Audit risk and rent extraction: Evidence from a randomized evaluation in Brazil

Abstract

We report results from a randomized experiment designed and implemented by the Brazilian central government audit agency to test whether increased audit risk deters corruption and waste in local public procurement and improves provision of public services. We measure waste and corruption as irregularities in local public procurement and service delivery uncovered by central government auditors. Our estimates suggest that increasing audit risk by about 20 percentage points reduced the proportion of non-competitive procurement modalities adopted by local managers by about 17 percent. Higher audit risk also reduced the proportion of local procurement processes involving waste or corruption by about 20 percent. In contrast, we find no evidence that increased audit risk affected the quality of publicly provided preventive and primary health care services, measured using client satisfaction surveys. We also find no evidence that higher audit risk had an effect on local compliance with national guidelines of the conditional cash transfer program Bolsa Família, measured in terms of appropriate inclusion of beneficiaries into the program or their compliance with health and education conditionalities.