Control in Combating Financial Corruption in Government Agencies: A Saudi Arabian Case Study

Introduction

Research Background

Throughout the global community, efforts to mitigate and prevent fraud and corruption are being initiated through formalized audit and control practices and standards. Dipietro (2014) recently reported that investors view such oversight as a means of eliminating corruption, protecting the commercial viability of an investment, and creating value and improving performance within the organization. The optimistic analysis presented by Dye (2007) and Seldayo and De Haan (2011) emphasizes the potential for overcoming the effects of corruption through rehabilitation, resolution, and mitigation of corrupt influences, a process that is time-dependent and on-going.

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Recent reports indicate that corruption in Saudi government entities remains prevalent in spite of recent efforts to eradicate and undermine the influence of rentier value systems and a persistent legacy of opportunism and unethical business practices (Robertson et al. 2012). Al Maeena (2014), for example, cites several examples, the most public of which was a recent revelation regarding the fabrication of false statistics relating to Saudisation employment ratios at public schools. Specifically, more than 2,000 Saudi teachers who were paid monthly were found that they do not only work for the school system but were receiving public funds for the falsification of their status, while the schools collected excess royalties from the Human Resources Development Fund for each teacher (Al Maeena, 2014). The diversity and impacts of corrupt practice are expansive, ranging from bribery and contract forgery to adulterated products and deficient regulatory oversight (Al Maeena, 2014). For this reason, additional, targeted research is needed to determine the best solution to mitigating corruption and its far-reaching effects in this increasingly market-based economic system.

Research Problem

In the 1970s, British Ambassador Willie Morris recounted that the oil fortune in Saudi Arabia had 'led to a corruption of character', whereby government agents maintained a 'corrupt interest in all contracts', resulting in a system which 'is at best an infernal nuisance and potentially explosive' (Leigh & Evans, 2011). In spite of decades of history, development, and governance, a recent report by the Al-Hayat newspaper indicated that more than 500 cases of corruption had been recorded in Saudi Arabia between 2012 and 2013, with more than 92% of Saudi nationals indicating the nepotism was the direct cause of domestic corruption (Press TV, 2014). Further, Khatib (2011) and Sullivan (2013) report that in spite of increasing oil revenues and Saudi wealth, poverty affecting between 2 and 4 million of Saudi citizens has taken a significant toll on public welfare. Following government reforms and publicized efforts to quell corruption and anti-competitive activities, particularly since the 2011 Arab Spring uprising, statistical indicators suggest that corruption remains prevalent and impactful. With no singular solution identified for this problem, there is a need for more robust and targeted auditing and control techniques. The current study seeks to critically evaluate means and mechanisms that could be used to inhibit the effects of corruption, focusing on a diversified spectrum of auditing and control techniques that are increasingly implemented throughout the broader global community.

Aim of the Research

Prior investigation indicated a continued and increasing level of corruption prevalence and its impact on economic, political, and social sectors in Saudi Arabia. There is a need to emphasize on a critical and system-based assessment of potential reform measures within the Saudi Arabian public sector. Thus, this research aims to critically evaluate the conditions and contributors affecting corruption and fraud in Saudi Arabian public enterprise. The research further identifies those factors preventing more rigid control measures and assesses the viability of formalized audit and control standards for mitigating future incidences of corruption.

Objectives

Based on this primary research aim, the following core research objectives will be accomplished:

To assess and identify the most common characteristics of fraud and corruption in the Saudi Arabian public sector.

To evaluate recent reforms and government controls, highlighting the strengths and deficiencies of current standards for mitigating and preventing corruption.

To survey and analyze the opinions of public officials regarding the opportunities for mitigating corruption and the barriers that may prevent formalization of such standards.

To propose an alternative intervention scheme designed to disrupt corrupt practices and reframe government transparency according to international audit and control standards.

Literature Review

Researchers in economic and political areas have in their multiple literature sources documented their investigation and assessment of the ideological and sociological roots of corruption. Critical to their assessment are several dominant themes and contributory agendas that influence public leadership and administration in Saudi Arabia, emphasizing the roots of maslaha (public interest), or the responsibility of the ulama to 'take measures to maintain the welfare of the public' (Al-Atawneh, 2009). Problematically, threats or perceived threats to state sovereignty and public welfare entitle the Imam to 'take any steps necessary to fulfil his duty' (Al-Atawneh, 2009). As a result of the monarchical traditions of the Saudi government, Kapiszewski (2006) contests that reformative agendas and objectives are largely overshadowed by the sovereign dominion of the royal family. While a shift towards global diplomacy and strategic politicking is placing pressures upon this authoritarian setting, leader such as Abdalwahhab contest that to modernize Saudi Arabia, secularisation must be embraced an outcome which contradicts Islamic ideals and theology (Kapiszewski, 2006).

