Audits are generally intended to monitor compliance with existing rules. However,
audits can also create unintended effects and incentives through the specific
protocol by which they are executed. In particular, audits can discourage the use
of complex administrative procedures with more rules for auditors to check. This
paper investigates the effects of procurement audits on public entities' choice of
purchase procedures in Chile. While the national procurement legislation tries to
promote the use of more transparent and competitive auctions rather than discretionary
direct contracts for selection of suppliers, auctions are significantly more
complex and the audit protocol mechanically leads to more scrutiny and a higher
probability of further investigation for auctions than for direct contracts. Using a
regression discontinuity design based on a scoring rule of the National Comptroller
Agency, we and that audits lead to a decrease in the use of auctions and a corresponding
increase in the use of direct contracts. In order to further test the
underlying mechanism, we develop a new approach to conduct subgroup analysis in
regression discontinuity designs while holding other observables constant.