Corruption—Standing in the Way of Effective Public Financial Management for Health?

Corruption, commonly defined as the use of public resources for private gain is increasingly recognised as a significant impediment to achieving Universal Health Coverage (UHC) and requires urgent attention. Roughly, six percent of health allocations are estimated to be siphoned away through corruption. Health systems are particularly vulnerable to corruption because of the complex nature of the provision of health care, information asymmetries and financial fragmentation. To advance progress toward UHC, it is imperative that public funding dominate health financing. Public Financial Management (PFM) systems—the underlying rules and processes for allocating, executing and monitoring these public resources, play a crucial role in mitigating and identifying corruption. Weak PFM can, however, increase the risk of corruption in the sector. However, there is still insufficient understanding of these interconnections. The WHO Montreux Collaborative on Fiscal Space, PFM and Health Financing organized a panel in November 2023 to investigate this relationship and what can be done about it. This blog summarizes key insights from the discussion and outlines next steps.

How corruption manifests in budget cycles and consequences

While a lot of attention is given to corruption during budget execution, it is important to look at risks and consequences throughout the entire budget cycle. It is not possible to efficiently execute a poorly planned or underfunded budget, and effective multi-year programme implementation requires good monitoring and reporting.

1. Corruption at the budget formulation stage can involve manipulation and misallocation of public funds during the initial stages of budget planning. For example, budgets may allocate excessive funds to capital projects due to the ease of diverting money when dealing with large sums. Poor budget formulation may also prioritize areas or regions to serve private gains, affecting both equity and efficiency of resource allocations. Another form of misallocation during budget formulation occurs when officials allocate excessive funds for the number of workers in the health sector, resulting in the phenomenon of “ghost workers”. This refers to situations when the government falsely claims more workers on the payroll than are actually employed.

2. Corruption in the budget execution stage is most likely to occur during the procurement of health services and products. There can be undue influence in decisions on needs assessments, evaluations of proposals, or awarding of contracts, or in the processing of invoices or contract payments. There is also the risk of bribery or incentive payments to influence procurement outcomes. Such risks increase with overly complex procurement processes, centralised processes that are not automated, or multiple procurement processes due to fragmented vertical programmes.

3. In the budget oversight stage, fragmentation, misaligned procedures or payment methods and control policies can have perverse effects at provider level, leading to multiple processes for similar classifications of goods and services, increasing the risks for human error, funds misuse, and opportunity for incentive payments. Similar risks can occur due to fragmentation or misalignment in reporting during the budget execution stage. In both the budget execution and oversight stages, ensuring timely and transparent oversight and reporting on how resources are used and what results are achieved is critical to maintaining accountability.

Corruption at budget formulation distorts budget priorities, ultimately compromising the quality and accessibility of public health services with a detrimental impact on health outcomes. Corruption during budget execution can delay or divert funding, affecting both the quality and quantity of spending. The absence of transparency and accountability across all budget stages, erodes public trust in the government's ability to provide public services. Citizens may lose confidence in government when they perceive that budgetary funds are being misallocated or poorly spent. This loss of trust can be associated with reduced willingness to pay taxes, reducing available public funds, and contributing to a negative spiral of underinvestment in health services.

Mitigating corruption through stronger PFM systems

The panel discussion stressed the importance of transparency and accountability as a critical part of well designed PFM systems to minimize corruption and the misuse of public funds. PFM systems in health can reduce information asymmetries by strengthening rules linked to financing processes and who can access public resources, for example, through effective, transparent procurement mechanisms.

In conclusion, framed as part of health systems strengthening efforts, anti-corruption actions (ACTA) and well-designed PFM systems in health can be seen as two sides of the same coin: ACTA can support more efficient PFM in health, while better PFM systems can support detecting and reducing corruption.

Adopting this approach, the panel discussion emphasized the need for in-depth analysis, exploring each stage in the budgetary cycle and undertaking country case studies. There is still much to learn and test which strategies work best to mitigate and identify corruption. A thorough analysis of the problems and their occurrences across the budget cycle, from budget formulation to auditing of expenditures will help tailor recommendations on both supply and demand sides. An agenda to be further unpacked for mutual benefits!

This blog was cross-posted by the Montreux Collaborative and the Global Network on Anticorruption, Transparency and Accountability in Health.