How graft rears its ugly head in aid projects

By Donna K. Woodward

This is the first of two articles on corruption in international aid organizations.

MEDAN (JP): Shortly after Indonesia's liberation from the Soeharto reign, allegation after allegation of corruption, collusion and nepotism (KKN) appeared in the press.

Headlines scream: "Residents complain of KKN in Bupati X's office" or "Workers demand an end to KKN in PEMDA Y". But there were others: "There's no KKN in this office", "No Sir, we don't do KKN here" and "Not here either!"

KKN was everywhere, and it was nowhere.

Now a World Bank internal report whispers that there is corruption in its projects too. While the bank's country director, Dennis de Tray, quickly disavowed the report (though presumably it was one to which his staff contributed), economist Kwik Kian Gie considered the 20 percent figure realistic, and The Jakarta Post editor thinks 30 percent may be a more accurate figure. How is this possible?

Foreign-funded development projects tend to come with lots of strings attached, and foreign consultants whose presence lend the project not only technical but also managerial and fiscal credibility. Programs and accounts are audited, and every rupiah that goes out from the project is accounted for.

Considering all the internal controls and the foreign experts, surely there is only minimal token leakage in these projects. How could there be wholesale graft in projects funded by the World Bank, or other international groups such as the Asian Development Bank, the EU, USAID, AUSAID, etc?

Outright embezzlement, which is rather hard to succeed at, may not even be necessary, if projects sponsored by international organizations allow for personal enrichment via petty graft.

Let us visualize a hypothetical development project. First, our project must rent office space and staff housing. But our project, it seems, has paid more than the market value for its space. Why?

Part of the excess rent may have been charged to pay for extra renovations. But there are more questionable possibilities. Is the building owned by a friend or relative of a project insider?

Is any of this excess rent being "kicked back" to the individual who made the deal between the owner of the office building and the project, or indirectly to an official who approved the development project?

But leases and receipts are all in order. Forget the receipts! They are not sacred script and need to be reviewed in the light of common sense.

If a project is paying much more than the market price for an office, a plot of land, a contractor's service, equipment and supplies and others, then a conscientious administrator or auditor should question this, receipts notwithstanding.

A higher fee may be justified and legitimate. But disproportionately high fees should, at the very least, be questioned by the person responsible for authorizing payments.

This presupposes that the person knows relevant market prices, and this is often the first deficiency. The expatriate consultant does not know the local market and does not do the legwork required to learn it.

Next, the project needs to recruit local staff. How transparent is the recruitment process? Are positions advertised? How much of an edge are friends of the project leaders and friends of friends of the project leaders given when positions are filled?

If someone is given job preference based not on qualifications but on a relationship to a staff member of the project, will the most qualified person be hired? Maybe not. And where will that employee's loyalties lie, if, later, there is any conflict of interest?

Once there is a building and staff, equipment is needed. When goods and services are purchased, are tenders solicited transparently? Or are contracts and purchases instead used as a way to reward local officials who are friends.

"Let's give this construction/catering/you-name-it contract to the nephew of General A; after all, we need the government's support in Location A, and the general is helpful. What's so wrong with giving his nephew the job?"

What's wrong is that the nephew may be only a mediocre contractor or caterer, unable to deliver adequate results.

Or he may inflate his prices because a foreign aid project is paying and "everyone knows they have lots of money. Let's make a little extra while we can."

Or the nephew-contractor may inflate his prices so he has money to give a commission to his favorite uncle, the general.

Indeed, he may inflate his contract price to factor in a commission or gift for the project leader who awarded him the project. When equipment is needed, it's, "Let's let Employee B order the office equipment from his wife's cousin's company. That way we'll get good service and a good price too."

Cousin, on the other hand, may not have the same sense of commitment to the project's welfare, instead feeling a greater commitment to his children's school fees.

Is it really a good deal for the project? Without proper tenders, who can say?

The writer, an attorney and former American diplomat at the U.S. Consulate General in Medan, is president director of PT Far Horizons.