Governing the Quango: An Auditing and Cheating Model of Quasi-Governmental Authorities

The New Public Management has a paramount implication for the delegation of authority to implement public policy, namely, that efficient delegations are designed according to the substance of the task to be performed. In other words, the government must be able to choose the best agent to carry out a particular task, which implies that the set of agents must not be confined to actors and departments within the bureaucracy. This flexibility of form creates the incentives behind the quango, and increases the importance of ex ante design for the legislature to avoid misuse of public funds. It also has the potential to increase ex post enforcement activity by the government. This article examines ex ante design from the perspective of auditing, presenting a formal model of the construction of auditing procedures as a response to expectations of the misuse of funds. By creating requirements such as the requisite submission of annual plans, reports, and accounts, governments attempt to create a compliance-inducing scheme much like that present in tax enforcement. The theoretical model generates empirical predictions that are statistically examined using data on public bodies in the Netherlands created between 1946 and 1993. Empirical results demonstrate strong support for the theory. The whole question of quangos and their use has largely become a political game. This game of musical chairs has involved a barrage of claims and counter claims about the political bias of appointments, the abuses of patronage, and financial irregularities and mismanagement. . . . The game has directed the debate away from the more fundamental constitutional issues about the role of quangos and their relationships to elected bodies. Tony Stott (1995, 323) A previous version of this article was presented at the annual meeting of the Association of Public Policy Analysis and Management, Atlanta, GA, October 27-30, 2004. The author would like to thank Sandra Van Thiel for graciously providing the data and some suggestions for the empirical portion of this article. Christopher Kam, who turned me on to the world of quangos, supplied excellent suggestions on this article as well. Hal Rainey's attention to a prior version displayed care well beyond the norms of collegiality. Andrew Whitford, Laurence OToole, Jeffrey Wenger, and Christian Grose also provided helpful comments. Ellen Rubin, Nelda Cruz, and Marcia Larson contributed excellent research assistance. This research was generously supported by a grant from the European Union Center at Texas AM they have also been excoriated for their misuse of public funds." Ironically, then, the most theoretically attractive feature of quangos?avoiding the hierarchically governed bureau?has the potential to increase ex post checking activity by the government to ensure that good money does not follow bad. Government must still solve a "metering problem" similar to that of the firm, namely, the measurement of policy outcomes and apportionment of rewards (Alchian and Demsetz 1972). Though the literature on quangos is substantial, there is no straightforward theoretical link between outcomes and rewards. I argue that significant analytical traction can be achieved by approaching the quango problem as one of metering. This study examines the government's ex ante accountability incentives through its design of auditing mechanisms. With such requirements as the requisite submission of annual plans, reports, and accounts?comparable to those mandated for federal agencies in the United States under the Government Performance and Results Act (Radin 1998)? government fashions compliance-inducing schemes for quangos much like those present in tax enforcement (Allingham and Sandmo 1972; Andreoni, Erard, and Feinstein 1998) and in the compliance of lower-court judges with higher-court precedent (Cameron, Segal, and Songer 2000). Consistent with theoretical treatments of the tax and judicial precedent problems, I present a formal model of the government's ex ante auditing choice (the choice of a level of reporting requirements) as a response to expected levels of "cheating" behavior by quangos. As Meier and Bohte (2000) define it in the bureaucratic setting, "organizational cheating" may be defined as revealing incorrect performance information, cutting corners, misusing funds, and so forth. The model also accounts for the influence of the legal status of the quango, which is also a choice for the government when creating a quango. The model predicts, somewhat counterintuitively, that a public law basis for the quango will increase governmental auditing behavior. The model and empirical analysis also account for the political attitudes of government specifically toward quangos, not simply along a generic left-right dimension. This content downloaded from 157.55.39.35 on Fri, 02 Sep 2016 05:03:39 UTC All use subject to http://about.jstor.org/terms Bertelli Governing the Quango 241 Examining accountability decision making in this way generates predictions for agency design and policy assessment that can be analyzed in cross-national settings. Empirical implications from the formal theory are examined using data from a study of an important class of quangos, public bodies, by the Netherlands Court of Audit (Algemene Rekenkamer 1995) and manifestos data on government policy preferences (Budge et al. 2001). The results are strongly supportive of the formal theory. The article proceeds as follows. First, quangos are defined, and concerns over their accountability and autonomy are discussed. This is followed by the development of the formal theory. A description of the data and statistical methods is then presented, followed by the empirical results. I conclude with some policy implications.