Federal and state audits do not increase compliance with a grant program to improve municipal infrastructure: A pre-registered field experiment

Abstract

Government audits usually have a broad mandate to monitor compliance with program rules. We conducted a field experiment in collaboration with Mexico’s Superior Auditor of the Federation to investigate if federal or state audits increase municipal compliance with the allocation, reporting, and transparency rules of an intergovernmental grant to improve local infrastructure. We randomly assigned 85 municipalities to be audited by a federal auditor, a state one, or a control group. We find that audits do not increase compliance and examine the reasons behind this null effect. Drawing from audit reports and a survey of municipal administrators, we show that, even though audits produced verifiable information and increased expectations of future audits, their effect on administrators’ perceived career prospects was limited. We conclude with a discussion of the policy implications of our results.