Weaknesses in budget management can result in funds never arriving at their intended destination due to mismanagement, arbitrary reallocation or theft, and where allocated education funding is not disbursed, or is diverted en route from the point of disbursement to schools, education provision tends to suffer.
Public Expenditure Tracking Surveys (PETS) and Public Expenditure Reviews (PERs) are important means to track funds and scrutinize the flow of public resources in education across administrative layers (Engberg-Pedersen et al. 2005; Reinikka and Smith 2004; Savedoff 2008).5 Tracking inflows, understanding spending, and identifying where governance failures may arise, PETS and PERs complement what PEFA evidence reveals about government-wide performance, thereby offering an important diagnostic on budget management and possible leakages.
PETS can be a useful tool for determining where leakages occur in the flow of funds, and what types of flows are more vulnerable to leakage in a particular country. There are several potential leakage points as illustrated in Figure 3: discrepancies between budgeted and disbursed funds; differences in outflows from one level to inflows at the subsequent level; differences between inflows and outflows within a specific level; and leakages across multiple levels in the chain of budget allocations (Savedoff 2008).
Figure 3. Overview of potential leakage points
Source: Savedoff (2008).
The much cited study on Uganda by Reinikka and Svensson (2004) provides an example of extensive budget leakages; in 1995, on average, only 22 percent of capitation grants reached primary schools. The leakage of these funds was likely due to a combination of non-disbursement for bureaucratic reasons, diversion of resources to purposes other than education, and private capture by local officials and politicians.
Evidence from PETS in other countries further illustrates the extent of leakages in primary education (Table 5). Certain types of funding, discretionary as opposed to rules-based, and in-kind and cash flows, may be more susceptible to leakages. In Zambia, leakages of fixed school grants were estimated at 10 percent compared to 76 percent for a discretionary non-wage grant program in 2001 (Reinikka and Smith 2004).
A PETS for Tanzania in 1998 showed that merely 43 percent of non-wage funding destined for primary schools reached schools with the remaining 57 percent going to non-education sectors and private capture. Similarly, a PETS for Ghana found that in 2001 only 51 percent of grants made it to end-users. The 49 percent that did not reach schools were seemingly lost between line ministries and districts at the point at which public funds were converted into in-kind transfers (Reinikka and Smith 2004).
Table 5: Budget leakages of non-wage funds in primary education in selected countries, 1995-2001
Most education PERs address governance and performance problems, explicitly or implicitly, and contain information on performance and potential solutions to identified governance weaknesses and performance challenges.
A PER for Sierra Leone describes a stark case of leakages but also hints at a possible solution. Schools receive a per student fee subsidy each term but there were serious problems in ensuring that the subsidies actually reached schools. Two different methods were used to transfer the subsidy to schools. The first allocated the subsidy to the Education Secretaries and to the District Education Offices, for onward transfer to schools. The second used a third-party, KPMG, to distribute the subsidy directly to the schools (World Bank 2004b).
The first method led to substantial leakages with merely 45 percent of the funds disbursed centrally, and 28 percent of teaching materials, reaching schools during the last two terms of the school year 2001-2002 (Transparency International 2004). When funds were instead transferred via KPMG during the first term of 2002-2003, 78.8 percent of funds disbursed centrally reached schools, and 98.6 percent of the funds actually transferred to KPMG reached schools, and about 70 percent of teaching materials (World Bank 2004b; Transparency International 2004). A 10 percent service charge was paid to KPMG, and some transportation costs were incurred, thus the loss between central disbursement and KPMG was no more than 10 percent (Sewell 2004).
The difference in the amount of the subsidy received under the two delivery methods is stark. However, some anecdotal evidence suggests that now leakages occur after schools receive funds, rather than en route (World Bank 2004b). This underlines the importance of having effective incentives, accurate and up-to-date financial information, and accountability mechanisms at all levels of the education system so as not to shift leakages from one level to another.
Teachers listed on payroll and being paid but who no longer, or never, worked at a school are manifested as payroll irregularities, and are made possible by the absence of accurate and updated employee records, functioning information systems, payroll controls, and internal and external controls (e.g. payroll audits). The flipside is not uncommon, where teachers who are on the payroll do not receive their wages (or receive them with great delay).
Multiple reasons account for the discrepancy between employee records, actual numbers of teachers employed, and teachers listed on payroll. Lists of public sector teachers are sometimes kept by multiple agencies (e.g. the Ministry of Education, the Ministry of Finance, and schools) and are often infrequently updated. Where teachers have left, died, or retired, and those separations are not recorded there is a disconnect between official records and actual teacher numbers. Such problems may be the result of administrative error or fraud, and suggest the need for efforts to strengthen both personnel and budget management, and accountability. Poor scores on the PEFA indicator effectiveness of payroll controls (Table 4) may imply the existence of ghost teachers on payroll.
Some of the estimates of the prevalence of ghost workers that are available come from Uganda, Honduras, and Papua New Guinea. Ghost workers were estimated to account for approximately 20 percent of primary teachers in Uganda in 1995, by 2005/06 this share had declined to 4 percent (World Bank 2007c). In Honduras, 2.9 percent of education staff and 4.6 percent of primary school teachers did not exist in surveys from 2000 (Dehn, Reinikka, and Svensson 2003).
In Papua New Guinea, there was notable discrepancy between the number of teachers on payroll and those on school rosters for a sample of 205 schools surveyed. Figure 4 shows how the different gross and net rates were computed. The total number of teachers listed on payroll was 5,982, out of these 1,534 teachers were on the surveyed PESD schools’ roster and also on the payroll; 346 teachers were on payroll but not on any of the surveyed schools’ roster, a gross ghost teacher rate of 15 percent.
Figure 4. Ghost teachers in Papua New Guinea, 2002
Source: World Bank (2004a).
Another area in which poor governance often results in resource leakages and corruption is public procurement. This is due to the uniqueness of the public procurement process in that (1) private sector participants who are stakeholders in the outcome of the process directly participate; (2) large, discrete amounts of public expenditure are involved; and (3) it entails significant discretion on part of public officials (PEFA Secretariat 2005). When governance is weak, manifested by the lack of a clearly regulated procurement process; little or no accountability; weak incentives for public officials involved in the process to ensure an efficient and fair process; and inadequate oversight and controls, the opportunity for inefficiencies and corruption is exacerbated (Ware et al. 2007).
In the education sector, poor governance provides opportunities for leakages and other irregularities in procurement for the construction and maintenance of school buildings, the purchase and distribution of textbooks, the acquisition of school supplies, and the delivery of school meals. For example, in the Philippines, a 1998 audit found that the Department of Education had bought US$320,000 worth of textbooks that were overpriced by bidders, not fit for use, or simply not delivered (Leung 2005; OECD 2006). A combination of factors, including non-transparent procurement rules, inadequate controls, and the inability to effectively hold public officials with significant discretion over procurement decisions accountable, led to the collapse of public sector performance.