Municipally owned enterprises (MOEs) are increasingly utilised to provide public services in high-risk sectors, often oriented towards local infrastructure, utility, energy and natural resources, such as, roads, power, water distribution, transportation, etc. They are typically “organisations with independent corporate status, managed by an executive board appointed primarily by local government officials, and with majority public ownership.”
MOEs often have a significant economic and social impact in local communities, and are among the largest employers, contributing to a substantial percentage of the workforce. Because of their role, structure, mandate and legal status, MOEs focus complex interests and are exposed to critical integrity risks. Compared with private companies, MOEs can face particularly heightened corruption risk owing, among others, to underlying issues in their ownership, regulatory and corporate governance arrangements, as well as shortcomings in the quality and credibility of corporate disclosure.
A special governance challenge is the “intrinsic closeness” between the local government, and the enterprise. The potential for political interference, as well as, the complexity of the accountability chain affect vulnerability of MOE to corruption. In many MOEs, the quality of internal controls is often weak, auditing practices are inadequate, and the corresponding levels of financial and non-financial disclosures are low. These effectively limit accountability, and create conditions for abusive practices. All of the above calls for effective anti-corruption strategies.