly state the objectives of their transfers and design their intergovernmental transfer system in a way that allows a separation of objectives and independent steering and control of grant characteristics that contribute to each of these objectives.

Governments should also avoid the over-reliance on self-assessment, such as the self-evaluations performed by the municipalities in the integrity plans. The civil society sector, the academia and the investigative journalism could have invaluable role in this respect. The civil society in particular should support the development of legislation, rules and procedures related to the budget allocation and spending, e.g. the formula used for formula-based transfers and budget transfers.

Apply regular corruption risk assessment methods

In addition to the financial audits and the self-evaluation reports of the integrity plans, it is also recommended for the governments at central and local level use a wider range of corruption risk assessment (CRA) mechanisms, in order to develop a comprehensive approach towards tackling all corruption and conflict of interest threats. A number of CRA tools, developed by civil society, international or public bodies, are available and ready for transfer and introduction in other countries, sectors, or government institutions.

The Monitoring Anticorruption Policy Implementation (MACPI) tool¹⁰² assesses, monitors and facilitates the enforcement of anti-corruption measures and policies at the level of individual public bodies, including municipalities. Since 2015, MACPI has been implemented in more than 30 public organizations in North Macedonia, Italy, Spain, Romania, Hungary, Bulgaria, Bosna and Herzegovina, Serbia, Albania, Montenegro, Croatia, and other European countries.

The State Capture Assessment Diagnostics (SCAD) is a tool, based on anonymous online survey among a large pool of experts, which evaluates the dimensions, enablers, drivers, effects and outcomes of state capture.¹⁰³ The application of the State Capture Assessment Diagnostics at Sectoral Level Integrated Tool (SCAD-SLIT) in 2021 confirmed that the municipalities are often associated with lack of integrity and impartiality.¹⁰⁴

Analysis of public procurement risks. The Corruption Risk Indicators (CRIs), created by the Government Transparency Institute (GTI), are equipped to measure the corruption risks of public procurements, while the Opentedner website provide comprehensive public procurement information free of charge in an easy-to-use format.¹⁰⁵

The Corruption Monitoring System (CMS)¹⁰⁶ was designed and developed by the Center for the Study of Democracy, Bulgaria in 1998. CMS provides victimisation and perception data in the corruptness of municipal councillors and municipal officials.

Enhancing and deepening the  process  of  checking  asset  declarations of mayors and municipal officials is also an indispensable tool for detecting potential risks. It is highly recommended that a unified checking procedure is introduced across all public bodies, based on a set of red flags and indicators. Such comprehensive list of risk indicators for checking asset declarations is presented in the 2023 R2G4P report “Rolling Back State Capture in Southeast Europe. Implementing Effective Instruments for Asset Declaration and Politically Exposed Companies”.¹⁰⁷

The monitoring of the progress and policy recommendations could further  be supported by initiatives such as the Local Transparency Index calculated by Transparency Serbia¹⁰⁸, the  interactive  transparency  map  maintained by the Bulgarian Access to Information Programme Foundation¹⁰⁹, and the clientelism map maintained by Expert Forum in Romania.¹¹⁰,¹¹¹ Monitoring analysis could further be based on semi-structured interviews and desktop research (e.g. 2022 International Republican Institute’s analysis of corruption risks in ten Bulgarian municipalities).¹¹²

A coherent set of red flags should be incorporated in the CRA, including, but not limited to the detection of:

• Legislation allowing large shares of the national or foreign donors‘ budget to be distributed discretionary;
• Frequent changes in the formula or criteria determining the funding for municipalities;
• Any exceptions from the competitive procedures in procurement and investments;
• Spending of national budgets or foreign donors‘ funds for organizing election campaigns;
• Party donations from large employers – recipients of budget funds or contracts;
• Large employers buying underpriced municipal property, obtaining concessions or state aid;
• Illegal lobbying;
• Cases of revolving doors, incompatibility of functions, and conflicts of interest; municipalities or to large employers;
  
• Cases of suspicious debt annulment or provision of low-interest loans to municipalities or to large employers;
• Recruitment based on political party affiliation in the municipalities or state-owned enterprises.

Ensure budget transparency

The full disclosure of all relevant fiscal information in a timely and systematic manner is crucial for the performance of government and civic oversight, as well as for increasing the trust in the public institutions at national and local level. In that respect, government bodies should follow the best international standards, including, but not limited to the IMF’s Manual on Fiscal Transparency¹¹³, OECD’s Best Practices for Budget Transparency¹¹⁴, the guidelines of the Public Expenditure and Financial Accountability (PEFA)¹¹⁵, and the High-Level Principles on Fiscal Transparency, Participation, and Accountability issued in 2012 by the Global Initiative on Fiscal Transparency (GIFT).¹¹⁶

Clearly state the objectives of transfers

Intergovernmental transfers often have more  than  one  objective  –  such as financing sub-national services and investments, subsidisation and equalisation. Therefore, governments should clearly state the objectives of their transfers and design their  intergovernmental transfer system  in a way it allows a separation of objectives and independent steering and control of grant characteristics that contribute to each of these objectives.

Increase the integrity of public procurement at local level

• State clear commitments and set deadlines for public procurement reforms in strategic documents (action plans, National Recovery and Resilience Plans¹¹⁷, etc.)
• Establish regular and systematic monitoring of political favouritism between the national and local governments in public procurement building on the tools developed in this study.
• In order to better support regular monitoring of such policy-relevant phenomena, improve e-procurement data collection and publication, collecting more comprehensive data by, for example, lowering reporting thresholds and making public data more readily accessible for societal actors (e.g. data download options).
• Improve oversight of public procurement at the local level, including review of anti-competitive tendering terms, to constrain the strategic use of public procurement for rewarding political actors for their loyalty.
• Further strengthen the policies for transparent and fair allocation     of public procurement contracts by increasing publication of call for tenders, making tendering terms more pro-competitive, diminish the use of non-open procedure types, and break up dominant market position of incumbent firms often having strong political connections.