Audit threats and year-end spending by government agencies: experimental evidence from Chile
ISSN: 1535-0118
Article publication date: 25 January 2023
Issue publication date: 24 February 2023
Abstract
Purpose
The paper aims to estimate the capacity of supreme audit institutions’ (SAIs) audits to deter potentially wasteful year-end procurement spending. It also studies heterogeneous responses to SAIs’ audits depending on whether agencies’ top managers are appointed through a competitive procedure or not.
Design/methodology/approach
A letter signed by the head of Chile’s SAI was sent to a hundred randomly chosen agencies two weeks before the end of the fiscal year, with instructions on year-end spending accounting and an audit threat. In addition, a hundred agencies that did not receive the letter were used as a control group.
Findings
Agencies that received the letter reduced year-end aggregate procurement spending by 33% relative to controls. Purchases of office supplies, safety equipment, personal care products and paper products experienced the most considerable reductions. The decrease in year-end spending was smaller for agencies with at least one top manager appointed through a competitive procedure.
Research limitations/implications
A SAI’s audit threat significantly reduced year-end procurement spending. Larger reductions in agencies headed by political appointees and across categories of goods that have been flagged as likely to be purchased to exhaust the budget suggest the avoided expenditures would have been wasteful. Further research is needed to determine if the net social value of year-end procurement spending deterred by SAIs audits is negative as suggested.
Social implications
This paper has implications for the institutional support of SAIs audits and civil service.
Originality/value
This paper provides novel experimental evidence of SAIs’ audits’ deterrence power on public agencies’ year-end procurement spending.
Keywords
Acknowledgements
The authors thank the Contralorŕa General de la República for providing the experimental data and Emanuele Colonnelli, Claudio Ferraz, Ramiro Mendoza, Francisco Nahmías, Victoria Narváez, Pablo Soto and especially Patricio Barra and Rodrigo Vivallo for insightful discussions. Authors also thank seminar participants at PUC-Chile, Universidad de Chile, Universidad Diego Portales, Universidad Adolfo Ibáñez, 2016 NEUDC (MIT Sloan), 2017 SECHI Meetings, and the 2017 Summer AEW (BEPP Wharton) for comments. Authors also thank Federico Huneeus and Mohit Karnani for outstanding research assistance, Tomás Blake for translating the letter included in Appendix A, Guillermo Burr for providing the data from Chilecompra, and Rodrigo Egaña for providing the data from Chile’s Civil Service. The usual disclaimers apply.
Statements and declarations: Data availability: the data sets analyzed in the current study are not publicly available because they were shared to the authors by public agencies that own them. Data are, however, available from the authors upon reasonable request and with permission of the public agencies that own the data.
Competing interests: The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
Citation
Engel, E., Jordán, F., Rau, T. and Repetto, A. (2023), "Audit threats and year-end spending by government agencies: experimental evidence from Chile", Journal of Public Procurement, Vol. 23 No. 1, pp. 100-124. https://doi.org/10.1108/JOPP-07-2022-0032
Publisher
:Emerald Publishing Limited
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