Summary of the Results of the 2015 Integrity Survey of the State Audit Office of Hungary
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1 Summary of the Results of the 2015 Integrity Survey of the State Audit Office of Hungary Table of contents Foreword Objectives and Methodology of the Integrity Surveys of the State Audit Office of Hungary Applied methodology Utilisation of the survey results Integrity Survey in numbers (statistics and results) Participation increases year after year Decreasing risks and increasing control levels ( ) Integrity of institution types Corruption risks of public procurement More organisations apply special anti-corruption systems and procedures Soft controls... 12
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3 Foreword Ten years ago, the concept of organisational integrity was almost unheard-of in Hungary. Few people were aware of its enormous significance in preventing corruption. A small group of the staff of the State Audit Office of Hungary gained an insight into the integrity management model adopted in Dutch administration from the experts of the Netherlands Court of Audit during a twinning programme funded by the European Union. The model's appeal, on the one hand, lies in its focus on corruption prevention. On the other hand, it opens a new arena for the fight against corruption by laying the obligation of integrity strengthening on certain budgetary institutions. Recognising the importance of this fact, the State Audit Office of Hungary launched its Integrity Project in Through its survey conducted for the fifth time in 2015, the SAG takes it upon itself to confront budgetary institutions with the corruption risks arising during their activities and the possible deficiencies of the protective measures in place. The dynamic rise in the number of organisations taking part in the survey voluntarily testifies that an increasing number of budgetary institution leaders have accepted their own responsibility in the reduction of corruption, and recognised the importance of the survey as a useful instrument in raising awareness about corruption risks and reinforcing the tools designed to serve their prevention. The SAG survey has been receiving more and more international attention. In 2014 and 2015 the SAO organised international seminars to share the experiences gained in the fight against corruption with the state audit offices of other countries. The two seminars arranged thus far were attended by nearly 60 leaders and experts of the supreme audit institutions of around 40 countries. They all agree that they can benefit from using the approach and methodology applied in the SAO's Integrity Survey in their own work. By providing a brief overview of the survey methodology and the results of the 2015 survey, this study is intended to familiarise the leaders of organisations participating in the fight against corruption with the SAO s Integrity Survey. For further information, please visit the English language integrity portal of the SAO at integritas.asz.hu/english. Budapest, January 2016 'u' Laszlo Domokos STATp. /Ufn7-!-- "mc^s^y President '/> "Ssivv.^
4 1. Objectives and Methodology of the Integrity Surveys of the State Audit Office of Hungary The fight against corruption has strategic significance for all nations. Its effectiveness may greatly influence not only the perception of a particular country, but also various economic processes and the development of the national economy. Since 2007, the anti-corruption efforts of the State Audit Office of Hungary (SAO) have been fortified by resolutions of the National Assembly, which reconfirm that special attention should be paid to the typical triggers of corruption and to the areas carrying corruption risks. The adoption of the new Act on the State Audit Office of Hungary in 2011 made it clear that, by virtue of its legal status, it is the task of the SAO to support anti-corruption efforts, to curb corruption and to promote and establish the culture and attitude of integrity. The SAO strived to understand and adopt the best international practice when, in cooperation with the Dutch state audit office, it adapted to the Hungarian environment and subsequently enhanced the methodology applied in the Netherlands for the self-assessment of organisational integrity. The most notable innovation of the Hungarian adaptation is the fact that the evaluation of corruption risks and of the integrity controls protecting against them is performed in the context of a survey rather than in the form of self-assessment by individual organisations, and the questionnaire of the survey is sent by the SAO to thousands of public sector organisations simultaneously. The SAO is also responsible for the objective evaluation of the questionnaires based on a pre-defined algorithm and assisted by a computer programme. In line with the spirit of integrity, participation in the survey is not mandatory; public sector institutions contribute on a voluntary basis. The first data collection took place in 2011 in the context of an EU funded priority project entitled Mapping Corruption Risks Promotion of an Integrity-Based Culture of Public Administration (Project Integrity). In 2015 the State Audit Office of Hungary conducted its fifth consecutive survey among budgetary institutions. The purpose of the integrity survey is to assess the exposure of public sector institutions to corruption risks as well as the level of controls intended to reduce such risks. The SAO views the widespread promotion of the integrity approach through the project, as well as its practical application by the institutions concerned as a priority goal Applied methodology The SAO developed its methodology for the survey and its assessment based on the theoretical foundations of integrity self-assessment acquired from the Netherlands Court of Audit, with due consideration to the specificities of Hungarian public administration. A central component of this is to identify the corruption risks inherent in the operation of institutions based on their legal status and to determine the extent to which the controls designed to protect against corruption are present (coverage). In mapping corruption risks and controls, we rely on the standard questionnaire method, which allows limited room for organisations to express their subjective views. The SAO reviews 4
