A Sourcebook - UN-Water

5 DETECTING CORRUPTION AT THE PROVIDER LEVEL
Corruption at the provider level can take a number of forms. The most obvious is public utility staff taking
company property or other things of value. This form of corruption does occur, but is also generally
more obvious, and so perhaps easier to detect and deter, particularly where substantial value is misappropriated.
Thus it is generally easy to capture the utility’s resources at the point where they have been
transferred into private hands outside the utility than it is to steal them from the utility directly. Sector
practitioners therefore need to look for various forms of provider level corruption other than direct theft.
With the exception of direct theft, provider level corruption tends to occur at points where value is
transferred outside the utility for some reason. The transfer of value is generally combined with some
element of discretion for utility managers or staff (for example discretion to negotiate the price for
goods or services, or to influence the timing of a new connection). This combination creates “hot
spots” for corruption, as illustrated in Figure 4.1 above. This section of the Sourcebook discusses corruption
risk in the following provider level “hot spots”:
• Suppliers and contractors: where the utility pays outside parties for goods or services (see Section
5.1)
• Connections and commercial operations: where the utility provides connections and services
to its customers in return for payment (see Section 5.2)
• H uman resources: where the utility hires staff and pays them to carry out their assigned jobs
(see Section 5.3)
• Company property and money: where public utility staff take the utility’s property or other
things of value, for their own personal gain (see Section 5.4).
5.1 Suppliers and Contractors
Corruption in dealing with suppliers and contractors generally takes the following form. Officials or
managers who can influence award of contracts obtain a kickback of the percentage of the contract
value (see Box 5.1 for a definition of “kickback”) in exchange for awarding the contract. To fund
the kickback, supplier or contractor provides goods or services that are worth less than the price it
charges the utility. The supplier may:
• Inflate the price of the goods or services
• Provides goods or services that do not meet quality specifications, or
• Supply a lower volume than the utility paid for.
Figure 5.1 illustrates this form of corruption.
Alternatively, officials who work in the sector may have a financial stake in suppliers and contractors,
and use their influence and relationship to ensure the utility awards the contract to their company. The
supplier then uses the above strategies to misappropriate value from the utility, which the official who
owns the supplier pockets. (Under this scenario, the supplier may still need to pay a bribe or kickback
to other officials or utility staff, to keep them from reporting the corruption.)
This form of corruption is similar to corruption in capital projects (see Section 6). Public officials are able
to capture public resources by cycling them through a third party, in transactions that are required
for apparently legitimate purposes. The public official may capture the resources for personal gain, or
may divert the resources to benefit his political party or family.
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