June 27, 2012

Crowdsource RTI data in XBRL to curb corruption

By clamouring for a Lok Pal, the anti-corruption campaign is barking up the wrong tree. We have laws against corruption for citizens. We have police and the other government agencies to enforce these laws but they are corrupt as well. So we have higher agencies like the CBI and CVC but they are corrupt as well. Now we want another layer, the Lok Pal, but by recursive extension there is nothing to stop the Lok Pal from being corrupt. We can go higher and higher, Parliamentary Sub Committee, President of India …  but even if we involve the Divine Lord Krishna himself, the nation will surely find a way to make him corrupt as well!

So let us look at another model -- that of the notorious American gangster, Al Capone. and read the story of how he was caught and brought to justice, not by some muscular policeman but by some very nerdy, if not wimpish, men from the IRS -- the US equivalent of our Income Tax Department. Mr Capone was too smart to be caught out on his main crimes, namely illicit liquor trade, murder and extortion, but was caught and sent behind bars for tax evasion. Can we apply this model to tackle corruption in India ?

In this case, our goals are obviously slightly different. We are not not interested in tracking tax evasion. Instead we want to know if, how and when public money is being diverted away from the public purpose -- in other words, being stolen. The tool that we should will be a modification of the Right to Information but restricted to economic information.

the image and idea of the 0 rupee note is taken from http://india.5thpillar.org/front_page

In its current form, RTI assumes that some citizen suspects that there is something wrong and demands documents to substantiate his suspicion. But why leave the onus and the responsibility on the suspicious citizen. Instead why not make it mandatory for each and every government department to place all financial information in the public domain in a digital format ?

The immensity of the task may seem daunting but if one looks closely, this is not so. Each and every department must already have a mechanism to track all financial transactions. If it does not have it, that itself is a first broad hint of a problem, but given the rigorousness of our bureaucratic processes this is highly unlikely. Now if this information is available then there can be no reason why it should not be formally and automatically placed in the public domain.

Once this information is available in digital form in the public domain, say in form similar to that offered by the British government at http://data.gov.uk/ -- then it can be scrutinised and checked for inconsistencies by the public and by colaboratively tracing the flow of money across the country it would be possible to detect, investigate and plug points where “leakage” or theft happens.

Given the extremely large number of financial transactions that the government enters into, both with itself and with its citizens, it may appear that this is easier said than done but a little application of mind will show that the problem is not intractable. Chartered Accountants already have a set of Generally Accepted Accounting Principles and all corporate entities are mandated by law to publish accounts. We simply need to extend this to all government agencies -- for example municipalities, departments, schools, colleges or anything else that is funded by public money -- and ensure that the resultant data is available in a standard format, say XBRL -- the universal financial reporting language that can be used in any computer system.

In fact RTI activists, instead of asking for a wide variety of data in an ad-hoc manner, can co-ordinate their activism and structure their campaign so that data from each corner of the country and the government is asked for and obtained in this standard XBRL format and then pooled into a public domain digital infrastructure that can be used by all. So it is either that every government department or agency publishes its financial data in the public domain or the RTI is invoked to make it do so. In a way, this is roughly analogous to data being sourced by the crowd, or crowdsourcing. This way, say, NREGA funds being despatched from Delhi can be traced as they move across the country through states, districts, panchayats and villages by tallying the XBRL documents obtained by RTI activists at each level.

What is being suggested here is nothing new. Each and every department that handles public money must already have a way for accounting for every receipt and payment. The RTI Act already  empowers a citizen to ask for these details -- the rules may need to be amended to mandate the delivery of digital data. The GAAP clearly specifies how this data is to be reported and there exists global standards, like XBRL, that allow this data to be digitally stored. Finally there are enough data mining tools around to make sense of this mountain of digitally data and spot deviations and discrepancies. In this context, forensic accounting techniques can be used to locate suspicious discrepancies in financial data.

What may be missing is a financial accounting software that needs to be implemented in every government department and people must be trained to use it. This will be a very small investment compared to the returns that will accrue and will be a good business practice to introduce in any case. After all any small and medium enterprise today uses such a financial accounting software and it is high time every government agency has one. ( Full Disclosure : the author is neither in the accounting profession, nor is he associated with any accounting software! )

We have all the pieces in place. Do we have the will to join the dots ? If not, can our RTI activists and anti-corruption campaigners do something to make it happen ?


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