5 the questionnaire before each data collection. Consisting of 155 questions, the questionnaire includes multiple question types (e.g. dichotomous questions, multiple choice questions). Some of the questions inquire about the previous 3-year period, while others are aimed at the status as at the end of the calendar year preceding the survey year. The questionnaire covered the following 16 topics: 1) European Union funding 2) Organisational culture, organisational values 3) Public procurements 4) Operational characteristics 5) Scopes of authority 6) Political environment 7) Management of public assets and public funds 8) Level of internal regulation 9) Provision of public services 10) HR management characteristics 11) Other risk factors 12) Internal audit functions and methods 13) External control environment 14) Special anti-corruption systems and procedures 15) Organisational structure 16) Level of external control The questionnaire also has a scoring system, which indicates the weight assigned during the evaluation to the responses received to the questions exploring specific corruption risks and controls. The SAO adjusts the scoring system to its annually updated questionnaire. Each question of the questionnaire was classified into one of the 3 risk indices pre-defined by the SAO. Expressed in percentages, these risk indices are the following: Inherent Vulnerability Index (IVI): The Inherent Vulnerability Index (IVI) measures the components of a particular organisation s exposure to corruption based on its legal status and role. It is determined by factors that are shaped by the legislative competence of the founder, such as the implementation of law, (legal) regulation or the provision of various public (education, healthcare, social and cultural) services. Enhanced Factors Index (EFI): The Enhanced Factors Index (EFI) indicates the components that depend on the daily operation of the given institution and increase inherent vulnerability. It maps the characteristics of the legal/institutional environment of budgetary institutions, the predictability and stability of their operation, as well as variable factors fundamentally shaped by the decisions of current management that arise during the operation of institutions, such as the definition of strategic goals, the establishment of organisational structure and culture, as well as the management of human and budgetary resources and public procurements. Existence of Controls Index (EoCI): The Existence of Controls Index (EoCI) reflects whether a given organisation has set up, and is effectively operating, institutional controls. This index comprises factors such as the internal regulations of the organisation, its internal audit and other integrity controls, including the definition of ethical requirements, the handling of conflicts of interest, the management of whistleblowing and complaints, regular risk analysis and consistent strategic management. The SAO calculates all three indices for all institutions to determine, as a simple arithmetic average, the average indices of each institution type (e.g. higher education, government bodies), which capture the average corruption exposure of the given institution type and the coverage of its controls. 5
6 Based on main activity, in 2015 the SAO classified institutions participating in the survey into the following 17 categories: 1) Independent government bodies 2) Government bodies 3) Local governments 4) Regional administrative bodies 5) Judicature 6) Defence and law enforcement 7) Healthcare institutions 8) Institutions providing social services 9) Higher education 10) Secondary schools 11) Primary schools 12) Nurseries, kindergartens 13) Cultural institutions 14) Scientific research and development 15) Sports and recreation 16) School districts 17) Other institutions The example below illustrates the relationship between the three indices. There is a higher education institution that offers public services. By definition, the provision of public services and the performance of the activity imply an inherent risk for the institution concerned. If the organisation in the example provides training for which the level of demand exceeds the supply, or the institution charges a fee for its services or determines the amount of the fee itself and decides at its discretion about reducing or even waiving the fee on the grounds of equity, this points to the existence of factors that exacerbate the risks inherent in the given activity further. These factors will increase the organisation s corruption exposure that is associated with the activity of providing public services. Controls, in turn, are on the other side of the scale relative to the factors identified. In this regard, we seek to determine whether the given organisation has established, in relation to its particular activity, the controls intended to reduce corruption risks. Accordingly, if the higher education institution specifies and officially records the procedure and formula used to determine the service fee and the criteria for applying the principles of equity, and it also ensures that this information is publicly available to the users of the service, then it has managed the identified risks effectively. If the survey identifies risks that are not managed in the absence of the required controls, then we detected activities or certain characteristics