Featured Article

Fraud in reconstruction: What awaits Ukraine?

When countries devastated by war, natural disasters or other calamities must rebuild, valiant efforts to rise from the rubble must be paired with another intangible quality: integrity. But prior experience with hastened economic relief underscores the need to couple that relief with a fortifying effort to deter corruption.

With the war in Ukraine now in its second year, it’s still impossible to predict when hostilities will cease. But that doesn’t stop most of us from anticipating an end to the fighting and the return to some sense of normalcy in the region. Such forward-looking thoughts about a peaceful resolution come with a catch: We must also consider what postwar rebuilding in Ukraine will look like as we should with any reconstruction effort.

War and other disasters can extract a tragic toll in human lives and misery. They also wreck economies, infrastructures and governments to a degree that can take years or decades to repair and rebuild. If recent history is our guide, the reconstruction process is often fraught with fraud, waste and abuse. Here we look at recovery and rebuilding efforts in Bosnia and Herzegovina, Iraq, Afghanistan, and Haiti, much of it drawing on our work at the U.S. Government Accountability Office (GAO), the nonpartisan, investigative arm of Congress. The lessons demonstrate how best to provide and help prevent corruption and fraud in future post-reconstruction scenarios.

Bosnia and Herzegovina

The 1992-95 war in Bosnia and Herzegovina, part of the former Federal Republic of Yugoslavia, was an ethnic conflict involving Bosnian Muslims, Serbs and Croats, as well as the Yugoslav army. The 3 1/2-year war killed over 250,000 people; forcibly displaced about 2.3 million; and damaged or destroyed the country’s physical, economic and political infrastructure. In an effort to restore peace, representatives from Croatia, the Federal Republic of Yugoslavia, Bosnia’s three major ethnic groups and leaders of the international community signed the Dayton Peace Agreement in December 1995. The agreement was designed to, among other things, stop the warring factions from fighting, return people to their pre-war homes, and rebuild Bosnia’s infrastructure — in short, to create a self-sustaining peace in a multiethnic Bosnia. (See “Bosnia Peace Operation: Crime and Corruption Threaten Successful Implementation of the Dayton Peace Agreement,” GAO, July 7, 2000.)

With the fighting over, the international community engaged in reconstruction efforts in the war-torn country. From January 1996 to December 1998 the primary focus of the civilian aspects of the Dayton Peace Agreement was on reconstruction efforts, but beginning in December 1998 the focus changed to building basic government institutions, such as the judicial system, and creating a free-market economy. The World Bank, the European Union, and the U.S. committed more than $4 billion from January 1996 through December 1999 to finance the international effort to implement the civilian aspects of the agreement. But there were serious hurdles from the outset.

As reported by GAO, according to U.S. and international officials involved, Bosnian leaders from all ethnic groups hadn’t demonstrated the political will to reform. Further, the institutional structure for law enforcement and public accountability continued to be inadequate, precluding successful prosecution of government fraud, corruption and complex white-collar crime. Moreover, GAO found that other studies and international donors concluded that the Bosnian judicial system was threatened by corruption and therefore institutionally incapable of effectively administering justice. As a result, endemic crime and corruption impeded the successful implementation of the economic, political and judicial reform goals of the Dayton Peace Agreement.

Along with hindering the success of reconstruction efforts, corruption resulted in demonstrable losses to the international donors. As examples, the U.S. struggled to recover approximately $900,000 in U.S. embassy operating funds and loan payments deposited in a bank that was involved in corrupt activities that led to its bankruptcy. Similarly, $340,000 in World Bank-provided funds were lost as a result of a procurement scheme perpetrated with fraudulent documents. Moreover, most of the $407 million international donors committed to the Bosnian entity governments for general budget support (i.e., monies that are added to the entities’ general revenues and are not earmarked for specific purposes) were not controlled or audited, which limited oversight and accountability for how these funds were spent.

