The Failure of External Control on Public Utilities

Abstract

Although on average the cost of local public services is quite high, the same cannot always be said about their quality. Why is this so? This paper suggests that the answer lies in the failure of external control systems. Specifically, four types of risk have been identified: (1) standardisation that is either lacking or incongruent; (2) inappropriate relationships between controllers and the controlled; (3) cases of erosion and resistance to control; (4) incoherence between control aims and methods, and the skill of controllers. The research method was based partly on an analysis of literature and partly on empirical observation. Initially, a thorough examination of articles on the subject published in the main international journals was carried out. Then empirical research (limited to the Italian situation) was added to support the research hypotheses, and which led to the paper’s conclusions. The results may be significant from two points of view. Firstly, although in recent years financial scandals have been very much in the news (the cases of Enron, Argentine bonds, football club scandals) literature has not yet systematically dealt with control failure. Secondly, the conclusions may be of support to public administration policy-makers or to controllers who need to improve their professionalism and diligence.