thereof which may give rise to corruption events if left unmanaged. The analysis of the questionnaires and the indices applied in the survey can pinpoint these security gaps. It should be noted that the findings of the survey cannot be generalised for the public sector as a whole. During the 2015 survey, in the case of each institution type surveyed, the SAO strived to include all operating budgetary institutions in the request for participation as reporting institutions. At the same time, where this was infeasible due to the high number of institutions in the given institution type (local governments, teaching and education institutions and those providing social services), we used sampling to select the institutions to be invited to complete the questionnaire. In the interest of ensuring the stability of the range of institutions participating in the survey, the organisations completing the questionnaire were offered long-term cooperation by the SAO. The SAO has formed the Circle of Integrity Supporters from among the organisations that pledged to fill out the questionnaire in the coming years as well. The significance of this step is that the range of institutions which will constitute the basis of the trends that can be identified until the end of 2017 is likely to stabilise. 6
7 1.2. Utilisation of the survey results It is essential for each institution participating in the survey to be able to assess its own level of integrity as an organisation. With that in mind, the SAO attempts to hold up a mirror to the institutions concerned by way of two methods: Firstly, it publishes an evaluation report summarising the results of the Integrity Survey on an annual basis. In this report it presents the national average of the three indices, as well as the values calculated for each institution type. In addition, the report highlights trending risks and analyses the results achieved in the coverage of integrity controls. Secondly, based on the data of the annual surveys, the SAO also prepares analyses for individual institution types. Using these analyses, an institution such as a hospital can compare its achievements to those of other hospitals in terms of the coverage of its integrity controls. Such an analysis can be considered as a nearly perfect mirror: being aware of the findings of the analysis, the head of a hospital can investigate why the integrity control used by most hospitals fails to work in his or her own institution. Following each data collection, the SAO publishes its detailed analyses and observations on its website ( and discloses the same information at events presenting the survey results. With the assistance of a geospatial data collection and data processing application developed specifically for the survey, the SAO publishes the index values of individual respondent institutions on a digital map. It also shares its experiences with government bodies and other independent government organisations to encourage their utilisation in the anti-corruption activities of the organisations concerned. In addition, since the data of the Integrity Survey help identify highrisk areas, the SAO also utilises this information in its audit planning work. Moreover, the Integrity Surveys constitute the foundation on which the SAO developed its audit methodology for organisational integrity. The questionnaires completed by respondent budgetary institutions arrive, via the SAO s document management system, in the Geospatial Integrity Information System, the electronic database developed as part of Project Integrity, which automatically uploads the response data into a database and uses the data to calculate complex indicators (so-called vulnerability indices) using mathematical-statistical algorithms. Using geospatial information methods, the information system of the SAO also displays the risk indices of institutions participating in the survey on an online platform (on the map of Hungary risk map). 7
8 2. Integrity Survey in numbers (statistics and results) 2.1. Participation increases year after year Since participation in the Integrity Survey is voluntary, participation data are viewed as part of the statistics and part of the results at the same time. 2,557 organisations participated in the 2015 survey, representing a 2.5 times increase compared to the number of respondents in the 2011 data collection. The exponential increase in annual participation data clearly demonstrates the increased awareness of the institutions of the public sector and their commitment to strengthening integrity and fighting against corruption (Chart 1) Decreasing risks and increasing control levels ( ) After each annual data collection, the SAO determines the average risk indices (IVI, EFI, EoCI) for the total number of respondents. The section below provides a brief summary of the evolution of the indices based on the results of the last three surveys. Due to the voluntary nature of the survey, the number of respondents increases year after year, and in order to reflect this rise, the previous average index values 1 calculated for the total number of respondents were weighted with the number of institutions participating in the 2015 survey. Based on the comparison of the indicators, the SAO found that both the level of inherent risks and that of the factors increasing corruption exposure decreased in comparison to the results observed in In other words, there is a gradual decline in the number of organisations where the presence of the risk factors surveyed can be detected in legal status or operation. In addition to declining risk levels, it is also a positive development that the level of control measuring the coverage and efficiency of the integrity system increased in the review period (Chart 2). 1 Developed as part of Project Integrity, the Geospatial Integrity Information System (hereinafter: TiiiR) processes the questionnaires received, calculates indices from the data, and displays the indices on an electronic map. 8