Invasion of Iraq (2003)

After the U.S. overthrew Iraqi leader Saddam Hussein in 2003, reconstruction efforts began in earnest, along with programs to develop and sustain security forces for the country. But within just a few years (and after the U.S. had already spent tens of billions of dollars on reconstruction efforts), U.S. Comptroller General David M. Walker stated that “key goals have not been met” as part of his April 23, 2007, testimony to the Subcommittee on Defense, Committee on Appropriations, House of Representatives. (See “Stabilizing and Rebuilding Iraq, Conditions in Iraq Are Conducive to Fraud, Waste and Abuse,” by David M. Walker, GAO, April 23, 2007.)

“Corruption in Iraq is reportedly widespread and also poses a major challenge to building an effective Iraqi government,” Walker stated in his testimony. “Corruption jeopardizes future flows of needed international assistance and reportedly undermines the government’s ability to make effective use of current reconstruction assistance.”

Citing U.S. government and World Bank reports, Walker said there were several reasons for corruption in Iraq. These included (1) an ineffective banking system that left the government dependent on cash transactions; (2) obsolete ministry procurement systems that lacked transparency; and (3) ineffective, inadequately resourced accountability institutions, such as the ministries’ inspectors general.

Walker also noted that both U.S. officials and an international assessment had determined that the Iraqi government lacked adequate information technology and had difficulty managing their resources, which contributed to the corruption problem. “For example, U.S. officials said that the Ministry of Interior relies on manual processes such as handwritten ledgers and a cash-based payroll system that has resulted in Iraqi police leaving their posts to deliver cash to their families,” he said. “U.S. officials also estimated that 20 to 30 percent of the Ministry of Interior personnel were ‘ghost employees’—nonexistent staff paid salaries that are collected by other officials.”

Afghanistan War

The Afghanistan War began before the Iraq War, but lasted much longer — 13 years, in fact, of continuous hostilities that started with a U.S. campaign to topple the Taliban in 2001. During this time, the U.S. sought to rebuild core Afghan state institutions and protect the population using a U.S. troop presence in the country. But GAO would later detail some of the many things that went wrong in this costly rebuilding effort in a 2021 report. (See “Afghanistan Reconstruction: GAO Work since 2002 Shows Systemic Internal Control Weaknesses that Increased the Risk of Waste, Fraud, and Abuse,” GAO, Jan. 27, 2021.)

GAO found weak control structures and accountability in Afghanistan, as well as evidence of fraudulent behavior. In one case, lack of cooperation with local police commanders meant that U.S. contractors were unable to validate nearly 30,000 personnel in the Afghan Ministry of Interior and the national police force, who were paid $230 million partly through U.S. contributions to a UN trust fund.

GAO warned that a lack of information sharing among agencies, poor oversight and incomplete cost assessments all left reconstruction projects vulnerable to corruption and fraud. Road projects, which were a vital part of the reconstruction process, experienced all kinds of problems as a result. U.S. officials were sometimes unaware where DOD-funded road projects were built because of missing documentation and frequent staff turnover. And, according to allegations in one particular investigation, an official at the UN Office of Project Services (UNOPS) diverted hundreds of thousands of dollars in reconstruction funds to cover his rent, home renovations and the purchase of various luxury items. The Office of Inspector General at the United States Agency for International Development (USAID), which helped fund some of the UNOPS grants, also found that many of the projects had defects, warranty issues, design flaws and were sometimes incomplete.

In reflecting on U.S. experience in Afghanistan in 2016 and 2021, the Office of the Special Inspector General for Afghanistan Reconstruction (SIGAR) determined that after initially failing to appreciate the threat of corruption, U.S. government offered a limited response. Specifically, as spending increased, the U.S. initially failed to recognize the existential threat that corruption posed to the reconstruction effort, missing an opportunity to make anticorruption efforts a central part of its strategy.  SIGAR further reported that it would take years for the U.S. to realize that it was fueling corruption with its excessive spending and lack of oversight. SIGAR’s 2016 report also listed these key findings:


There is one major difference between Haiti and the other examples we’ve discussed in this article: Haiti wasn’t ravaged by war. Rather, it was a devastating earthquake in 2010.

