9/4/2014 @Copyright 2014 1

Introduction

The Maladies that plaque society:

1. Fraud

2. Waste

3. Abuse

4. Corruption

9/4/2014 @Copyright 2014 2

Dr. Tarwacki

Your Narrator

The Impact upon Government

1. FWAC undermines the legitimacy of government institutions.

2. FWAC diminishes individual well-being.

a) Unnecessary taxation

b) Violations of civil liberties and rights

9/4/2014 @Copyright 2014 3

Basic Definitions

• These maladies are discussed in terms of actions, not thoughts or intentions, but concrete actions (or absence of action).

• Although each definition is rooted in individual action, this is not meant to imply that institutional settings do not influence individual actions.

• Nor are these labels mutually exclusive sets; corruption nearly always involves an abuse of authority and often requires frauds to perpetrate or cover-up the corrupt act.

9/4/2014 @Copyright 2014 4

Waste

• Waste is the underutilization of resources; inefficiency. For example, a person who is sleeping on the job is clearly wasteful. But so is a person who continues to work, but at a pace below the expectations set by the organization.

• Identifying waste becomes a subjective exercise. Many worker-employer conflicts involve setting expectations for the rate of work

9/4/2014 @Copyright 2014 5

Abuse

• Abuse is the use of some form of power (physical, psychological, statutory, hierarchical, etc.) to improve the abuser’s well being at the expense of another’s well being.

• In many respects abuse is a catch-all phrase that covers all kinds of actions that most people would describe as “wrong.”

• Examples of abuse include racial, religious, gender and sexual orientation discrimination; verbal castigation; managers who vindictively assign undesirable work times and tasks to those they do not like.

• Not all abuses are illegal.

9/4/2014 @Copyright 2014 6

Fraud

• Fraud is lying for personal gain.

• Fraud is a crime of deception.

• Fraud can involve falsified documents, forgeries and even the intentional withholding of information.

• While simple in concept, frauds can be difficult to adjudicate in both criminal and civil courts.

• As with abuse, we can safely assume that people commit frauds for a reason, but we cannot always discern what that reason is.

9/4/2014 @Copyright 2014 7

Corruption

• Corruption is any break-down from the original.

• A corrupt action is when an individual benefits from acting against the interests in which they were entrusted to uphold.

• Bribery is the classic form of political and public managerial corruption.

• Other kinds of corruption include influence peddling, nepotism, cronyism and other cases where officials act in their interest and not the public interest.

9/4/2014 @Copyright 2014 8

Multi-Mission Government

• One of the distinctive features of democratic and semi-democratic governments is that they serve multiple missions.

• This stands in stark contrast to for-profit business organizations that exist only to maximize profits.

• Governments serve multiple missions such as providing safety, liberty, prosperity and so on. These missions often conflict with each other creating a need for balance among the different missions.

• One of the themes of this class will be that finding the right balance of missions is aided by finding the right balance of how governments react to fraud, waste, abuse and corruption.

9/4/2014 @Copyright 2014 9

Persistence of FWAC in Gov’t.

• One of the significant differences between private and public sector organizations is the consequence of FWAC on the existence of the organization.

• A business that insufficiently deals with FWAC will go out of existence, replaced by competitors.

• Since governments do not, for the most part, have competitors, the prevalence of FWAC can persist longer than in businesses or can lead to either a coup or popular revolution.

9/4/2014 @Copyright 2014 10

Measuring Public Perception

• Multiple mission organizations usually suffer from the fact that the missions’ objectives are not easily measured.

• The crime rate can be measured, but the true feeling of safety cannot.

• When social scientists try to construct proxy measures it often gives rise to motivations for FWAC by self-interested governments agents.

9/4/2014 @Copyright 2014 11

Market Failure

• In the 21st century, the most successful societal relation is a mixture of free-market enterprise and central control through democratic or semi-democratic government.

• Governments often intervene in the economy to remedy “market failures.”

• In the absence of market failure, self-interested actions by individuals lead to results that can be considered best for society. This is, in essence, Adam Smith’s concept of the “invisible hand” guiding individuals into actions that benefit all of society.

9/4/2014 @Copyright 2014 12

Public Goods

• Public Goods represent the clearest case for government intervention in the economy.

• Most goods and services that people derive utility (usefulness) from are considered to be “private” goods in that consumption by one person precludes consumption by another.

• Public goods differ in that the consumption by one person does not diminish another’s utility and when one person consumes it others cannot be kept from also gaining utility.

9/4/2014 @Copyright 2014 13

Externalities

• When two parties make a mutually beneficial transaction both parties are better off or else they would not have voluntarily entered into the exchange.

• Some transactions create consequences for third-parties. These consequences are known as positive or negative externalities.

• They erode the connection between what is best for private individuals and what is good for society.

9/4/2014 @Copyright 2014 14

Concentration of Market Power

• For markets to channel individuals optimal actions into socially optimal results, all actors, all buyers and sellers, are required to be inconsequential to the market.

• Markets fail to deliver when there are lots of buyers and sellers but none of them can possess a significant share of the market.

• Should any buyer or seller capture a significant portion of the market, they can use that market power to their advantage to the detriment of society.

9/4/2014 @Copyright 2014 15

Asymmetric Information

• When one side of a transaction has an informational advantage it can cause markets to behave oddly and we have the market failure.

• There is a rich debate about how far the government should go in trying to fix problems of asymmetric information.

9/4/2014 @Copyright 2014 16

Redistribution of Wealth

• Governments are called upon to redistribute both income and wealth.

• The stated aim may be to foster greater equity, to provide a safety net for the unfortunate or to provide an equality of opportunity.

• Clearly this is where we see the tensions between individuals’ goals of well-being and society’s interest in promoting the whole species.

9/4/2014 @Copyright 2014 17

Gov’t as Arbiter of Disputes

• Markets and “free behavior” also tend not to serve well in settling disputes for the benefit of society as a whole.

• Individuals would attempt to rectify perceived injustices in ways that harm society.

• As the arbiter of disputes governments usually assert a monopoly over the use of force. Civil courts exist as a way for individuals to borrow the government’s monopoly of force.

9/4/2014 @Copyright 2014 18

Macroeconomic Instability

• The final market failure is Macroeconomic instability.

• People generally want stable and low inflation as well as low unemployment, but disagree on how to achieve these often conflicting goals.

• Those who prefer government intervention are classified as “liberal” or Keynesian.

• Those who oppose government intervention are classified as “classical.”

9/4/2014 @Copyright 2014 19

Government Failure

• Government failures can be placed into four categories: under action, over action, unintended consequences and corruption.

• Corruption is the most straight forward government failure and obviously we will study it in great detail in this class.

9/4/2014 @Copyright 2014 20

Conclusion • While the concept of FWAC is an organizational and systemic

phenomenon; fraud, waste, abuse and corruption are defined as actions of individuals (or conspiracies of groups of individuals).

• This class will be concerned with individuals at all levels of government.

• FWAC can come from those whom government is intended to serve, those who are the line operators for government agencies, public managers, political appointees and elected officials.

• The ability to engage in an act of FWAC is determined by the position and circumstance of the individual.

9/4/2014 @Copyright 2014 21

Introduction to FWACis authored by

Professor Jay Hamilton

This PowerPoint Presentation

was prepared and narrated by

Professor Robert Tarwacki

9/4/2014 @Copyright 2014 22