9 2.3. Integrity of institution types Analysing the index values of 17 institution types, we identified the institution types most exposed to corruption risks and those with the largest control coverage. Among the institutions of the Hungarian public sector, the highest Inherent Vulnerability Index values were measured at institutions classified as regional administrative bodies, government bodies, local governments, independent government bodies and law enforcement bodies (Chart 3). The high index values of these institution types can be attributed to the presence of risks associated with legislation and the application of law by administrative bodies. As regards the factors increasing corruption exposure, the highest values were measured at institutions belonging to the categories of higher education, government bodies, regional administrative bodies, healthcare institutions and independent government bodies; i.e. the operating characteristics and optional activities of these institutions are more likely to involve such factors (Chart 4). Organisations classified into the institution types presented above demonstrate a stronger presence of the factors that increase the corruption risks associated with EU grants, public procurement, and the management of public assets and public funds. Controls reducing the corruption risks surveyed as measured by the Existence of Controls Index showed the highest coverage at institutions belonging to regional administrative bodies, government bodies, defence and law enforcement organisations, the judicature and independent government bodies (Chart 5). The high coverage of the controls providing protection against corruption risks is manifested, among other things, in the high level of internal regulations and anticorruption controls (e.g. application of the two man rule, operation of external and internal complaint management systems, etc.). The sections below provide a brief description of the risks and controls related to public procurement procedures, and present the coverage of anti-corruption procedures and systems based on data comparisons between the institutions that participated in both of the last two data collections. 9
10 3. Corruption risks of public procurement Among the factors increasing corruption exposure, risks related to public procurements represent a large share. In the 2015 survey, the number of institutions participating in public procurement procedures was 1.5 times more than recorded during the previous data collection per cent of the organisations involved in the 2015 survey participated in preparations for or the implementation of public procurement procedures in the past three years. It is a factor increasing corruption risks that around 11 per cent of the respondent institutions reported to have experienced cases in the previous 3 years where the procurement value reached the public procurement value limit, but the Public Procurement Act was not applied to the procurement. 2 The lion s share of the organisations participating in public procurements (85.5%) reported to have obtained the specialised expertise required for conducting lawful procurements through the assignment of external public procurement experts or expert organisations. It is a significant control deficiency in this regard that with respect to the total number of respondents in the 2015 survey 86.2 per cent of the organisations that were involved in public procurement activity and hired the services of external experts had no special policy regarding the conditions of hiring external experts (Chart 6). Among the respondents participating in both of the last two surveys, we examined the correlation between the frequency of procedures conducted with fewer than three bidders and the frequency of procedures awarded to the same bidder. We found that there was an increase in the ratio of institutions where both risk factors occurred more than 3 times in the previous three years (Table 1). Table 1 Linkages between the risk factors associated with public procurement Risk factors Cases in the last 3 years where fewer than three bidders participated in the institution s public procurement procedure Cases in the last 3 years where the same bidder was awarded multiple public contracts Survey year Frequency (case) more than more than more than % 1.5% % 10.3% more than 3 8.9% 4.2% % 10.0% 2 Act CVIII of 2011 on Public Procurement provides a list of the procedures outside of the scope of the Act, i.e. the provisions of the Act are not applicable to the procedures concerned (e.g. procurements for defence purposes, procurements in the framework of separate procedures defined by international organisations, service concessions, procedures aimed at the transfer of public tasks or research and development services). 10
11 4. More organisations apply special anti-corruption systems and procedures In the context of the questionnaire survey, the SAO examines the existence and application of eight special anti-corruption controls. These are the following: 1) A whistleblowing management system; 2) A system managing external complaints; 3) Publicly available data on the organisation s financial management; 4) Corruption risk analysis; 5) Two man rule; 6) Workplace rotation; 7) Anti-corruption training; 8) Code of Ethics. The comparison of the results of the last two surveys (2014, 2015) revealed a clear increase in the ratio of Hungarian public sector institutions that operate a whistleblowing and external complaint management system, enforce the four eyes principle in their work processes, and have a Code of Ethics in place. Moreover, there was a slight increase in the ratio of organisations participating in anti-corruption training and applying workplace rotation. By