Windfall federal grants and local government corruption

54 Pages Posted: 18 Feb 2025

See all articles by Xiangpei Chen

Xiangpei Chen

Loyola University of Chicago

Angela K. Gore

George Washington University

Jennifer Spencer

George Washington University

James Wade

George Washington University

Date Written: October 20, 2024

Abstract

Although preventing and detecting public sector corruption is critically important to citizens and regulators, surprisingly little US accounting research addresses it. Our study investigates whether federal grant shocks (deemed “windfalls”) increase occurrences of local public official corruption, and whether local, state and federal audit oversight and an active press help ameliorate that relationship. Using a unique hand-collected dataset of local public corruption constructed from court filings, we find that grant windfalls are associated with significantly more public corruption charges filed. With respect to local audit oversight, questioned costs and audit findings exacerbate windfall-corruption relations, while modified opinions and material weaknesses have no significant effect. State oversight results suggest a greater percentage of state fraud auditors on staff, as well as the appointment of a State Auditor who is a Certified Fraud Auditor, weakens the windfall-corruption relationship. The appointment of a new federal oversight agency coupled with a windfall has a deterrence effect, suggesting that a newly appointed oversight agency has “fresh eyes” and monitors the local government more closely. Results also demonstrate a robust local news media helps reduce windfall-corruption relations. Additional analyses suggest that results are stronger when the lead criminal charge is specifically related to federal grant programs. Overall, we contribute to extant literature by exploring accounting-related aspects of local public corruption that may help inform federal regulators interested in strengthening the Single Audit process.

Keywords: Governmental Accounting, Federal Grants, Fraud Auditing, Material Weakness, Press Transparency, public corruption

Suggested Citation

Chen, Xiangpei and Gore, Angela K. and Spencer, Jennifer and Wade, James, Windfall federal grants and local government corruption (October 20, 2024). Available at SSRN: https://ssrn.com/abstract=5141035 or http://dx.doi.org/10.2139/ssrn.5141035

Xiangpei Chen

Loyola University of Chicago ( email )

25 East Pearson Street
Chicago, IL 60611
United States

Angela K. Gore (Contact Author)

George Washington University ( email )

2201 G St NW
Washington, DC 20052
United States
(202) 994-6195 (Phone)

Jennifer Spencer

George Washington University ( email )

James Wade

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

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