The Economist points to this great study, in terms of scientific approach and relevance to development. The paper (PDF) is mostly nontechnical (and is completely accessible to an economics major.) The study looks at road projects in Indonesia and compares actual expenditure with measured expenditure, working backward from the observed quality of the road. The difference between the two is the effect of corruption (pocketing project money that should have gone to purchasing materials and labor.) The experiment is made by introducing community-based monitoring and central government audit at random across the sample of projects, prior to the conduct of the projects.
It shows that - surprise! - officials respond to announcement of audit. This is observed within a corruption-prone society. More "modern" approaches, which relies on community-based monitoring, is found to be less effective, or effective only for controlling corruption with respect to labor purchases (which are observed by the community). Since only one-fourth of the road project is composed of labor, this is not very effective on controlling overall corruption.
Here's what you take home (from the author's conclusion):
By contrast, increasing grass-roots participation in monitoring the project affected only missing labor expenditures, with no impact on materials and, as a consequence, little impact overall. These results suggest that grass-roots monitoring may be more effective for government programs that provide private goods, such as subsidized food, education or medical care, where individual citizens have a personal stake in ensuring that the goods are delivered and that theft is minimized. For public goods where incentives to monitor are much weaker, such as the infrastructure projects studied here, the results suggest that using professional auditors may be much more effective. This does not mean that empowering community members to discipline service providers has no role in an anti-corruption approach. In fact, the results suggests that the audits were most effective when the village head was up for re-election, which suggests that local level accountability may be an important mechanism for disciplining public officials. However, the results suggest that grass-roots monitoring alone may not be sufficient, and that for detecting corruption professional monitors may also important. The results in this paper present the results from a short-run intervention. If auditors are bribable, over time villages may develop repeat relationships with auditors which may make bribing auditors easier than in the one-shot case examined here. This might suggest, for example, that frequent rotation of auditors – or lower probabilities of audits combined with higher punishments – may be optimal.