contrast, the ratio of institutions performing corruption risk analysis dropped somewhat (Table 2). Special anti-corruption systems and procedures Table 2 Special anti-corruption systems and procedures Survey year A whistleblowing management system is in place within the organisation 33.1% 38.0% The organisation has a Code of Ethics 44.4% 49.2% The two man rule is applied 51.4% 55.6% There is a system in place to manage external complaints 35.8% 38.6% Data regarding the financial management of the organisation are publicly available 94.1% 94.7% Anti-corruption training was held in the last three years 23.2% 24.9% The organisation has workplace rotation 13.5% 14.8% Corruption risk analysis is performed regularly 14.5% 13.9% Legend: Green: A positive change, indicating an increase in the ratio of institutions applying the given control. Red: A negative change, indicating a decline in the ratio of institutions applying the given control. Despite the positive changes, the ratio of institutions applying the anti-corruption procedures and systems surveyed remains low. 11
12 5. Soft controls Before presenting the results of the survey, we need to define what is considered to be a soft control. Soft controls constitute a group of integrity controls applied by institutions on a voluntary basis in order to facilitate their objectives, values and principles. For the most part, their application is not enforced by legal regulations. The phrase for the most part reflects the fact that different regulations are applicable to individual institution types and accordingly, what is mandatory in a specific institution type may only be a recommendation in another. Of the controls surveyed, the SAO analises four controls as soft integrity controls. These are the following: 1) Regulation of the conditions of accepting gifts, invitations and trips; 3) Reporting obligation on employees conflicts of interests with economic or any other relevance; 2) Inclusion of the fight against corruption, the improvement of the organisational culture and the strengthening of integrity in publicly disclosed strategies; 4) Individual performance assessment systems affecting income levels. As regards the soft controls surveyed, the survey findings indicated an increase in the ratio of institutions that regulate the conditions of accepting gifts, invitations and trips, present the improvement of organisational culture, the strengthening of integrity or the fight against corruption in their strategies, and prescribe a reporting obligation for their employees regarding conflicts of interests with economic or any other relevance. By contrast, in the light of the two survey years, there was a decline in the ratio of institutions that operate an individual performance system which influences the annual income of employees (Table 3). Table 3 Soft controls Soft controls Survey year Ratio of institutions regulating the conditions of accepting gifts, invitations and trips 27.6% 31.7% Ratio of institutions presenting in publicly disclosed strategies any of the following topics: improving organisational culture, strengthening integrity, fight against corruption 57.7% 60.2% Ratio of institutions stipulating a reporting obligation for employees on conflicts of interests with economic or any other relevance 58.4% 60.7% Ratio of institutions operating an individual performance assessment system affecting income levels % 28.8% Legend: Green: A positive change, indicating an increase in the ratio of institutions applying the given control. Red: A negative change, indicating a decline in the ratio of institutions applying the given control. 3 Data presented in the table include institutions responding with yes, mostly yes and barely to the question of whether they operate individual performance assessment systems affecting income. 12
13 Summary The fact that the number of institutions participating in the 2015 survey was higher than recorded for any previous data collection demonstrates the commitment of the Hungarian institutional system to the fight against corruption and to strengthening integrity. According to the surveys, corruption risk indicators show a decreasing trend overall, with a parallel increase in the level of controls. This indicates an improvement in the management of corruption risks among the participating institutions. The favourable shift in the control indicator reflects a gradual, simultaneous, moderate increase in the coverage of several controls. Among other things, a significant improvement was achieved in the application of special anti-corruption controls (e.g. Code of Ethics, two man rule, whistleblowing systems) and soft integrity controls (e.g. the regulation of the acceptance of gifts, trips and invitations, the reporting obligation of employees regarding conflicts of interest with economic relevance). Despite these favourable developments, however, the ratio of institutions applying anti-corruption procedures still remains low. Further steps are required to expand the application of the measures described above. The application of regular corruption risk analyses, anti-corruption training and rotation in vulnerable positions leaves room for significant improvement. Institutions should continue to exert special efforts to identify the corruption risks associated with public procurements, to raise awareness in this regard within the organisation, and to address the risks detected. By a more stringent application of the relevant controls, consistent compliance with the provisions of the Act on Public Procurement and by the formulation and practical enforcement of institution-level regulations pertaining to the involvement of external experts in public procurements the institutions concerned may improve the efficiency and effectiveness of their risk management activity. 13
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