In spite of the fact that Saudi Arabia is typically identified as a 'theocratic Unitarian state', Al-Atawneh (2009) contests that there is a division in the 'ruling hegemony of the state' between the ulama(authorities in regards to the interpretation of shari'a law) and the umara' (rulers) who are expected to implement the principles and tenets of shari'a law. The resultant duality establishes mutual interests and mutual influence as religion-cultural values and norms influence policymaking, the rule of law, and governance (Al-Atawneh, 2009). For the improvement of the overall transparency in Saudi governance, Kapiszewski (2006) suggests that a more robust system of audits, controls, and information sharing is needed; a process which Salshomrani and Qamar (2012) propose will be actualized through a commitment to e-government and online services. Through a systematic assessment of the strengths and weaknesses of the reformative online program, the researchers propose that a citizen-centered, user-driven paradigm is needed for future iterations, amending the current standard of government-driven agenda setting (Salshomrani and Qamar, 2012). Similar research conducted by Shim and Eom (2008) demonstrates that e-government has the potential to 'control corrupt behaviors by enhancing the effectiveness of internal and managerial control' and that further, e-participation 'curbs corruption by enhancing government transparency and accountability.'

In public administration, corruption is a common and detrimental occurrence, one which manifests from weaknesses and loopholes in legal standards and systems, resulting in 'detrimental effects on economic growth' (Sedadyo and De Haan, 2011). Evidence presented in a South Korean case study by Lee (2006) confirms that higher levels of corruption counteract holistic domestic growth. It, therefore, requires increasing commitments to regulatory reform across both the public and private sectors to manufacture a full spectrum intervention. As countries develop, amending their policies towards a more robust international standard, Sedadyo and De Haan (2011) demonstrate a reduction in corrupt events and incidences, a paradigm shift that is supported by policy, legal controls, and formalized standards.

Researchers and other stakeholders have also been on the frontline to suggest some of the ways through which the vice of corruption could be mitigated to a manageable level. For public administrators, Francis et al. (2003) suggest that international accounting standards can significantly reduce corruption and improve economic stability, market fairness, and developmental opportunities. Importantly, however, the researchers demonstrate that without a commitment to an international, multi-nation standard, 'better accounting practices alone' do not provide the desired performance benefits (Francis et al. 2003). More recent research conducted by Han et al. (2012) also demonstrates that there is a positive correlation between auditor participation and independence in public sector administration and corruption mitigation. Furthermore, Tabish and Jha (2012) demonstrate in a sector-based analysis of mitigation measures that corruption can be eradicated from public enterprise through investments in anti-corruption strategies including 'rules and regulations' and 'fear of punishment.'

Throughout the literature in this field, there are a variety of critical gaps that have arisen as a direct result of the recent, reformative agenda that has been publically administered in Saudi Arabia. Roberston et al. (2012) contest that although the government continues to retain an arm's length control over regulations and governance in the private sector, adoption of increasingly standardized accounting practices is slowly being enacted. In spite of such observations, the researchers fail to adequately describe what such practices might entail or how they are being disseminated. Further, there is currently a severe gap in evidence relating to public sector auditing and administration controls, a seeming result of limited transparency and unified academic acceptance of socio-cultural guidance (e.g., Islam) in Saudi public administration. Researchers such as Dye (2007) have also raised concerns in regards to the viability and accuracy of public sector auditors, a potential limitation that could ultimately inhibit the attainment of Saudi transparency and objectives. Accordingly, additional research is needed to test whether such concerns might affect policy making and standards-setting in spite of the apparent need for a more transparent and controlled system.

Research Methodology

Research Design

The research intends to use the cross-section approach which presents a critical review of different key theorists in this field including Jonker and Pennink (2010), Bryman and Bell (2011), Creswell and Clark (2011), Bryman (2012), Creswell (2014), Punch (2014), and Yin (2014). These researchers, theorists, and model developers describe a dichotomy between quantitative and qualitative research techniques which is based upon persistent tensions between the positivist and the constructivist research paradigms (Jonker and Pennink, 2010; Bryman, 2012). Based on such tensions, and seeking to advance research in this field beyond the current contextual and conceptual limitations, the rese...