There is one major difference between Haiti and the other examples we’ve discussed in this article: Haiti wasn’t ravaged by war. Rather, it was a devastating earthquake in 2010 that caused massive damage across the country and spurred an international effort to assist Haitians and help rebuild their country. The results, at best, have been mixed.

Haiti reconstruction, including development efforts by the U.S. government, encountered a range of challenges, not least being the country’s unstable political environment. In a 2015 report, “Haiti Reconstruction: USAID Has Achieved Mixed Results and Should Enhance Sustainability Planning,” GAO reported that “according to USAID planning documents for all reconstruction sectors, USAID/Haiti determined that the most significant risks to the sustainability of post-earthquake reconstruction activities were the Haitian government’s limited technical capacity, budgetary capacity, and willingness to support the completed activities and any needed reforms.” Specifically, the political will of Haitian government leaders to support necessary reforms as well as corruption within government that could undermine gains made through USAID/Haiti activities were among top concerns. (See “Haiti Reconstruction. USAID Has Achieved Mixed Results and Should Enhance Sustainability Planning,” GAO, June 2015.)

Haiti has continued to face corruption challenges for more than a decade following the earthquake. In 2017, the U.S. Department of State, in its “Status of Post-Earthquake Recovery and Development Efforts in Haiti,” reported that “although Haitian government continued to implement legal, administrative, and management reforms designed to increase accountability in several ministries and government institutions, the perception of corruption remained widespread in all branches and at all levels.” In 2022, the Department of State further reported that “Haitian law enforcement authorities and the government’s anticorruption agencies have launched several corruption investigations since January 2015, but no administration has prosecuted a high-level official for corruption.” (See “Status of Post-Earthquake Recovery and Development Efforts in Haiti, Attachment I,” U.S. Department of State and “Haiti: Reports, Appendix C,” U.S. Department of State.)

Breaking the cycle

Now that we understand what went wrong in these past reconstruction efforts, how can we avoid making the same mistakes in Ukraine and other locations?

As government auditors working on fraud, waste and abuse issues, we have examined both ineffective and successful approaches to mitigating misuse of entrusted resources. In our experience, organizations don’t always recognize that corruption and fraud behaviors are intertwined and, therefore, often misapply measures to mitigate them. Corruption spans a range of abusive behaviors — intentional misrepresentation or fraud, bribery, conflict of interest and other related behaviors. Far too often, if at all, organizations implement internal controls to address corruption and fraud reactively, in response to breaches or detected misuse. But that lacks a strategic approach and creates a patchwork of measures, some in conflict with each other.

As a consequence, beyond the outright diversion of funds from intended purposes, corruption can lead to broader public harm such as poor quality of products or unsafe infrastructure, undermining trust in government during reconstruction. The experience of international aid and development programs over many decades underscores these points, as their success or failure often hinged on the integrity and effectiveness of the societal and public institutions charged with implementation and oversight. As discussed above, GAO’s prior work has shown that reconstruction efforts in Bosnia and Herzegovina, Iraq, Afghanistan and Haiti have achieved mixed results and shown systemic internal control weaknesses that increased the risks of fraud, waste and abuse.

In contrast, organizations that effectively manage corruption risks domestically and internationally point us toward a preventive and strategic approach. In those reconstruction efforts, we can see the rewards of applying an accountability-based method and proactively designing accountability measures and oversight.

Principles to follow

Two sets of accountability principles are particularly relevant to reconstruction efforts. First, fraud risk management principles and leading practices in the U.S. are organized in the GAO’s July 2015 “A Framework for Managing Fraud Risks in Federal Programs” to help federal managers design program-specific approaches to manage fraud, waste and abuse risks. The framework consists of four components to manage fraud risks: a commitment to combating fraud, regular fraud risk assessments, designing and implementing a strategy to mitigate fraud risks, and evaluating and adapting to outcomes. These tenets can scale across programs, organizations and governments. (See Figure 1 below.) Additionally, international organizations, particularly the International Public Sector Fraud Forum, and other international audit and development organizations, issued guidance on countering both fraud and corruption against the public sector. (See “A Guide to Managing Fraud for Public Bodies,” International Public Sector Forum, February 2019.)

