The only paper to our knowledge which explores managerial practices within public agencies delivers highly policy relevant results worth further exploring in other contexts (Rasul & Rogger, 2015). Using a survey of Nigerian civil servants, bureaucratic autonomy and the use of incentives/monitoring within agencies has been established and linked to project performance in the social sector. Surprisingly, 1 standard deviation increase in bureaucrats’ self-reported discretion led to 18% higher project completion rate whereas one standard deviation increase in the use of incentives/monitoring resulted in 14% lower project completion rate. Project complexity, ambiguous project design, and organizational IT facilities mediated these observed relationships. While the findings cannot be interpreted as causal, they do point at the significant and non-trivial impact of public sector management practices on value for money and corruption.

Overall, the limited evidence on the role discretion and rule-bound decision making play in producing public procurement outcomes calls for significantly more research. First, the impact of different procedure types clearly varies with contract as well as organizational characteristics which need to be more directly addressed if seemingly contradictory findings are to be reconciled. Second, the black box of bureaucracies must be opened if we are to understand procurement outcomes, for example analyzing the impact of diverse management practices, politicization of the bureaucracy, and organizational control mechanisms could lead to policy advice with high impact.

# 4. <u>Audits and supervision</u>

# _a) Theory_

Our discussion of audits and supervision is restricted to those specifically designed for public procurement rather than broader processes such as financial audits concerning entire public organizations (for the discussion of such broader institutions’ impact see section C.2). Audits and supervision can be carried out by any organ of the state which is to some degree independent of the contracting body, that is we focus on horizontal accountability mechanisms.

Audits and monitoring by higher-level or independent state organs are expected to increase the risk of detecting misconduct, corruption in particular, and the threat of punishment as a result. Increased risk of punishment, in turn, contributes to higher levels of compliance with rules and lower corruption. This basic model resting on elementary microeconomic theory assumes that the monitoring body is non-corrupt (Becker & Stigler, 1974). If this is not the case, monitoring can result in simply reallocating rents from one organ of the state to another (Olken, 2007). If audits and monitoring are uncertain and even rule-abiding bureaucrats can be found guilty, they can generate a culture of fear which stifles innovation and creativity (Kelman, 1990).

# _b) Evidence_

There is a small number of high-quality research papers investigating the impact of audits and supervision in public procurement (Fazekas & Tóth, 2017; Lagunes, 2017; Olken, 2007) with some further correlational studies (Albano & Zampino, 2012); however, overall the issue has received only modest interest in the research and policy community.

A randomized controlled field experiment looking at village road construction projects in Indonesia in 2003-2004 found that the increase of audit probability from 4% to 100% led to the reduction of missing infrastructure spending of 8% points (i.e. lower corruption) (Olken, 2007). This is a substantial reduction from a baseline of 24% missing spending (materials and labor combined). Interestingly, the main channel of influence was not criminal proceedings which was quite rare, rather publicly reading the audit results on open village meetings. The author further found that parallel to reduced missing expenditure the project jobs given to family members also increased suggesting substitution between different forms of corruption and patronage.

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