Combating Corruption in Community Development in Indonesia
Corruption plagues many developing countries where the world’s poorest live, and combating it continues to be an arduous task. Corruption acts like a tax, adding to the cost of providing public services and conducting business. Many suggest the right combination of monitoring and punishment can control corruption, but often the very individuals tasked with monitoring and enforcing punishments may themselves be corruptible. Another approach to reducing corruption is community-level monitoring. Local community members have the most to gain from a successful anti-corruption program, and are thus believed to have better incentives to monitor than bureaucrats. However, there is little empirical evidence on the success of such strategies.
An Indonesian government program supported by a loan from the World Bank, the Kecamatan Development Program (KDP), funds projects in approximately 15,000 villages each year. Each village receives an average of US$8,800, which they often use to surface existing dirt roads. This large amount of money creates incentives for price inflation, collusion with suppliers, kickbacks for village leaders and manipulation of wage payments.
Two checks on corruption are built into KDP. First, funds are paid to village implementation teams in three installments. To receive the second and third payments, the teams must make accountability reports at an open meeting where they account for how they spent the money. Second, each project has approximately a 4% chance of being audited by the government.
To examine the role of community monitoring and audits on corruption, researchers conducted a randomized evaluation in 608 Indonesian villages in East Java and Central Java, Indonesia’s most populous provinces. Each village in the study was about to start building a village road with KDP funding. Some villages were randomly selected to be told, after funds had been awarded but before construction began, that their project would subsequently be audited by the central government, increasing the likelihood of an audit from 4% to 100%. These audits carry the possibility of criminal action if corruption is detected, and the results of the audits were read publicly to an open village meeting, potentially resulting in social sanctions.
To investigate the impact of increasing community participation in the monitoring process, two interventions were established to enhance participation at accountability meetings. Some villages were selected to have invitations to these meetings distributed throughout the community, encouraging direct participation in the monitoring process and reducing elite dominance of the process. In the second experiment, an anonymous comment form was distributed along with the invitations, providing villagers an opportunity to relay information about the project to be shared at the meetings, without fear of retaliation.
Corruption was measured by comparing the researcher’s estimate of what the project actually costs, determined by the quantity of materials used and estimate of material prices and wages paid on the project, to what the village reported it spent on the project on an item by item basis.
The evidence suggests that increasing the probability of external audits substantially reduced missing funds in the project. Increasing the probability that a village was audited by the central government from 4% to 100%, reduces missing expenditures from 27.7 percentage points to 19.2 percentage points. One reason that the decrease was not larger is that a 100% audit probability does not imply that village officials face a 100% probability of detecting corruption and imposing a punishment. In fact, although auditors found violations of some type or another in 90% of the villages they visited, the vast majority of these violations were procedural in nature, and there were very few, if any, cases in which the auditors had enough concrete evidence to actually prosecute offenses.
The invitations increased the number of people participating in the accountability meetings by about 40%, more than by including a comment form, since many villagers used the form as a substitute for attendance. But inviting more people to the meeting had almost no effect on corruption, and the comment forms had an effect only when they were distributed via schools, bypassing local officials. This study provides evidence that community participation, widely viewed as a panacea for development projects, often has little impact on levels of corruption, and that pains must be taken to prevent elite capture for it to be an effective means of reducing corruption.