Figure 1

Second, asset recovery principles were developed by the Global Forum for Asset Recovery (GFAR), a platform of the World Bank’s Stolen Asset Recovery Initiative (STAR), to apply to disposition and transfer of confiscated stolen assets in corruption cases in countries like Nigeria or Kazakhstan. GFAR offers safeguards from funds being stolen again. Such principles include making public the use of funds, discouragement of unspecified fees, inclusion of civil society stakeholders and preclusion of benefits to offenders involved in original corrupt acts.

The preventive and strategic approach we advocate below is primarily based on these two sets of accountability principles. It will mitigate corruption risks in rebuilding efforts and should be incorporated by all public institutions involved in reconstruction — not just the bodies charged with a specific anticorruption mission. Specifically, as part of this approach, there should be:

  • Explicit expectations that public officials must safeguard funds. Although this responsibility appears obvious, all too frequently public officials perceive conflict between their priorities fulfilling their primary mission, such as issuing permits or grants, and establishing effective controls to safeguard public funds from improper use. Explicit expectations of public officials’ mission to proactively manage corruption risks would go a long way in ensuring that reconstruction funds serve their intended purposes.
  • Explicit roles and responsibilities. For all involved parties, designating, clearly defining and officially documenting roles and responsibilities — to include explicit integrity and ethical conduct statements — provides a baseline and expectations of conduct to compare against throughout the project or program. For example, spelling out the role of independent monitoring to include access rights can set expectations and avoid later conflicts for all parties and support future asset recovery, if needed.
  • Emphasis on prevention. Control activities to prevent, detect and respond to corruption are mutually reinforcing. For example, surprise audits also serve as deterrents. Still, preventive controls generally offer the most cost-efficient use of resources because they enable public officials to avoid a costly and inefficient pay-and-chase model to recover funds. Designing preventive controls for reconstruction, such as using identity and eligibility verification, and beneficial ownership and conflict of interest disclosures, would strengthen programs and contracts before funds are disbursed.
  • Explicit anticorruption controls. Regarding the use of funds, specifying the scope of allowable and unallowable use of funds — such as disallowing unspecified fee arrangements, facilitation fees, or use of funds by war criminals or entities on international sanctions or debarment lists — would set explicit preventive accountability controls. Similarly, if oligarchs were to be involved in the reconstruction and exerted improper influence, the following might go a long way in managing corruption risks: identifying specific risks, designing controls to shape parameters of the oligarch’s involvement, explicitly documenting such controls and adhering to them. Further, including clawback provisions to reclaim the funds already provided and documenting escalation and recourse mechanisms for suspected or detected corruption or fraud activity would serve both deterrence and response purposes, including asset recovery.
  • Transparency of decision-making and accounting. Making public the decisions of implementing organizations — such as procurement requirements, bidders and beneficial owners of selected entities — as well as funding and disbursements that provide sufficient level of detail would support meaningful public and civil society oversight. Such transparency would facilitate NGOs and investigative journalists placing a spotlight on potentially questionable decisions or accounting.

The approach above should encompass reconstruction efforts and involve the following key parties and their roles. (See Figure 2 below.)

  • Implementing organizations (government agencies, international or local nongovernmental organizations, contractors).
  • Oversight organizations (government inspectors and/or private independent auditors).
  • Civil society organizations (national and local nongovernmental groups to conduct independent monitoring).
  • Donor organizations and countries (international and multinational funders).

Figure 2

We believe public leaders, politicians, donors, civil society, and oversight organizations around the world can — and should — demand this preventive and strategic approach to facilitate successful and accountable rebuilding of countries’ services and infrastructure.

As with any risk management, this approach wouldn’t eliminate corruption entirely. However, proactive and strategic management of corruption risks for every project, program, or initiative stands the best chance to deliver on the opportunity to build accountable governance that serves the needs and aspirations of all people.

Latesha Love-Grayer, CFE, in the International Affairs and Trade team and Irina Carnevale and Toni Gillich, in the Forensic Audits and Investigative Service team, are auditors at the U.S. Government Accountability Office, the audit and investigative arm of U.S. Congress.